1933 Act File No. 33-55034
1940 Act File No. 811-7364
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ..........
Post-Effective Amendment No. 14 ......... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 18 ...........................
MONEY MARKET OBLIGATIONS TRUST II
(Formerly, LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST)
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
-
X on March 31, 1997, pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i)
75 days after filing pursuant to paragraph (a)(ii)
on pursuant to paragraph (a)(ii) of Rule 485.
-----------------
If appropriate, check the following box:
X This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
X filed the Notice required by that Rule on March 20, 1997; or
intends to file the Notice required by that Rule on or about
; or
------------
X during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.
Copies to:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, DC 20037
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of MONEY MARKET
OBLIGATIONS TRUST II (formerly, Lehman Brothers Institutional Funds Group
Trust), which consists of three (3) portfolios, (1) Prime Cash Obligations
Fund (formerly, Prime Money Market Fund); (2) Prime Value Obligations Fund
(formerly, Prime Value Money Market Fund); and (3) Municipal Obligations
Fund (formerly, Municipal Money Market Fund), with each porfolio having
three (3) classes of shares, (a) Institutional Shares (formerly, Class A
Shares), (b) Institutional Service Shares (formerly, Class B Shares) and
(c) Institutional Capital Shares (formerly, Class E Shares), is comprised
of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page...............(1-3) Cover Page.
Item 2. Synopsis.................(1-3) Summary of Fund Expenses; (1-3)
Financial Highlights.
Item 3. Condensed Financial
Information.............(1-3) Performance Information.
Item 4. General Description of
Registrant..............(1-3) General Information; (1-3)
Investment Information; (1-3) Investment
Objective; (1-3) Investment Policies;
(1-3) Investment Risks; (1-3) Investment
Limitations; (3)Municipal Securities
(3).
Item 5. Management of the Fund...(1-3) Fund Information; (1-3) Management
of the Fund; (1-3) Distribution of
Institutional/Institutional
Service/Institutional Capital Shares;
(1-3) Administration of the Fund.
Item 6. Capital Stock and Other
Securities..............(1-3) Dividends; (1-3) Capital Gains;
(1-3) Account and Share Information; (1-
3) Voting Rights; (1-3) Federal Income
Tax; (1-3) State and Local Taxes; (1-3)
Other Classes of Shares; (1-3) Last
Meeting of Shareholders.
Item 7. Purchase of Securities Being
Offered.................(1-3) Net Asset Value; (1-3) How to
Purchase Shares; (1-3) Purchasing Shares
By Wire; (1-3) Purchasing Shares By
Check; (1-3) Invest-by-Phone;
Certificates and Confirmations; (1-3)
Shareholder Services.
Item 8. Redemption or Repurchase.(1-3) How to Redeem Shares;(1-3)
Redeeming Shares By Telephone; (1-3)
Redeeming Shares By Mail; (1-3) Accounts
with Low Balances.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page...............(1-3) Cover Page.
Item 11. Table of Contents........(1-3) Table of Contents.
Item 12. General Information and
History.................(1-3) About Federated Investors.
Item 13. Investment Objectives and
Policies................(1-3) Investment Policies; (1-3)
Investment Limitations; (1-3) Regulatory
Compliance.
Item 14. Management of the Fund...(1-3) Money Market Obligations Trust II
Management.
Item 15. Control Persons and Principal
Holders of Securities...(1-3) Share Ownership.
Item 16. Investment Advisory and Other
Services................(1-3) Investment Advisory Services; (1-
3) Other Services; (1-3) Shareholder
Services.
Item 17. Brokerage Allocation.....(1-3) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities..............(1-3) Massachusetts Partnership Law.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered...........(1-3) Determining Net Asset Value. (1-3)
Redemption in Kind.
Item 20. Tax Status...............(1-3) The Fund's Tax Status;.
Item 21. Underwriters.............Not Applicable.
Item 22. Calculation of Performance
Data....................(1-3) Performance Information.
Item 23. Financial Statements.....Filed in Part A.
MUNICIPAL OBLIGATIONS FUND
(A PORTFOLIO OF MONEY MARKET OBLIGATIONS TRUST II)
(FORMERLY, MUNICIPAL MONEY MARKET FUND, A PORTFOLIO OF
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST)
INSTITUTIONAL SHARES (FORMERLY, CLASS A SHARES)
PROSPECTUS
The Institutional Shares (formerly, Class A Shares) of Municipal Obligations
Fund (formerly, Municipal Money Market Fund) (the "Fund") offered by this
prospectus represent interests in a portfolio of Money Market Obligations Trust
II (formerly, Lehman Brothers Institutional Funds Group Trust) (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 March 31,
1997, 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 the Fund at
the address listed in the back of this prospectus. 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated March 31, 1997
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL
SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Municipal Securities 6
Investment Risks 6
Investment Limitations 7
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Institutional
Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 10
- ------------------------------------------------------
HOW TO REDEEM SHARES 11
- ------------------------------------------------------
ACCOUNT AND SHARE INFORMATION 12
- ------------------------------------------------------
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
State and Local Taxes 13
OTHER CLASSES OF SHARES 13
- ------------------------------------------------------
PERFORMANCE INFORMATION 14
- ------------------------------------------------------
LAST MEETING OF SHAREHOLDERS 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL
SERVICE SHARES 16
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL
CAPITAL SHARES 17
- ------------------------------------------------------
FINANCIAL STATEMENTS 18
- ------------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 37
- ------------------------------------------------------
ADDRESSES 38
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<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
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)......................................................................... 0.07%
12b-1 Fee................................................................................................. None
Total Other Expenses...................................................................................... 0.11%
Shareholder Services Fee (2).............................................................. 0.00%
Total Operating Expenses (3).............................................................................. 0.18%
</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
0.20%.
(2) Institutional Shares has no present intention of paying or accruing the
shareholder services fee during the fiscal year ending January 31, 1998. If
Institutional Shares were paying or accruing the shareholder services fee,
Institutional Shares would be able to pay up to 0.25% of its average daily
net assets for the shareholder services fee. See "Fund Information."
(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending January 31, 1998. The total
Institutional Shares operating expenses were 0.18% for fiscal year ended
January 31, 1997 and would have been 0.38% absent the voluntary waivers of
portions of the management fee, administrative fee, custodian fee, and
shareholder services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Shares of the
Fund will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Fund Information." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<S> <C> <C> <C> <C>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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............. $2 $6 $10 $23
</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 OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 37.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------- --------- --------- --------- -----------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------
Net investment income 0.04 0.04 0.03 0.02
- -------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------
Distributions from net investment income (0.04) (0.04) (0.03) (0.02)
- -------------------------------------------------------------------
Distributions from net realized gains (loss) -- (0.00)** -- --
- ------------------------------------------------------------------- --------- --------- --------- -----------
Total distributions (0.04) (0.04) (0.03) (0.02)
- ------------------------------------------------------------------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------- --------- --------- --------- -----------
TOTAL RETURN (B) 3.56% 4.03% 3.04% 2.46%
- -------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------
Expenses 0.18% 0.18% 0.15% 0.13%*
- -------------------------------------------------------------------
Net investment income 3.48% 3.95% 2.86% 2.53%*
- -------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.20% 0.12% 0.16% 0.38%*
- -------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------
Net assets, end of period (000 omitted) $159,561 $135,120 $93,595 $350,975
- -------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
** Amount represents less than $0.0001 per share.
(a) Reflects operations for the period from February 8, 1993 (date of initial
public investment) to January 31, 1994.
(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 16, 1992. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established three classes of shares known as Institutional Shares,
Institutional Service Shares and Institutional Capital Shares. This prospectus
relates only to Institutional Shares of the Fund, which are designed primarily
for entities holding shares in an agency or fiduciary capacity, financial
institutions, financial intermediaries and institutional investors as a
convenient means of accumulating an interest in a professionally managed
portfolio investing in short-term money market securities. A minimum initial
investment of $1,000,000 over a one-year period 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 may be changed by the Board of Trustees 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 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 to 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.
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.
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.
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.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and agrees that
on a stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an agreed
upon rate. The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but does not ensure this result. However, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the securities to be
purchased, are: segregated on the Fund's records at the trade date; marked to
market daily; and maintained until the transaction is settled.
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,
including non-negotiable time deposits and repurchase agreements providing for
settlement in more than seven days after notice to 10% of its net assets.
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 the
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. 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 contruct 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
obligations" 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
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 may not:
borrow money, except that the Fund may (i) borrow money for temporary or
emergency purposes (not for leveraging or investment) from banks, or
subject to specific authorization by the SEC, from funds advised by the
adviser or an affiliate of the adviser, and (ii) engage in reverse
repurchase agreements; provided that (i) and (ii) in combination do not
exceed one-third of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings). The Fund may
not mortgage, pledge or hypothecate any assets except in connection with
such borrowings and reverse repurchase agreements and then only in
amounts not exceeding one-third of the value of the Fund's total assets
at the time of such borrowing; or
purchase any securities which would cause 25% or more of the value of its
total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, or in industrial development bonds or
other securities, the interest upon which is paid from revenues of
similar types of projects (unless the Fund is in a temporary defensive
position); provided that there is no limitation with respect to
investments in U.S. government securities.
The above investment limitations cannot be changed without shareholder approval.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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
Management, 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 0.20% of the Fund's average daily net assets. 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 Management, 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 Management 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 $110 billion invested across
over 300 funds under management and/or administration by its subsidiaries,
as of December 31, 1996, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 2,000
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,500
financial institutions nationwide.
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 INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional 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.
ADMINISTRATION OF THE FUND
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement
with Federated Shareholder Services, a subsidiary of Federated Investors, under
which the Fund may make payments up to 0.25% of the average daily net asset
value of its shares, computed at an annual rate, to obtain certain personal
services for shareholders and to maintain shareholder accounts. From time to
time and for such periods as deemed appropriate, the amount stated above may be
reduced voluntarily. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares 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 Fund and Federated Shareholder
Services.
Currently, Institutional Shares are accruing no shareholder services fees.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their 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.
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 specified below:
<TABLE>
<CAPTION>
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS
<S> <C>
.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 shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Shares from the value of Fund assets attributable to Institutional Shares, and
dividing the remainder by the number of Institutional 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 on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Fund reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $1,000,000. However, an account may be opened with
a smaller amount as long as the minimum is reached within one year of opening
the account. Financial institutions may impose different minimum investment
requirements on their customers.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve 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) that 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 Obligations
Fund--Institutional Shares; 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 Obligations Fund--Institutional
Shares. 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.
INVEST-BY-PHONE. Once an account has been opened, a shareholder may use
invest-by-phone for investments if an authorization form has been filed with
Federated Shareholder Services Company, the transfer agent for shares of the
Fund. Approximately two weeks after sending the form to Federated Shareholder
Services Company, the shareholder may call Federated Shareholder Services
Company to purchase shares. Federated Shareholder Services Company will send a
request for monies to the shareholder's commercial bank, savings bank, or credit
union ("bank") via the Automated Clearing House. The shareholder's bank, which
must be an Automated Clearing House member, will then forward the monies to
Federated Shareholder Services Company. The purchase is normally entered the
next business day after the initial phone request. For further information and
an application, call the Fund.
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 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. 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 and the class designation; 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.
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. Shares purchased by
wire before 3:00 p.m. (Eastern time) begin earning dividends that day. Shares
purchased by check begin earning dividends the day after the check is converted
into federal funds.
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 $1,000,000 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 all classes of each portfolio in the Trust
have equal voting rights, except that in matters affecting only a particular
portfolio or class, only shareholders of that portfolio or class 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.
As of March 10, 1997, River Oaks Trust Company, Houston, organized in the state
of Texas owned 27.22% of the voting securities of the Fund, and, therefore, may,
for certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders.
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, Donnelly & Meck, 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.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers other classes. Institutional Service Shares are sold at net
asset value primarily to financial institutions, financial intermediaries and
institutional investors and are subject to a minimum initial investment of
$1,000,000. Institutional Capital Shares are sold at net asset value primarily
to financial institutions, financial intermediaries and institutional investors
and are subject to a minimum initial investment of $1,000,000.
All classes are subject to certain of the same expenses.
Neither Institutional Service Shares nor Institutional Capital Shares are
distributed with a 12b-1 Plan but both are subject to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield and total
return. The performance figures will be calculated separately for each class of
shares.
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 shares 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.
LAST MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
A Special Meeting of Municipal Money Market Fund, a portfolio of Lehman Brothers
Institutional Funds Group Trust was held on November 13, 1996. On October 11,
1996, the record date for shareholders voting at the meeting, there were
186,801,093 total outstanding shares. The following items were considered by
shareholders and the results of their voting were as follows:
<TABLE>
<CAPTION>
WITHHELD
AGENDA ITEM FOR AGAINST ABSTAIN AUTHORITY TO VOTE
<S> <C> <C> <C> <C>
1. Approval of the Investment Advisory Agreement between
Federated Management and the Trust with respect to the
Fund 96,738,939 -0- -0- -0-
2. Election of Trustees
John F. Donahue 96,738,939 -0- -0- -0-
Thomas G. Bigley 96,738,939 -0- -0- -0-
John T. Conroy, Jr. 96,738,939 -0- -0- -0-
William J. Copeland 96,738,939 -0- -0- -0-
J. Christopher Donahue 96,738,939 -0- -0- -0-
James E. Dowd 96,738,939 -0- -0- -0-
Lawrence D. Ellis, M.D. 96,738,939 -0- -0- -0-
Edward L. Flaherty, Jr. 96,738,939 -0- -0- -0-
Peter E. Madden 96,738,939 -0- -0- -0-
Gregor F. Meyer 96,738,939 -0- -0- -0-
John E. Murray, Jr. 96,738,939 -0- -0- -0-
Wesley W. Posvar 96,738,939 -0- -0- -0-
Marjorie P. Smuts 96,738,939 -0- -0- -0-
</TABLE>
MUNICIPAL OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1997(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- --------------------------------------------------------------------------------------------------- -------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------
Net investment income 0.03
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------
Distributions from net investment income (0.03)
- --------------------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 1.00
- --------------------------------------------------------------------------------------------------- -------
TOTAL RETURN (B) 3.31%
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------
Expenses 0.43%
- ---------------------------------------------------------------------------------------------------
Net investment income 3.08%
- ---------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.21%
- ---------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 0.30
- ---------------------------------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from February 1, 1996 (date of initial
public offering) to January 31, 1997.
(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)
MUNICIPAL OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL CAPITAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1997(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- --------------------------------------------------------------------------------------------------- -------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------
Net investment income 0.03
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------
Distributions from net investment income (0.03)
- --------------------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 1.00
- --------------------------------------------------------------------------------------------------- -------
TOTAL RETURN (B) 3.42%
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------
Expenses 0.30%
- ---------------------------------------------------------------------------------------------------
Net investment income 2.90%
- ---------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.35%
- ---------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 0.30
- ---------------------------------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from February 1, 1996 (date of initial
public offering) to January 31, 1997.
(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)
MUNICIPAL OBLIGATIONS FUND
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(A) SHORT-TERM MUNICIPALS--101.2%
- ------------------------------------------------------------------------------------------------
ARIZONA--0.8%
---------------------------------------------------------------------------------
$ 1,350,000 Maricopa County, AZ Unified School District No. 11, (Series A), 4.40% TANs,
7/31/1997 $ 1,353,189
--------------------------------------------------------------------------------- --------------
ARKANSAS--0.6%
---------------------------------------------------------------------------------
1,000,000 Arkadelphia, AR, Industrial Development Revenue Bonds (Series 1996) Weekly VRDNs
(Siplast, Inc.)/(Den Danske Bank A/S LOC) 1,000,000
--------------------------------------------------------------------------------- --------------
CALIFORNIA--0.9%
---------------------------------------------------------------------------------
1,500,000 San Bernardino County, CA, 4.50% TRANs (Landesbank
Hessen-Thueringen, Frankfurt and Toronto-Dominion
Bank LOCs), 6/30/1997 1,503,684
--------------------------------------------------------------------------------- --------------
COLORADO--3.5%
---------------------------------------------------------------------------------
3,375,000 (b)Colorado Municipal Securities Trust, Series 1996B Weekly VRDNs (Colorado
Health Facilities Authority)/(MBIA Insurance Corporation INS)/(Norwest Bank
Minnesota, Minneapolis LIQ) 3,375,000
---------------------------------------------------------------------------------
2,200,000 Colorado State General Fund, 4.50% TRANs, 6/27/1997 2,206,449
--------------------------------------------------------------------------------- --------------
Total 5,581,449
--------------------------------------------------------------------------------- --------------
DISTRICT OF COLUMBIA--1.5%
---------------------------------------------------------------------------------
2,400,000 District of Columbia Housing Finance Agency, Multi-Family Housing Revenue Bonds
(1995 Series A) Weekly VRDNs (Tyler House)/(PNC Bank, N.A. LOC) 2,400,000
--------------------------------------------------------------------------------- --------------
FLORIDA--2.1%
---------------------------------------------------------------------------------
2,400,000 Ocean Highway and Port Authority, Revenue Bonds (Series 1990) Weekly VRDNs (ABN
AMRO Bank N.V., Amsterdam LOC) 2,400,000
---------------------------------------------------------------------------------
1,000,000 Orange County, FL HFA, (Series 1996B), 3.65% TOBs (Westdeutsche Landesbank
Girozentrale INV), Mandatory Tender 4/1/1997 1,000,000
--------------------------------------------------------------------------------- --------------
Total 3,400,000
--------------------------------------------------------------------------------- --------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(A) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
GEORGIA--3.5%
---------------------------------------------------------------------------------
$ 1,500,000 Bowdon, GA Development Authority Weekly VRDNs (Trintex Corporation)/(First Union
National Bank, Charlotte, N.C. LOC) $ 1,500,000
---------------------------------------------------------------------------------
3,000,000 Coweta County, GA IDA, (Series 1995) Weekly VRDNs (Lanelco L.L.C. Project)/(NBD
Bank, Michigan LOC) 3,000,000
---------------------------------------------------------------------------------
1,000,000 Franklin County, GA Industrial Building Authority, (Series 1995) Weekly VRDNs
(Bosal Industries, Inc.)/(ABN AMRO Bank N.V., Amsterdam LOC) 1,000,000
--------------------------------------------------------------------------------- --------------
Total 5,500,000
--------------------------------------------------------------------------------- --------------
HAWAII--2.8%
---------------------------------------------------------------------------------
4,500,000 Hawaii Secondary Market Services Corp., Student Loan Revenue Bonds (Senior 1995
Series II) Weekly VRDNs (National Westminster Bank, PLC, London LOC) 4,500,000
--------------------------------------------------------------------------------- --------------
ILLINOIS--3.7%
---------------------------------------------------------------------------------
300,000 Chicago O'Hare International Airport, Special Facility Revenue Bonds (Series
1990) Weekly VRDNs (Compagnie Nationale Air France Project)/(Societe Generale,
Paris LOC) 300,000
---------------------------------------------------------------------------------
1,400,000 Illinois Development Finance Authority, (Series 1989) Weekly VRDNs (Addison 450
Limited Partnership)/(American National Bank, Chicago LOC) 1,400,000
---------------------------------------------------------------------------------
1,900,000 Illinois Development Finance Authority, Industrial Development Revenue Bonds
(Series 1996) Weekly VRDNs (Bimba Manufacturing Company)/(Harris Trust & Savings
Bank, Chicago LOC) 1,900,000
---------------------------------------------------------------------------------
1,000,000 Illinois Development Finance Authority, Sewerage Facility Revenue Bonds (Series
1993) Weekly VRDNs (The NutraSweet Company)/ (Monsanto Co. GTD) 1,000,000
---------------------------------------------------------------------------------
700,000 Illinois Student Assistance Commission, (Series 1996A) Weekly VRDNs (Bank of
America Illinois LOC) 700,000
---------------------------------------------------------------------------------
600,000 Southwestern Illinois Development Authority, (Series 1991) Weekly VRDNs (Robinson
Steel Co.)/(American National Bank, Chicago LOC) 600,000
--------------------------------------------------------------------------------- --------------
Total 5,900,000
--------------------------------------------------------------------------------- --------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(A) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
INDIANA--4.0%
---------------------------------------------------------------------------------
$ 150,000 Indiana Economic Development Commission, Economic Development Revenue Bonds
(Series 1988) Daily VRDNs (Mobel Inc.)/(Credit Commercial De France, Paris LOC) $ 150,000
---------------------------------------------------------------------------------
1,200,000 Indiana Economic Development Commission, Economic Development Revenue Bonds
(Series 1988) Daily VRDNs (Shadeland Avenue Associates)/(Credit Commercial De
France, Paris LOC) 1,200,000
---------------------------------------------------------------------------------
1,000,000 Indiana Secondary Market For Education Loans, Inc., Education Loan Revenue Bonds
(Series 1988B) Weekly VRDNs (AMBAC INS)/ (Student Loan Marketing Association LIQ) 1,000,000
---------------------------------------------------------------------------------
4,000,000 Tippecanoe County, IN Economic Development Revenue, (Series 1991) Weekly VRDNs
(Consolidated Industries Inc.)/(Chemical Bank, New York LOC) 4,000,000
--------------------------------------------------------------------------------- --------------
Total 6,350,000
--------------------------------------------------------------------------------- --------------
KENTUCKY--8.6%
---------------------------------------------------------------------------------
1,000,000 Graves County, KY, School Building Revenue Bonds (Series 1988) Weekly VRDNs
(Seaboard Farms Project)/(Bank of New York, New York LOC) 1,000,000
---------------------------------------------------------------------------------
1,560,000 Jefferson County, KY, Industrial Building Revenue Refunding Bonds (Series 1987)
Weekly VRDNs (National City Bank, Kentucky LOC) 1,560,000
---------------------------------------------------------------------------------
5,000,000 Kentucky Pollution Abatement & Water Resource Finance Authority Daily VRDNs
(Toyota Motor Credit Corp.) 5,000,000
---------------------------------------------------------------------------------
2,500,000 Louisville, KY, Airport Lease Revenue Bonds (Series 1989B) Weekly VRDNs (National
City Bank, Kentucky LOC) 2,500,000
---------------------------------------------------------------------------------
3,600,000 Mayfield, KY, (Series 1989) Weekly VRDNs (Seaboard Farms Project)/(SunTrust Bank,
Atlanta LOC) 3,600,000
--------------------------------------------------------------------------------- --------------
Total 13,660,000
--------------------------------------------------------------------------------- --------------
LOUISIANA--0.6%
---------------------------------------------------------------------------------
1,000,000 Louisiana State Recovery District, Sales Tax Revenue Bonds, 3.90% Bonds (United
States Treasury COL)/(FGIC INS), 7/1/1997 1,000,000
--------------------------------------------------------------------------------- --------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(A) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
MAINE--0.3%
---------------------------------------------------------------------------------
$ 485,000 Lewiston, ME, (Series A), 6.00% Bonds (FSA INS), 3/1/1997 $ 485,954
--------------------------------------------------------------------------------- --------------
MARYLAND--1.8%
---------------------------------------------------------------------------------
1,400,000 Carroll County, MD, Variable Rate Economic Development Refunding Revenue Bonds
(Series 1995B) Weekly VRDNs (Evapco, Inc. Project)/(Nationsbank of Maryland, N.A.
LOC) 1,400,000
---------------------------------------------------------------------------------
1,400,000 Montgomery County, MD Weekly VRDNs (Information Systems and Networks
Corporation)/(PNC Bank, N.A. LOC) 1,400,000
--------------------------------------------------------------------------------- --------------
Total 2,800,000
--------------------------------------------------------------------------------- --------------
MASSACHUSETTS--2.4%
---------------------------------------------------------------------------------
670,000 Marblehead, MA, 4.25% Bonds, 2/1/1997 670,000
---------------------------------------------------------------------------------
1,100,000 New Bedford, MA, 4.50% RANs (Fleet National Bank, Providence, R.I. LOC),
6/30/1997 1,102,373
---------------------------------------------------------------------------------
1,000,000 Springfield, MA, 4.50% BANs (Fleet National Bank, Providence, R.I. LOC),
6/27/1997 1,001,921
---------------------------------------------------------------------------------
1,000,000 Springfield, MA, 4.60% BANs, 7/11/1997 1,002,105
--------------------------------------------------------------------------------- --------------
Total 3,776,399
--------------------------------------------------------------------------------- --------------
MINNESOTA--6.3%
---------------------------------------------------------------------------------
10,000,000 Minnesota State Higher Education Coordinating Board, 1992
(Series C) Weekly VRDNs (First Bank NA, Minneapolis LIQ) 10,000,000
--------------------------------------------------------------------------------- --------------
MISSISSIPPI--6.9%
---------------------------------------------------------------------------------
1,168,000 Greenville, MS IDA Weekly VRDNs (Mebane Packaging Corp)/ (First Union National
Bank, Charlotte, N.C. LOC) 1,168,000
---------------------------------------------------------------------------------
4,500,000 Mississippi Business Finance Corp., (Series 1995) Weekly VRDNs (Mississippi
Baking Company L.L.C. Project)/(First National Bank of Maryland, Baltimore LOC) 4,500,000
---------------------------------------------------------------------------------
5,400,000 Mississippi Business Finance Corp., Series 1995 Weekly VRDNs (Schuller
International, Inc.)/(Bank of New York, New York LOC) 5,400,000
--------------------------------------------------------------------------------- --------------
Total 11,068,000
--------------------------------------------------------------------------------- --------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(A) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
MISSOURI--3.1%
---------------------------------------------------------------------------------
$ 3,000,000 Missouri Higher Education Loan Authority, (Series 1988A) Weekly VRDNs (National
Westminster Bank, PLC, London LOC) $ 3,000,000
---------------------------------------------------------------------------------
1,900,000 Missouri State HEFA, (Series 1996D), 4.50% TRANs (Rockwood R-VI School District),
9/8/1997 1,906,589
--------------------------------------------------------------------------------- --------------
Total 4,906,589
--------------------------------------------------------------------------------- --------------
NEVADA--0.4%
---------------------------------------------------------------------------------
700,000 Nevada State Department of Community & Industrial Development Weekly VRDNs
(Kinplex Company Project)/(Credit Commercial De France, Paris LOC) 700,000
--------------------------------------------------------------------------------- --------------
NEW JERSEY--2.0%
---------------------------------------------------------------------------------
20,000 New Jersey EDA, (Series A) Weekly VRDNs (325 Midland Avenue, LLC & Wearbest
Sil-Tex, Ltd.)/(Bank of New York, New York LOC) 20,000
---------------------------------------------------------------------------------
45,000 New Jersey EDA, (Series B) Weekly VRDNs (325 Midland Avenue, LLC & Wearbest
Sil-Tex, Ltd.)/(Bank of New York, New York LOC) 45,000
---------------------------------------------------------------------------------
3,090,000 (b)New Jersey Housing & Mortgage Financing Authority, (Series
1989-D), 3.80% TOBs (MBIA Insurance Corporation INS)/(Citibank
NA, New York LIQ), Optional Tender 4/1/1997 3,090,000
--------------------------------------------------------------------------------- --------------
Total 3,155,000
--------------------------------------------------------------------------------- --------------
NEW MEXICO--1.2%
---------------------------------------------------------------------------------
1,955,000 New Mexico Educational Asistance Foundation, (Series A), 6.05% Bonds (AMBAC INS),
4/1/1997 1,961,283
--------------------------------------------------------------------------------- --------------
NEW YORK--6.7%
---------------------------------------------------------------------------------
1,547,250 Geneva, NY, 4.125% BANs, 1/15/1998 1,553,284
---------------------------------------------------------------------------------
2,134,000 Groton Central School District, NY, 4.125% BANs, 1/21/1998 2,142,465
---------------------------------------------------------------------------------
2,000,000 New York City, NY, (Series B), 4.50% RANs (Bank of Nova Scotia, Toronto, Canadian
Imperial Bank of Commerce, Toronto and Commerzbank AG, Frankfurt LOCs), 6/30/1997 2,005,972
---------------------------------------------------------------------------------
1,000,000 North Babylon Union Free School District, NY, 4.40% TANs,
6/26/1997 1,001,499
---------------------------------------------------------------------------------
1,000,000 Royalton-Hartland, NY CSD, 4.50% BANs, 8/15/1997 1,002,566
---------------------------------------------------------------------------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(A) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
NEW YORK--CONTINUED
---------------------------------------------------------------------------------
$ 3,000,000 Sodus Central School District, NY, 4.00% BANs, 2/4/1998 $ 3,005,760
--------------------------------------------------------------------------------- --------------
Total 10,711,546
--------------------------------------------------------------------------------- --------------
NORTH CAROLINA--1.8%
---------------------------------------------------------------------------------
2,800,000 Person County, NC Industrial Facilities & Pollution Control Financing Authority
Daily VRDNs (Carolina Power & Light Co.)/ (Fuji Bank, Ltd., Tokyo LOC) 2,800,000
--------------------------------------------------------------------------------- --------------
NORTH DAKOTA--0.9%
---------------------------------------------------------------------------------
1,500,000 North Dakota State HFA, (Series C), 3.45% Bonds (FGIC INV),
4/3/1997 1,500,000
--------------------------------------------------------------------------------- --------------
OHIO--4.4%
---------------------------------------------------------------------------------
4,000,000 Brookville, OH, (Series 1988) Weekly VRDNs (Green Tokai)/(Bank of
Tokyo-Mitsubishi Ltd. LOC) 4,000,000
---------------------------------------------------------------------------------
1,000,000 Cincinnati, OH Student Loan Funding Corp., (Series 1992C), 5.25% Bonds, 7/1/1997 1,004,575
---------------------------------------------------------------------------------
2,030,000 Ohio HFA, (CR-18), (Series 1988A), 3.90% TOBs (GNMA COL)/ (Citibank NA, New York
LIQ), Mandatory Tender 2/1/1997 2,030,000
--------------------------------------------------------------------------------- --------------
Total 7,034,575
--------------------------------------------------------------------------------- --------------
OREGON--1.8%
---------------------------------------------------------------------------------
1,000,000 Oregon State Housing and Community Services Department,
(Series G), 4.05% TOBs, Mandatory Tender 8/1/1997 1,000,000
---------------------------------------------------------------------------------
805,000 Oregon State, Economic Devlopment Revenue Bonds (Series 1988C) Weekly VRDNs
(Jepco Development Inc.)/(First Interstate Bank of Oregon NA LOC) 805,000
---------------------------------------------------------------------------------
990,000 Oregon State, Economic Devlopment Revenue Bonds (Series 1988B) Weekly VRDNs
(Domaine Drouhin Oregon, Inc.)/(First Interstate Bank of Oregon NA LOC) 990,000
--------------------------------------------------------------------------------- --------------
Total 2,795,000
--------------------------------------------------------------------------------- --------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(A) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
PENNSYLVANIA--7.0%
---------------------------------------------------------------------------------
$ 3,000,000 Clinton County, PA IDA, Solid Waste Disposal Revenue Bonds (Series 1992A), 3.75%
TOBs (International Paper Co.), Optional Tender 1/15/1998 $ 3,000,000
---------------------------------------------------------------------------------
4,000,000 (b)Pennsylvania Housing Finance Authority, 3.85% TOBs (First National Bank of
Chicago LIQ), Optional Tender 4/1/1997 4,000,000
---------------------------------------------------------------------------------
100,000 Pennsylvania State Higher Education Assistance Agency Weekly VRDNs (Fuji Bank,
Ltd., Tokyo LOC) 100,000
---------------------------------------------------------------------------------
2,000,000 Philadelphia, PA School District, 4.50% TRANs, 6/30/1997 2,003,931
---------------------------------------------------------------------------------
2,000,000 Philadelphia, PA, (Series A of 1996-1997), 4.50% TRANs, 6/30/1997 2,004,314
--------------------------------------------------------------------------------- --------------
Total 11,108,245
--------------------------------------------------------------------------------- --------------
SOUTH CAROLINA--5.2%
---------------------------------------------------------------------------------
700,000 South Carolina Job Development Authority, (Series 1987) Weekly VRDNs (Jewish
Community Center)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 700,000
---------------------------------------------------------------------------------
400,000 South Carolina Job Development Authority, (Series 1988A) Weekly VRDNs (Kent
Manufacturing Company)/(Credit Commercial De France, Paris LOC) 400,000
---------------------------------------------------------------------------------
400,000 South Carolina Job Development Authority, (Series 1988B) Weekly VRDNs (Seacord
Corporation)/(Credit Commercial De France, Paris LOC) 400,000
---------------------------------------------------------------------------------
550,000 South Carolina Job Development Authority, (Series 1990) Weekly VRDNs (NMFO
Associates)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 550,000
---------------------------------------------------------------------------------
1,100,000 South Carolina Job Development Authority, (Series 1990) Weekly VRDNs (Old
Claussen's Bakery)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 1,100,000
---------------------------------------------------------------------------------
650,000 South Carolina Job Development Authority, (Series 1990) Weekly VRDNs (Rice Street
Association)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 650,000
---------------------------------------------------------------------------------
1,105,000 South Carolina Job Development Authority, (Series B) Weekly VRDNs (Osmose Wood
Preserving)/(Credit Commercial De France, Paris LOC) 1,105,000
---------------------------------------------------------------------------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(A) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
SOUTH CAROLINA--CONTINUED
---------------------------------------------------------------------------------
$ 3,410,000 York County, SC IDA, Industrial Development Revenue Bonds (Series1989) Weekly
VRDNs (Sediver Inc)/(Banque Nationale de Paris LOC) $ 3,410,000
--------------------------------------------------------------------------------- --------------
Total 8,315,000
--------------------------------------------------------------------------------- --------------
TENNESSEE--2.8%
---------------------------------------------------------------------------------
1,900,000 Collierville, TN IDB, Industrial Development Revenue Bonds (Series 1994) Weekly
VRDNs (Ardco, Inc.)/(Harris Trust & Savings Bank, Chicago LOC) 1,900,000
---------------------------------------------------------------------------------
500,000 Metropolitan Nashville, TN Airport Authority, Passenger Facilities Revenue Bonds,
4.80% Bonds (FGIC INS), 7/1/1997 501,494
---------------------------------------------------------------------------------
2,000,000 Oak Ridge, TN IDB, Solid Waste Facility Bonds (Series 1996) Weekly VRDNs (M4
Environmental L.P. Project)/(SunTrust Bank, Atlanta LOC) 2,000,000
--------------------------------------------------------------------------------- --------------
Total 4,401,494
--------------------------------------------------------------------------------- --------------
TEXAS--6.5%
---------------------------------------------------------------------------------
6,000,000 Brazos River Authority, TX, (Series 1996C) Daily VRDNs (Texas Utilities Electric
Co.)/(AMBAC INS)/(Bank of New York, New York LIQ) 6,000,000
---------------------------------------------------------------------------------
700,000 Capital Health Facilities Development Corp of Texas, Health Facilities
Development Revenue Bonds (Series 1986) Weekly VRDNs (The Island on Lake Travis,
Ltd.)/(Credit Suisse, Zurich LOC) 700,000
---------------------------------------------------------------------------------
3,700,000 Gulf Coast, TX IDA, Marine Terminal Revenue Bonds (Series 1993) Daily VRDNs
(Amoco Corp.) 3,700,000
--------------------------------------------------------------------------------- --------------
Total 10,400,000
--------------------------------------------------------------------------------- --------------
UTAH--1.7%
---------------------------------------------------------------------------------
400,000 Salt Lake City, UT, Subordinated Airport Revenue Bonds (Series 1994A) Weekly
VRDNs (Credit Suisse, Zurich LOC) 400,000
---------------------------------------------------------------------------------
800,000 Utah State Board of Regents, Student Loan Revenue Bonds (Series 1993A) Weekly
VRDNs (Student Loan Marketing Association LOC) 800,000
---------------------------------------------------------------------------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(A) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
UTAH--CONTINUED
---------------------------------------------------------------------------------
$ 1,535,000 Utah State School District Financing Cooperative, 8.375% TOBs, Mandatory Tender
2/15/1997 $ 1,537,758
--------------------------------------------------------------------------------- --------------
Total 2,737,758
--------------------------------------------------------------------------------- --------------
VIRGINIA--1.4%
---------------------------------------------------------------------------------
1,000,000 Richmond, VA Redevelopment & Housing Authority, (Series B-9) Weekly VRDNs
(Richmond, VA Red Tabacco Row)/(Bayerische Landesbank Girozentrale LOC) 1,000,000
---------------------------------------------------------------------------------
1,300,000 Virginia Peninsula Port Authority Daily VRDNs (Kinyo Virginia, Inc.)/(Industrial
Bank of Japan Ltd., Tokyo LOC) 1,300,000
--------------------------------------------------------------------------------- --------------
Total 2,300,000
--------------------------------------------------------------------------------- --------------
WASHINGTON--0.7%
---------------------------------------------------------------------------------
1,095,000 Washington State Housing Finance Commission, Single-Family Program Bonds (1996
Series 1A-S), 3.80% TOBs, Mandatory Tender 6/2/1997 1,095,000
--------------------------------------------------------------------------------- --------------
WEST VIRGINIA--0.7%
---------------------------------------------------------------------------------
1,100,000 Fayette County, WV, Solid Waste Disposal Facility Revenue Bonds (Series 1995)
Weekly VRDNs (Georgia-Pacific Corp.)/(Industrial Bank of Japan Ltd., Tokyo LOC) 1,100,000
--------------------------------------------------------------------------------- --------------
WISCONSIN--1.3%
---------------------------------------------------------------------------------
2,100,000 Sun Prairie, WI Area School District, 4.25% TRANs, 8/22/1997 2,105,151
--------------------------------------------------------------------------------- --------------
WYOMING--1.3%
---------------------------------------------------------------------------------
2,000,000 Uinta County, WY, PCR Bonds (Series 1984), 3.80% TOBs (Chevron U.S.A.,
Inc.)/(Chevron U.S.A., Inc. GTD), Optional Tender 6/15/1997 2,000,000
--------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 161,405,316
--------------------------------------------------------------------------------- --------------
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 74.8% of the
portfolio as calculated based upon total portfolio market value.
(a) 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. A
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1, ands F-2 by Fitch Investors Service, 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 January 31, 1997, the portfolio securities were rated as follows:
TIER RATING PERCENT BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<S> <C>
95.66% 4.34%
</TABLE>
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At January 31, 1997, the securities amounted
to $10,465,000, which represents 6.6% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($159,561,778) at January 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
BANs--Bond Anticipation Notes
COL--Collateralized
CSD--Central School District
EDA--Economic Development Authority
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance
GNMA--Government National Mortgage Association
GTD--Guaranty
HEFA--Health and Education Facilities Authority
HFA--Housing Finance Authority
IDA--Industrial Development Authority
IDB--Industrial Development Bond
INS--Insured
INV--Investment Agreement
LIQ--Liquidity Agreement
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
LOCs--Letter(s) of Credit
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance
PCR--Pollution Control Revenue
PLC--Public Limited Company
RANs--Revenue Anticipation Notes
TANs--Tax Anticipation Notes
TOBs--Tender Option Bonds
TRANs--Tax and Revenue Anticipation Notes
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL OBLIGATIONS FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $ 161,405,316
- -------------------------------------------------------------------------------------------------
Cash 5,703,599
- -------------------------------------------------------------------------------------------------
Income receivable 1,288,612
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 10,819,217
- ------------------------------------------------------------------------------------------------- --------------
Total assets 179,216,744
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------
Payable for investments purchased $ 3,005,760
- ----------------------------------------------------------------------------------
Payable for shares redeemed 16,245,879
- ----------------------------------------------------------------------------------
Income distribution payable 380,348
- ----------------------------------------------------------------------------------
Accrued expenses 22,979
- ---------------------------------------------------------------------------------- -------------
Total liabilities 19,654,966
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 159,537,449 shares outstanding $ 159,561,778
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
- -------------------------------------------------------------------------------------------------
$159,561,180 / 159,536,851 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
INSTITUTIONAL SERVICE SHARES:
- -------------------------------------------------------------------------------------------------
$299 / 299 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
INSTITUTIONAL CAPITAL SHARES:
- -------------------------------------------------------------------------------------------------
$299 / 299 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL OBLIGATIONS FUND
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest $ 6,645,653
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee $ 363,536
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 163,201
- ---------------------------------------------------------------------------------------
Custodian fees 63,131
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 29,456
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 2,870
- ---------------------------------------------------------------------------------------
Auditing fees 12,505
- ---------------------------------------------------------------------------------------
Legal fees 2,143
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 17,899
- ---------------------------------------------------------------------------------------
Shareholder services fee--Institutional Capital Shares 420
- ---------------------------------------------------------------------------------------
Distribution Fee--Class C Shares 4,020
- ---------------------------------------------------------------------------------------
Shareholder registration costs 23,287
- ---------------------------------------------------------------------------------------
Printing and postage 1,272
- ---------------------------------------------------------------------------------------
Insurance premiums 3,093
- ---------------------------------------------------------------------------------------
Miscellaneous 11,648
- --------------------------------------------------------------------------------------- -----------
Total expenses 698,481
- ---------------------------------------------------------------------------------------
Waivers--
- --------------------------------------------------------------------------
Waiver of investment advisory fee $ (238,796)
- --------------------------------------------------------------------------
Waiver of administrative personnel and services fee (100,933)
- --------------------------------------------------------------------------
Waiver of custodian fee (26,250)
- --------------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Capital Shares (252)
- -------------------------------------------------------------------------- -----------
Total waivers (366,231)
- --------------------------------------------------------------------------------------- -----------
Net expenses 332,250
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 6,313,403
- ---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ----------------------------------------------------------------------------------------------------
Net realized loss on investments (32,313)
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 6,281,090
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL OBLIGATIONS FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 31, 1997 JANUARY 31, 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------
Net investment income $ 6,313,403 $ 6,815,881
- -----------------------------------------------------------------------
Net realized gain (loss) on investments (32,313) 30,323
- ----------------------------------------------------------------------- ------------------- -------------------
Change in net assets resulting from operations 6,281,090 6,846,204
- ----------------------------------------------------------------------- ------------------- -------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------------
Distributions from net investment income:
- -----------------------------------------------------------------------
Institutional Shares (6,272,384) (6,749,439)
- -----------------------------------------------------------------------
Institutional Service Shares (4) --
- -----------------------------------------------------------------------
Institutional Capital Shares (4,848) --
- -----------------------------------------------------------------------
Class C Shares (36,167) (60,733)
- -----------------------------------------------------------------------
Distributions from net realized gains:
- -----------------------------------------------------------------------
Institutional Shares -- (5,653)
- -----------------------------------------------------------------------
Class C Shares -- (56)
- ----------------------------------------------------------------------- ------------------- -------------------
Change in net assets resulting from distributions to shareholders (6,313,403) (6,815,881)
- ----------------------------------------------------------------------- ------------------- -------------------
CAPITAL CONTRIBUTION-- 32,313 --
- ----------------------------------------------------------------------- ------------------- -------------------
SHARE TRANSACTIONS--
- -----------------------------------------------------------------------
Proceeds from sale of shares 3,319,509,601 2,866,960,080
- -----------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 1,279,467 1,821,823
- -----------------------------------------------------------------------
Cost of shares redeemed (3,298,316,597) (2,825,318,501)
- ----------------------------------------------------------------------- ------------------- -------------------
Change in net assets resulting from share transactions 22,472,471 43,463,402
- ----------------------------------------------------------------------- ------------------- -------------------
Change in net assets 22,472,471 43,493,725
- -----------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------
Beginning of period 137,089,307 93,595,582
- ----------------------------------------------------------------------- ------------------- -------------------
End of period $ 159,561,778 $ 137,089,307
- ----------------------------------------------------------------------- ------------------- -------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL OBLIGATIONS FUND
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Money Market Obligations Trust II (the "Trust"), (formerly, Lehman Brothers
Institutional Funds Group 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 three portfolios. The financial statements included herein
are only those of Municipal Obligations Fund (the "Fund"), (formerly, Municipal
Money Market 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 dividend income exempt from
federal regular income tax consistent with stability of principal.
The Fund offers three classes of shares: Institutional Shares (formerly, Class A
Shares), Institutional Service Shares (formerly, Class B Shares), and
Institutional Capital Shares (formerly Class E Shares). As of November 15, 1996,
the Fund's Class C Shares were no longer operational.
(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.
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 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 Investment Company Act of 1940.
Additional information on each restricted security held at January 31, 1997
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Colorado Municipal Securities Trust 11/19/96 $ 3,375,000
New Jersey Housing & Mortgage Financing Authority 10/02/96 3,090,000
Pennsylvania Housing Finance Authority 10/01/96 4,000,000
</TABLE>
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 ($0.001 par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
<S> <C> <C>
INSTITUTIONAL SHARES 1997 1996
- ------------------------------------------------------------------------------ ---------------- ----------------
Shares sold 3,310,319,398 2,859,696,960
- ------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 1,275,572 1,821,819
- ------------------------------------------------------------------------------
Shares redeemed (3,287,154,333) (2,820,023,841)
- ------------------------------------------------------------------------------ ---------------- ----------------
Net change resulting from Institutional Share transactions 24,440,637 41,494,938
- ------------------------------------------------------------------------------ ---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES 1997 1996
- ------------------------------------------------------------------------------ ---------------- ----------------
Shares sold 300 --
- ------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 1 --
- ------------------------------------------------------------------------------
Shares redeemed (102) --
- ------------------------------------------------------------------------------ ---------------- ----------------
Net change resulting from Institutional Service Share transactions 199 --
- ------------------------------------------------------------------------------ ---------------- ----------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL CAPITAL SHARES 1997 1996
<S> <C> <C>
- ------------------------------------------------------------------------------ ---------------- ----------------
Shares sold 5,039,630 --
- ------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 3,892 --
- ------------------------------------------------------------------------------
Shares redeemed (5,043,323) --
- ------------------------------------------------------------------------------ ---------------- ----------------
Net change resulting from Institutional Capital Share transactions 199 --
- ------------------------------------------------------------------------------ ---------------- ----------------
<CAPTION>
YEAR ENDED JANUARY 31,
CLASS C SHARES 1997(B) 1996(A)
<S> <C> <C>
- ------------------------------------------------------------------------------ ---------------- ----------------
Shares sold 4,150,273 7,263,120
- ------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 2 4
- ------------------------------------------------------------------------------
Shares redeemed (6,118,839) (5,294,660)
- ------------------------------------------------------------------------------ ---------------- ----------------
Net change resulting from Class C Share transactions (1,968,564) 1,968,464
- ------------------------------------------------------------------------------ ---------------- ----------------
Net change resulting from share transactions 22,472,471 43,463,402
- ------------------------------------------------------------------------------ ---------------- ----------------
</TABLE>
(a) For the period from April 18, 1995 (date of initial public offering) to
January 31, 1996.
(b) As of November 15, 1996, the Fund's Class C Shares were no longer
operational.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.20% 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.
Federated Management became the Fund's investment adviser on November 15, 1996.
Prior to November 15, 1996, Lehman Brothers Global Asset Management, Inc. (the
"Former Adviser") served as the Fund's investment adviser.
For the period ended January 31, 1997, the advisers earned fees as follows:
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
ADVISER FEE EARNED FEE WAIVED
<S> <C> <C>
Federated Management $ 76,352 $ 76,352
- ---------------------------------------------------------------------------------- ------------- --------------
Lehman Brothers Global Asset Management $ 287,184 $ 162,444
- ---------------------------------------------------------------------------------- ------------- --------------
</TABLE>
CAPITAL CONTRIBUTION--The Former Adviser made a capital contribution to the Fund
on November 15, 1996, of an amount equal to the accumulated net realized loss on
investments balance carried by the Fund.
This transaction resulted in a permanent book and tax difference. As such, the
paid-in-capital and accumulated net realized gain/loss accounts have been
adjusted accordingly. This adjustment did not affect net investment income, net
realized gains/losses, or 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. FServ became the Fund's
administrator on November 15, 1996. Prior to November 15, 1996, First Data
Investors Services Group, Inc. ("FDISG") served as the Fund's administrator.
For the period ended January 31, 1997, the administrators earned fees as
follows:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
ADMINISTRATOR FEE EARNED FEE WAIVED
<S> <C> <C>
FServ $ 19,609 $ --
- ---------------------------------------------------------------------------------- ------------- --------------
FDISG $ 143,592 $ 100,933
- ---------------------------------------------------------------------------------- ------------- --------------
</TABLE>
DISTRIBUTION SERVICES FEE--Pursuant to Rule 12b-1 under the Act, as amended, the
Fund had adopted Distribution Agreements ("Service Agreements") with
institutional investors such as banks, savings and loan associations and other
financial institutions with respect to the Fund's former Class B, Class C and
Class E Shares. All such Service Agreements were terminated effective November
15, 1996. Prior to November 15, 1996, Lehman Brothers, Inc., acted as the Fund's
distributor.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS") the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. There is no present
intention of paying or accruing the Shareholders Services Fee for the
Institutional Shares. The fee paid to FSS is used to finance certain services
for shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion. FSS became the Fund's
shareholder servicing agent on November 15, 1996.
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. FSSC
became the Fund's transfer and dividend disbursing agent on November 15, 1996.
Prior to November 15, 1996, FDISG served as the Fund's transfer and dividend
disbursing agent.
For the period ended January 31, 1997, the transfer and dividend disbursing
agents earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
TRANSFER AND DIVIDEND DISBURSING AGENT FEE EARNED FEE WAIVED
<S> <C> <C>
FSSC $ 4,521 $ --
- ---------------------------------------------------------------------------------- ------------- --------------
FDISG $ 24,935 $ --
- ---------------------------------------------------------------------------------- ------------- --------------
</TABLE>
PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting records for
which it receives a fee. The fee is based on the level of the Trust's average
daily net assets for the period, plus out-of-pocket expenses. All portfolio
accounting fees for the period ended January 31, 1997 were paid to FServ.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of
MUNICIPAL OBLIGATIONS FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Municipal Obligations Fund, formerly Municipal
Money Market Fund (a portfolio of Money Market Obligations Trust II, formerly a
Portfolio of Lehman Brothers Institutional Funds Group Trust) as of January 31,
1997, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Municipal Obligations Fund at January 31, 1997, and the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and financial highlights for each of the
periods indicated therein, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 14, 1997
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Municipal Obligations Fund
Institutional Shares Federated Investors Tower
Pittsburgh, PA 15222-3779
- ------------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, PA 15222-3779
- ------------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management 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 Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, PA 15219
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
MUNICIPAL
OBLIGATIONS FUND
(FORMERLY, MUNICIPAL MONEY
MARKET FUND)
INSTITUTIONAL SHARES
(FORMERLY, CLASS A SHARES)
PROSPECTUS
A Portfolio of Money Market Obligations
Trust II (formerly, Lehman Brothers
Institutional
Funds Group Trust), an Open-End
Management
Investment Company
Prospectus dated March 31, 1997
[LOGO FEDERATED INVESTORS]
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[LOGO]
Cusip 608912101
G01881-05-IS (3/97)
MUNICIPAL OBLIGATIONS FUND
(A PORTFOLIO OF MONEY MARKET OBLIGATIONS TRUST II)
(FORMERLY, MUNICIPAL MONEY MARKET FUND, A PORTFOLIO OF
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST)
INSTITUTIONAL SERVICE SHARES (FORMERLY, CLASS B SHARES)
PROSPECTUS
The Institutional Service Shares (formerly, Class B Shares) of Municipal
Obligations Fund (formerly, Municipal Money Market Fund) (the "Fund") offered by
this prospectus represent interests in a portfolio of Money Market Obligations
Trust II (formerly, Lehman Brothers Institutional Funds Group Trust) (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 March 31,
1997, 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 the Fund at
the address listed in the back of this prospectus. 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated March 31, 1997
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Municipal Securities 6
Investment Risks 6
Investment Limitations 7
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Institutional Service
Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 10
- ------------------------------------------------------
HOW TO REDEEM SHARES 11
- ------------------------------------------------------
ACCOUNT AND SHARE INFORMATION 12
- ------------------------------------------------------
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
State and Local Taxes 13
OTHER CLASSES OF SHARES 13
- ------------------------------------------------------
PERFORMANCE INFORMATION 14
- ------------------------------------------------------
LAST MEETING OF SHAREHOLDERS 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL
SHARES 16
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL
CAPITAL SHARES 17
- ------------------------------------------------------
FINANCIAL STATEMENTS 18
- ------------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 37
- ------------------------------------------------------
ADDRESSES 38
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<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
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)......................................................................... 0.07%
12b-1 Fee................................................................................................. None
Total Other Expenses...................................................................................... 0.36%
Shareholder Services Fee.................................................................. 0.25%
Total Operating Expenses (2).............................................................................. 0.43%
</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
0.20%.
(2) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending January 31, 1998. The total
Institutional Service Shares operating expenses were 0.43% for fiscal year
ended January 31, 1997 and would have been 0.64% absent the voluntary
waivers of portions of the management fee, administrative fee, custodian
fee and shareholder services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Service Shares of
the Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Fund 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............. $4 $14 $24 $54
</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 OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 37.
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1997(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- --------------------------------------------------------------------------------------------------- -------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------
Net investment income 0.03
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------
Distributions from net investment income (0.03)
- --------------------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 1.00
- --------------------------------------------------------------------------------------------------- -------
TOTAL RETURN (B) 3.31%
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------
Expenses 0.43%
- ---------------------------------------------------------------------------------------------------
Net investment income 3.08%
- ---------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.21%
- ---------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 0.30
- ---------------------------------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from February 1, 1996 (date of initial
public offering) to January 31, 1997.
(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 16, 1992. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established three classes of shares known as Institutional Shares,
Institutional Service Shares and Institutional Capital Shares. This prospectus
relates only to Institutional Service Shares of the Fund, which are designed
primarily for financial institutions, financial intermediaries and institutional
investors as a convenient means of accumulating an interest in a professionally
managed portfolio investing in short-term money market securities. A minimum
initial investment of $1,000,000 over a one-year period 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 may be changed by the Board of Trustees 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 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 to 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.
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.
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.
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.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and agrees that
on a stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an agreed
upon rate. The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but does not ensure this result. However, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the securities to be
purchased, are: segregated on the Fund's records at the trade date; marked to
market daily; and maintained until the transaction is settled.
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,
including non-negotiable time deposits and repurchase agreements providing for
settlement in more than seven days after notice to 10% of its net assets.
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 the
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. 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 contruct 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
obligations" 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
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 may not:
borrow money, except that the Fund may (i) borrow money for temporary or
emergency purposes (not for leveraging or investment) from banks, or
subject to specific authorization by the SEC, from funds advised by the
adviser or an affiliate of the adviser, and (ii) engage in reverse
repurchase agreements; provided that (i) and (ii) in combination do not
exceed one-third of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings). The Fund may
not mortgage, pledge or hypothecate any assets except in connection with
such borrowings and reverse repurchase agreements and then only in
amounts not exceeding one-third of the value of the Fund's total assets
at the time of such borrowing; or
purchase any securities which would cause 25% or more of the value of its
total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, or in industrial development bonds or
other securities, the interest upon which is paid from revenues of
similar types of projects (unless the Fund is in a temporary defensive
position); provided that there is no limitation with respect to
investments in U.S. government securities.
The above investment limitations cannot be changed without shareholder approval.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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
Management, 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 0.20% of the Fund's average daily net assets. 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 Management, 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 Management 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 $110 billion invested across
over 300 funds under management and/or administration by its subsidiaries,
as of December 31, 1996, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 2,000
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,500
financial institutions nationwide.
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 INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service 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.
ADMINISTRATION OF THE FUND
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement
with Federated Shareholder Services, a subsidiary of Federated Investors, under
which the Fund may make payments up to 0.25% of the average daily net asset
value of its shares, computed at an annual rate, to obtain certain personal
services for shareholders and to maintain shareholder accounts. From time to
time and for such periods as deemed appropriate, the amount stated above may be
reduced voluntarily. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares 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 Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their 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.
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 specified below:
<TABLE>
<CAPTION>
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS
<S> <C>
.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 shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Service Shares from the value of Fund assets attributable to Institutional
Service Shares, and dividing the remainder by the number of Institutional
Service 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 on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Fund reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $1,000,000. However, an account may be opened with
a smaller amount as long as the minimum is reached within one year of opening
the account. Financial institutions may impose different minimum investment
requirements on their customers.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve 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) that 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 Obligations
Fund--Institutional Service Shares; 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 Obligations Fund--Institutional
Service Shares. 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.
INVEST-BY-PHONE. Once an account has been opened, a shareholder may use
invest-by-phone for investments if an authorization form has been filed with
Federated Shareholder Services Company, the transfer agent for shares of the
Fund. Approximately two weeks after sending the form to Federated Shareholder
Services Company, the shareholder may call Federated Shareholder Services
Company to purchase shares. Federated Shareholder Services Company will send a
request for monies to the shareholder's commercial bank, savings bank, or credit
union ("bank") via the Automated Clearing House. The shareholder's bank, which
must be an Automated Clearing House member, will then forward the monies to
Federated Shareholder Services Company. The purchase is normally entered the
next business day after the initial phone request. For further information and
an application, call the Fund.
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 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. 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 and the class designation; 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.
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. Shares purchased by
wire before 3:00 p.m. (Eastern time) begin earning dividends that day. Shares
purchased by check begin earning dividends the day after the check is converted
into federal funds.
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 $1,000,000 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 all classes of each portfolio in the Trust
have equal voting rights, except that in matters affecting only a particular
portfolio or class, only shareholders of that portfolio or class 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.
As of March 10, 1997, Peoples Bank, Bridgeport, organized in the state of
Connecticut owned 99.97% of the voting securities of the Fund, and, therefore,
may, for certain purposes, be deemed to control the Fund and be able to affect
the outcome of certain matters presented for a vote of shareholders.
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, Donnelly & Meck, 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.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers other classes. Institutional Shares are sold at net asset
value primarily to entities holding shares in an agency or fiduciary capacity,
financial institutions, financial intermediaries and institutional investors and
are subject to a minimum initial investment of $1,000,000. Institutional Capital
Shares are sold at net asset value primarily to financial institutions,
financial intermediaries and institutional investors and are subject to a
minimum initial investment of $1,000,000.
All classes are subject to certain of the same expenses.
Neither Institutional Shares nor Institutional Capital Shares are distributed
with a 12b-1 Plan but both are subject to shareholder services fees. Currently,
Institutional Shares are accruing no shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield and total
return. The performance figures will be calculated separately for each class of
shares.
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 shares 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.
LAST MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
A Special Meeting of Municipal Money Market Fund, a portfolio of Lehman Brothers
Institutional Funds Group Trust was held on November 13, 1996. On October 11,
1996, the record date for shareholders voting at the meeting, there were
186,801,093 total outstanding shares. The following items were considered by
shareholders and the results of their voting were as follows:
<TABLE>
<CAPTION>
WITHHELD
AGENDA ITEM FOR AGAINST ABSTAIN AUTHORITY TO VOTE
<S> <C> <C> <C> <C>
1. Approval of the Investment Advisory Agreement between
Federated Management and the Trust with respect to the
Fund 96,738,939 -0- -0- -0-
2. Election of Trustees
John F. Donahue 96,738,939 -0- -0- -0-
Thomas G. Bigley 96,738,939 -0- -0- -0-
John T. Conroy, Jr. 96,738,939 -0- -0- -0-
William J. Copeland 96,738,939 -0- -0- -0-
J. Christopher Donahue 96,738,939 -0- -0- -0-
James E. Dowd 96,738,939 -0- -0- -0-
Lawrence D. Ellis, M.D. 96,738,939 -0- -0- -0-
Edward L. Flaherty, Jr. 96,738,939 -0- -0- -0-
Peter E. Madden 96,738,939 -0- -0- -0-
Gregor F. Meyer 96,738,939 -0- -0- -0-
John E. Murray, Jr. 96,738,939 -0- -0- -0-
Wesley W. Posvar 96,738,939 -0- -0- -0-
Marjorie P. Smuts 96,738,939 -0- -0- -0-
</TABLE>
MUNICIPAL OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------
Net investment income 0.04 0.04 0.03 0.02
- -------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------
Distributions from net investment income (0.04) (0.04) (0.03) (0.02)
- -------------------------------------------------------------------
Distributions from net realized gains -- (0.00)** -- --
- ------------------------------------------------------------------- --------- --------- --------- ---------
Total Distributions (0.04) (0.04) (0.03) (0.02)
- ------------------------------------------------------------------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------- --------- --------- --------- ---------
TOTAL RETURN (B) 3.56% 4.03% 3.04% 2.46%
- -------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------
Expenses 0.18% 0.18% 0.15% 0.13%*
- -------------------------------------------------------------------
Net investment income 3.48% 3.95% 2.86% 2.53%*
- -------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.20% 0.12% 0.16% 0.38%*
- -------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------
Net assets, end of period (000 omitted) $159,561 $135,120 $93,595 $350,975
- -------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
** Amount represents less than $0.0001 per share.
(a) Reflects operations for the period from February 8, 1993 (date of initial
public investments) to January 31, 1994.
(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)
MUNICIPAL OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL CAPITAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1997(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- --------------------------------------------------------------------------------------------------- -------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------
Net investment income 0.03
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------
Distributions from net investment income (0.03)
- --------------------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 1.00
- --------------------------------------------------------------------------------------------------- -------
TOTAL RETURN (b) 3.42%
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------
Expenses 0.30%
- ---------------------------------------------------------------------------------------------------
Net investment income 2.90%
- ---------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.35%
- ---------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 0.30
- ---------------------------------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from February 1, 1996 (date of initial
public offering) to January 31, 1997.
(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)
MUNICIPAL OBLIGATIONS FUND
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(a) SHORT-TERM MUNICIPALS--101.2%
- ------------------------------------------------------------------------------------------------
ARIZONA--0.8%
---------------------------------------------------------------------------------
$ 1,350,000 Maricopa County, AZ Unified School District No. 11, (Series A), 4.40% TANs,
7/31/1997 $ 1,353,189
--------------------------------------------------------------------------------- --------------
ARKANSAS--0.6%
---------------------------------------------------------------------------------
1,000,000 Arkadelphia, AR, Industrial Development Revenue Bonds (Series 1996) Weekly VRDNs
(Siplast, Inc.)/(Den Danske Bank A/S LOC) 1,000,000
--------------------------------------------------------------------------------- --------------
CALIFORNIA--0.9%
---------------------------------------------------------------------------------
1,500,000 San Bernardino County, CA, 4.50% TRANs (Landesbank
Hessen-Thueringen, Frankfurt and Toronto-Dominion
Bank LOCs), 6/30/1997 1,503,684
--------------------------------------------------------------------------------- --------------
COLORADO--3.5%
---------------------------------------------------------------------------------
3,375,000 (b)Colorado Municipal Securities Trust, Series 1996B Weekly VRDNs (Colorado
Health Facilities Authority)/(MBIA Insurance Corporation INS)/(Norwest Bank
Minnesota, Minneapolis LIQ) 3,375,000
---------------------------------------------------------------------------------
2,200,000 Colorado State General Fund, 4.50% TRANs, 6/27/1997 2,206,449
--------------------------------------------------------------------------------- --------------
Total 5,581,449
--------------------------------------------------------------------------------- --------------
DISTRICT OF COLUMBIA--1.5%
---------------------------------------------------------------------------------
2,400,000 District of Columbia Housing Finance Agency, Multi-Family Housing Revenue Bonds
(1995 Series A) Weekly VRDNs (Tyler House)/(PNC Bank, N.A. LOC) 2,400,000
--------------------------------------------------------------------------------- --------------
FLORIDA--2.1%
---------------------------------------------------------------------------------
2,400,000 Ocean Highway and Port Authority, Revenue Bonds (Series 1990) Weekly VRDNs (ABN
AMRO Bank N.V., Amsterdam LOC) 2,400,000
---------------------------------------------------------------------------------
1,000,000 Orange County, FL HFA, (Series 1996B), 3.65% TOBs (Westdeutsche Landesbank
Girozentrale INV), Mandatory Tender 4/1/1997 1,000,000
--------------------------------------------------------------------------------- --------------
Total 3,400,000
--------------------------------------------------------------------------------- --------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
GEORGIA--3.5%
---------------------------------------------------------------------------------
$ 1,500,000 Bowdon, GA Development Authority Weekly VRDNs (Trintex Corporation)/(First Union
National Bank, Charlotte, N.C. LOC) $ 1,500,000
---------------------------------------------------------------------------------
3,000,000 Coweta County, GA IDA, (Series 1995) Weekly VRDNs (Lanelco L.L.C. Project)/(NBD
Bank, Michigan LOC) 3,000,000
---------------------------------------------------------------------------------
1,000,000 Franklin County, GA Industrial Building Authority, (Series 1995) Weekly VRDNs
(Bosal Industries, Inc.)/(ABN AMRO Bank N.V., Amsterdam LOC) 1,000,000
--------------------------------------------------------------------------------- --------------
Total 5,500,000
--------------------------------------------------------------------------------- --------------
HAWAII--2.8%
---------------------------------------------------------------------------------
4,500,000 Hawaii Secondary Market Services Corp., Student Loan Revenue Bonds (Senior 1995
Series II) Weekly VRDNs (National Westminster Bank, PLC, London LOC) 4,500,000
--------------------------------------------------------------------------------- --------------
ILLINOIS--3.7%
---------------------------------------------------------------------------------
300,000 Chicago O'Hare International Airport, Special Facility Revenue Bonds (Series
1990) Weekly VRDNs (Compagnie Nationale Air France Project)/(Societe Generale,
Paris LOC) 300,000
---------------------------------------------------------------------------------
1,400,000 Illinois Development Finance Authority, (Series 1989) Weekly VRDNs (Addison 450
Limited Partnership)/(American National Bank, Chicago LOC) 1,400,000
---------------------------------------------------------------------------------
1,900,000 Illinois Development Finance Authority, Industrial Development Revenue Bonds
(Series 1996) Weekly VRDNs (Bimba Manufacturing Company)/(Harris Trust & Savings
Bank, Chicago LOC) 1,900,000
---------------------------------------------------------------------------------
1,000,000 Illinois Development Finance Authority, Sewerage Facility Revenue Bonds (Series
1993) Weekly VRDNs (The NutraSweet Company)/ (Monsanto Co. GTD) 1,000,000
---------------------------------------------------------------------------------
700,000 Illinois Student Assistance Commission, (Series 1996A) Weekly VRDNs (Bank of
America Illinois LOC) 700,000
---------------------------------------------------------------------------------
600,000 Southwestern Illinois Development Authority, (Series 1991) Weekly VRDNs (Robinson
Steel Co.)/(American National Bank, Chicago LOC) 600,000
--------------------------------------------------------------------------------- --------------
Total 5,900,000
--------------------------------------------------------------------------------- --------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
INDIANA--4.0%
---------------------------------------------------------------------------------
$ 150,000 Indiana Economic Development Commission, Economic Development Revenue Bonds
(Series 1988) Daily VRDNs (Mobel Inc.)/(Credit Commercial De France, Paris LOC) $ 150,000
---------------------------------------------------------------------------------
1,200,000 Indiana Economic Development Commission, Economic Development Revenue Bonds
(Series 1988) Daily VRDNs (Shadeland Avenue Associates)/(Credit Commercial De
France, Paris LOC) 1,200,000
---------------------------------------------------------------------------------
1,000,000 Indiana Secondary Market For Education Loans, Inc., Education Loan Revenue Bonds
(Series 1988B) Weekly VRDNs (AMBAC INS)/ (Student Loan Marketing Association LIQ) 1,000,000
---------------------------------------------------------------------------------
4,000,000 Tippecanoe County, IN Economic Development Revenue, (Series 1991) Weekly VRDNs
(Consolidated Industries Inc.)/(Chemical Bank, New York LOC) 4,000,000
--------------------------------------------------------------------------------- --------------
Total 6,350,000
--------------------------------------------------------------------------------- --------------
KENTUCKY--8.6%
---------------------------------------------------------------------------------
1,000,000 Graves County, KY, School Building Revenue Bonds (Series 1988) Weekly VRDNs
(Seaboard Farms Project)/(Bank of New York, New York LOC) 1,000,000
---------------------------------------------------------------------------------
1,560,000 Jefferson County, KY, Industrial Building Revenue Refunding Bonds (Series 1987)
Weekly VRDNs (National City Bank, Kentucky LOC) 1,560,000
---------------------------------------------------------------------------------
5,000,000 Kentucky Pollution Abatement & Water Resource Finance Authority Daily VRDNs
(Toyota Motor Credit Corp.) 5,000,000
---------------------------------------------------------------------------------
2,500,000 Louisville, KY, Airport Lease Revenue Bonds (Series 1989B) Weekly VRDNs (National
City Bank, Kentucky LOC) 2,500,000
---------------------------------------------------------------------------------
3,600,000 Mayfield, KY, (Series 1989) Weekly VRDNs (Seaboard Farms Project)/(SunTrust Bank,
Atlanta LOC) 3,600,000
--------------------------------------------------------------------------------- --------------
Total 13,660,000
--------------------------------------------------------------------------------- --------------
LOUISIANA--0.6%
---------------------------------------------------------------------------------
1,000,000 Louisiana State Recovery District, Sales Tax Revenue Bonds, 3.90% Bonds (United
States Treasury COL)/(FGIC INS), 7/1/1997 1,000,000
--------------------------------------------------------------------------------- --------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
MAINE--0.3%
---------------------------------------------------------------------------------
$ 485,000 Lewiston, ME, (Series A), 6.00% Bonds (FSA INS), 3/1/1997 $ 485,954
--------------------------------------------------------------------------------- --------------
MARYLAND--1.8%
---------------------------------------------------------------------------------
1,400,000 Carroll County, MD, Variable Rate Economic Development Refunding Revenue Bonds
(Series 1995B) Weekly VRDNs (Evapco, Inc. Project)/(Nationsbank of Maryland, N.A.
LOC) 1,400,000
---------------------------------------------------------------------------------
1,400,000 Montgomery County, MD Weekly VRDNs (Information Systems and Networks
Corporation)/(PNC Bank, N.A. LOC) 1,400,000
--------------------------------------------------------------------------------- --------------
Total 2,800,000
--------------------------------------------------------------------------------- --------------
MASSACHUSETTS--2.4%
---------------------------------------------------------------------------------
670,000 Marblehead, MA, 4.25% Bonds, 2/1/1997 670,000
---------------------------------------------------------------------------------
1,100,000 New Bedford, MA, 4.50% RANs (Fleet National Bank, Providence, R.I. LOC),
6/30/1997 1,102,373
---------------------------------------------------------------------------------
1,000,000 Springfield, MA, 4.50% BANs (Fleet National Bank, Providence, R.I. LOC),
6/27/1997 1,001,921
---------------------------------------------------------------------------------
1,000,000 Springfield, MA, 4.60% BANs, 7/11/1997 1,002,105
--------------------------------------------------------------------------------- --------------
Total 3,776,399
--------------------------------------------------------------------------------- --------------
MINNESOTA--6.3%
---------------------------------------------------------------------------------
10,000,000 Minnesota State Higher Education Coordinating Board, 1992
(Series C) Weekly VRDNs (First Bank NA, Minneapolis LIQ) 10,000,000
--------------------------------------------------------------------------------- --------------
MISSISSIPPI--6.9%
---------------------------------------------------------------------------------
1,168,000 Greenville, MS IDA Weekly VRDNs (Mebane Packaging Corp)/ (First Union National
Bank, Charlotte, N.C. LOC) 1,168,000
---------------------------------------------------------------------------------
4,500,000 Mississippi Business Finance Corp., (Series 1995) Weekly VRDNs (Mississippi
Baking Company L.L.C. Project)/(First National Bank of Maryland, Baltimore LOC) 4,500,000
---------------------------------------------------------------------------------
5,400,000 Mississippi Business Finance Corp., Series 1995 Weekly VRDNs (Schuller
International, Inc.)/(Bank of New York, New York LOC) 5,400,000
--------------------------------------------------------------------------------- --------------
Total 11,068,000
--------------------------------------------------------------------------------- --------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
MISSOURI--3.1%
---------------------------------------------------------------------------------
$ 3,000,000 Missouri Higher Education Loan Authority, (Series 1988A) Weekly VRDNs (National
Westminster Bank, PLC, London LOC) $ 3,000,000
---------------------------------------------------------------------------------
1,900,000 Missouri State HEFA, (Series 1996D), 4.50% TRANs (Rockwood R-VI School District),
9/8/1997 1,906,589
--------------------------------------------------------------------------------- --------------
Total 4,906,589
--------------------------------------------------------------------------------- --------------
NEVADA--0.4%
---------------------------------------------------------------------------------
700,000 Nevada State Department of Community & Industrial Development Weekly VRDNs
(Kinplex Company Project)/(Credit Commercial De France, Paris LOC) 700,000
--------------------------------------------------------------------------------- --------------
NEW JERSEY--2.0%
---------------------------------------------------------------------------------
20,000 New Jersey EDA, (Series A) Weekly VRDNs (325 Midland Avenue, LLC & Wearbest
Sil-Tex, Ltd.)/(Bank of New York, New York LOC) 20,000
---------------------------------------------------------------------------------
45,000 New Jersey EDA, (Series B) Weekly VRDNs (325 Midland Avenue, LLC & Wearbest
Sil-Tex, Ltd.)/(Bank of New York, New York LOC) 45,000
---------------------------------------------------------------------------------
3,090,000 (b)New Jersey Housing & Mortgage Financing Authority, (Series
1989-D), 3.80% TOBs (MBIA Insurance Corporation INS)/(Citibank
NA, New York LIQ), Optional Tender 4/1/1997 3,090,000
--------------------------------------------------------------------------------- --------------
Total 3,155,000
--------------------------------------------------------------------------------- --------------
NEW MEXICO--1.2%
---------------------------------------------------------------------------------
1,955,000 New Mexico Educational Asistance Foundation, (Series A), 6.05% Bonds (AMBAC INS),
4/1/1997 1,961,283
--------------------------------------------------------------------------------- --------------
NEW YORK--6.7%
---------------------------------------------------------------------------------
1,547,250 Geneva, NY, 4.125% BANs, 1/15/1998 1,553,284
---------------------------------------------------------------------------------
2,134,000 Groton Central School District, NY, 4.125% BANs, 1/21/1998 2,142,465
---------------------------------------------------------------------------------
2,000,000 New York City, NY, (Series B), 4.50% RANs (Bank of Nova Scotia, Toronto, Canadian
Imperial Bank of Commerce, Toronto and Commerzbank AG, Frankfurt LOCs), 6/30/1997 2,005,972
---------------------------------------------------------------------------------
1,000,000 North Babylon Union Free School District, NY, 4.40% TANs,
6/26/1997 1,001,499
---------------------------------------------------------------------------------
1,000,000 Royalton-Hartland, NY CSD, 4.50% BANs, 8/15/1997 1,002,566
---------------------------------------------------------------------------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
NEW YORK--CONTINUED
---------------------------------------------------------------------------------
$ 3,000,000 Sodus Central School District, NY, 4.00% BANs, 2/4/1998 $ 3,005,760
--------------------------------------------------------------------------------- --------------
Total 10,711,546
--------------------------------------------------------------------------------- --------------
NORTH CAROLINA--1.8%
---------------------------------------------------------------------------------
2,800,000 Person County, NC Industrial Facilities & Pollution Control Financing Authority
Daily VRDNs (Carolina Power & Light Co.)/ (Fuji Bank, Ltd., Tokyo LOC) 2,800,000
--------------------------------------------------------------------------------- --------------
NORTH DAKOTA--0.9%
---------------------------------------------------------------------------------
1,500,000 North Dakota State HFA, (Series C), 3.45% Bonds (FGIC INV),
4/3/1997 1,500,000
--------------------------------------------------------------------------------- --------------
OHIO--4.4%
---------------------------------------------------------------------------------
4,000,000 Brookville, OH, (Series 1988) Weekly VRDNs (Green Tokai)/(Bank of
Tokyo-Mitsubishi Ltd. LOC) 4,000,000
---------------------------------------------------------------------------------
1,000,000 Cincinnati, OH Student Loan Funding Corp., (Series 1992C), 5.25% Bonds, 7/1/1997 1,004,575
---------------------------------------------------------------------------------
2,030,000 Ohio HFA, (CR-18), (Series 1988A), 3.90% TOBs (GNMA COL)/ (Citibank NA, New York
LIQ), Mandatory Tender 2/1/1997 2,030,000
--------------------------------------------------------------------------------- --------------
Total 7,034,575
--------------------------------------------------------------------------------- --------------
OREGON--1.8%
---------------------------------------------------------------------------------
1,000,000 Oregon State Housing and Community Services Department,
(Series G), 4.05% TOBs, Mandatory Tender 8/1/1997 1,000,000
---------------------------------------------------------------------------------
805,000 Oregon State, Economic Devlopment Revenue Bonds (Series 1988C) Weekly VRDNs
(Jepco Development Inc.)/(First Interstate Bank of Oregon NA LOC) 805,000
---------------------------------------------------------------------------------
990,000 Oregon State, Economic Devlopment Revenue Bonds (Series 1988B) Weekly VRDNs
(Domaine Drouhin Oregon, Inc.)/(First Interstate Bank of Oregon NA LOC) 990,000
--------------------------------------------------------------------------------- --------------
Total 2,795,000
--------------------------------------------------------------------------------- --------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
PENNSYLVANIA--7.0%
---------------------------------------------------------------------------------
$ 3,000,000 Clinton County, PA IDA, Solid Waste Disposal Revenue Bonds (Series 1992A), 3.75%
TOBs (International Paper Co.), Optional Tender 1/15/1998 $ 3,000,000
---------------------------------------------------------------------------------
4,000,000 (b)Pennsylvania Housing Finance Authority, 3.85% TOBs (First National Bank of
Chicago LIQ), Optional Tender 4/1/1997 4,000,000
---------------------------------------------------------------------------------
100,000 Pennsylvania State Higher Education Assistance Agency Weekly VRDNs (Fuji Bank,
Ltd., Tokyo LOC) 100,000
---------------------------------------------------------------------------------
2,000,000 Philadelphia, PA School District, 4.50% TRANs, 6/30/1997 2,003,931
---------------------------------------------------------------------------------
2,000,000 Philadelphia, PA, (Series A of 1996-1997), 4.50% TRANs, 6/30/1997 2,004,314
--------------------------------------------------------------------------------- --------------
Total 11,108,245
--------------------------------------------------------------------------------- --------------
SOUTH CAROLINA--5.2%
---------------------------------------------------------------------------------
700,000 South Carolina Job Development Authority, (Series 1987) Weekly VRDNs (Jewish
Community Center)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 700,000
---------------------------------------------------------------------------------
400,000 South Carolina Job Development Authority, (Series 1988A) Weekly VRDNs (Kent
Manufacturing Company)/(Credit Commercial De France, Paris LOC) 400,000
---------------------------------------------------------------------------------
400,000 South Carolina Job Development Authority, (Series 1988B) Weekly VRDNs (Seacord
Corporation)/(Credit Commercial De France, Paris LOC) 400,000
---------------------------------------------------------------------------------
550,000 South Carolina Job Development Authority, (Series 1990) Weekly VRDNs (NMFO
Associates)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 550,000
---------------------------------------------------------------------------------
1,100,000 South Carolina Job Development Authority, (Series 1990) Weekly VRDNs (Old
Claussen's Bakery)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 1,100,000
---------------------------------------------------------------------------------
650,000 South Carolina Job Development Authority, (Series 1990) Weekly VRDNs (Rice Street
Association)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 650,000
---------------------------------------------------------------------------------
1,105,000 South Carolina Job Development Authority, (Series B) Weekly VRDNs (Osmose Wood
Preserving)/(Credit Commercial De France, Paris LOC) 1,105,000
---------------------------------------------------------------------------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
SOUTH CAROLINA--CONTINUED
---------------------------------------------------------------------------------
$ 3,410,000 York County, SC IDA, Industrial Development Revenue Bonds (Series1989) Weekly
VRDNs (Sediver Inc)/(Banque Nationale de Paris LOC) $ 3,410,000
--------------------------------------------------------------------------------- --------------
Total 8,315,000
--------------------------------------------------------------------------------- --------------
TENNESSEE--2.8%
---------------------------------------------------------------------------------
1,900,000 Collierville, TN IDB, Industrial Development Revenue Bonds (Series 1994) Weekly
VRDNs (Ardco, Inc.)/(Harris Trust & Savings Bank, Chicago LOC) 1,900,000
---------------------------------------------------------------------------------
500,000 Metropolitan Nashville, TN Airport Authority, Passenger Facilities Revenue Bonds,
4.80% Bonds (FGIC INS), 7/1/1997 501,494
---------------------------------------------------------------------------------
2,000,000 Oak Ridge, TN IDB, Solid Waste Facility Bonds (Series 1996) Weekly VRDNs (M4
Environmental L.P. Project)/(SunTrust Bank, Atlanta LOC) 2,000,000
--------------------------------------------------------------------------------- --------------
Total 4,401,494
--------------------------------------------------------------------------------- --------------
TEXAS--6.5%
---------------------------------------------------------------------------------
6,000,000 Brazos River Authority, TX, (Series 1996C) Daily VRDNs (Texas Utilities Electric
Co.)/(AMBAC INS)/(Bank of New York, New York LIQ) 6,000,000
---------------------------------------------------------------------------------
700,000 Capital Health Facilities Development Corp of Texas, Health Facilities
Development Revenue Bonds (Series 1986) Weekly VRDNs (The Island on Lake Travis,
Ltd.)/(Credit Suisse, Zurich LOC) 700,000
---------------------------------------------------------------------------------
3,700,000 Gulf Coast, TX IDA, Marine Terminal Revenue Bonds (Series 1993) Daily VRDNs
(Amoco Corp.) 3,700,000
--------------------------------------------------------------------------------- --------------
Total 10,400,000
--------------------------------------------------------------------------------- --------------
UTAH--1.7%
---------------------------------------------------------------------------------
400,000 Salt Lake City, UT, Subordinated Airport Revenue Bonds (Series 1994A) Weekly
VRDNs (Credit Suisse, Zurich LOC) 400,000
---------------------------------------------------------------------------------
800,000 Utah State Board of Regents, Student Loan Revenue Bonds (Series 1993A) Weekly
VRDNs (Student Loan Marketing Association LOC) 800,000
---------------------------------------------------------------------------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(a) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
UTAH--CONTINUED
---------------------------------------------------------------------------------
$ 1,535,000 Utah State School District Financing Cooperative, 8.375% TOBs, Mandatory Tender
2/15/1997 $ 1,537,758
--------------------------------------------------------------------------------- --------------
Total 2,737,758
--------------------------------------------------------------------------------- --------------
VIRGINIA--1.4%
---------------------------------------------------------------------------------
1,000,000 Richmond, VA Redevelopment & Housing Authority, (Series B-9) Weekly VRDNs
(Richmond, VA Red Tabacco Row)/(Bayerische Landesbank Girozentrale LOC) 1,000,000
---------------------------------------------------------------------------------
1,300,000 Virginia Peninsula Port Authority Daily VRDNs (Kinyo Virginia, Inc.)/(Industrial
Bank of Japan Ltd., Tokyo LOC) 1,300,000
--------------------------------------------------------------------------------- --------------
Total 2,300,000
--------------------------------------------------------------------------------- --------------
WASHINGTON--0.7%
---------------------------------------------------------------------------------
1,095,000 Washington State Housing Finance Commission, Single-Family Program Bonds (1996
Series 1A-S), 3.80% TOBs, Mandatory Tender 6/2/1997 1,095,000
--------------------------------------------------------------------------------- --------------
WEST VIRGINIA--0.7%
---------------------------------------------------------------------------------
1,100,000 Fayette County, WV, Solid Waste Disposal Facility Revenue Bonds (Series 1995)
Weekly VRDNs (Georgia-Pacific Corp.)/(Industrial Bank of Japan Ltd., Tokyo LOC) 1,100,000
--------------------------------------------------------------------------------- --------------
WISCONSIN--1.3%
---------------------------------------------------------------------------------
2,100,000 Sun Prairie, WI Area School District, 4.25% TRANs, 8/22/1997 2,105,151
--------------------------------------------------------------------------------- --------------
WYOMING--1.3%
---------------------------------------------------------------------------------
2,000,000 Uinta County, WY, PCR Bonds (Series 1984), 3.80% TOBs (Chevron U.S.A.,
Inc.)/(Chevron U.S.A., Inc. GTD), Optional Tender 6/15/1997 2,000,000
--------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 161,405,316
--------------------------------------------------------------------------------- --------------
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 74.8% of the
portfolio as calculated based upon total portfolio market value.
(a) 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. A
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1, ands F-2 by Fitch Investors Service, 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 January 31, 1997, the portfolio securities were rated as follows:
TIER RATING PERCENT BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<S> <C>
95.66% 4.34%
</TABLE>
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At January 31, 1997, the securities amounted
to $10,465,000, which represents 6.6% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($159,561,778) at January 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
BANs--Bond Anticipation Notes
COL--Collateralized
CSD--Central School District
EDA--Economic Development Authority
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance
GNMA--Government National Mortgage Association
GTD--Guaranty
HEFA--Health and Education Facilities Authority
HFA--Housing Finance Authority
IDA--Industrial Development Authority
IDB--Industrial Development Bond
INS--Insured
INV--Investment Agreement
LIQ--Liquidity Agreement
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
LOCs--Letter(s) of Credit
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance
PCR--Pollution Control Revenue
PLC--Public Limited Company
RANs--Revenue Anticipation Notes
TANs--Tax Anticipation Notes
TOBs--Tender Option Bonds
TRANs--Tax and Revenue Anticipation Notes
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL OBLIGATIONS FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $ 161,405,316
- -------------------------------------------------------------------------------------------------
Cash 5,703,599
- -------------------------------------------------------------------------------------------------
Income receivable 1,288,612
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 10,819,217
- ------------------------------------------------------------------------------------------------- --------------
Total assets 179,216,744
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------
Payable for investments purchased $ 3,005,760
- ----------------------------------------------------------------------------------
Payable for shares redeemed 16,245,879
- ----------------------------------------------------------------------------------
Income distribution payable 380,348
- ----------------------------------------------------------------------------------
Accrued expenses 22,979
- ---------------------------------------------------------------------------------- -------------
Total liabilities 19,654,966
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 159,537,449 shares outstanding $ 159,561,778
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
- -------------------------------------------------------------------------------------------------
$159,561,180 / 159,536,851 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
INSTITUTIONAL SERVICE SHARES:
- -------------------------------------------------------------------------------------------------
$299 / 299 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
INSTITUTIONAL CAPITAL SHARES:
- -------------------------------------------------------------------------------------------------
$299 / 299 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL OBLIGATIONS FUND
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest $ 6,645,653
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee $ 363,536
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 163,201
- ---------------------------------------------------------------------------------------
Custodian fees 63,131
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 29,456
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 2,870
- ---------------------------------------------------------------------------------------
Auditing fees 12,505
- ---------------------------------------------------------------------------------------
Legal fees 2,143
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 17,899
- ---------------------------------------------------------------------------------------
Shareholder services fee--Institutional Capital Shares 420
- ---------------------------------------------------------------------------------------
Distribution Fee--Class C Shares 4,020
- ---------------------------------------------------------------------------------------
Shareholder registration costs 23,287
- ---------------------------------------------------------------------------------------
Printing and postage 1,272
- ---------------------------------------------------------------------------------------
Insurance premiums 3,093
- ---------------------------------------------------------------------------------------
Miscellaneous 11,648
- --------------------------------------------------------------------------------------- -----------
Total expenses 698,481
- ---------------------------------------------------------------------------------------
Waivers--
- --------------------------------------------------------------------------
Waiver of investment advisory fee $ (238,796)
- --------------------------------------------------------------------------
Waiver of administrative personnel and services fee (100,933)
- --------------------------------------------------------------------------
Waiver of custodian fee (26,250)
- --------------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Capital Shares (252)
- -------------------------------------------------------------------------- -----------
Total waivers (366,231)
- --------------------------------------------------------------------------------------- -----------
Net expenses 332,250
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 6,313,403
- ---------------------------------------------------------------------------------------------------- ------------
Net realized loss on investments (32,313)
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 6,281,090
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL OBLIGATIONS FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 31, 1997 JANUARY 31, 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------
Net investment income $ 6,313,403 $ 6,815,881
- ---------------------------------------------------------------------------
Net realized gain (loss) on investments (32,313) 30,323
- --------------------------------------------------------------------------- ----------------- -----------------
Change in net assets resulting from operations 6,281,090 6,846,204
- --------------------------------------------------------------------------- ----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------
Distributions from net investment income:
- ---------------------------------------------------------------------------
Institutional Shares (6,272,384) (6,749,439)
- ---------------------------------------------------------------------------
Institutional Service Shares (4) --
- ---------------------------------------------------------------------------
Institutional Capital Shares (4,848) --
- ---------------------------------------------------------------------------
Class C Shares (36,167) (60,733)
- ---------------------------------------------------------------------------
Distributions from net realized gains:
- ---------------------------------------------------------------------------
Institutional Shares -- (5,653)
- ---------------------------------------------------------------------------
Class C Shares -- (56)
- --------------------------------------------------------------------------- ----------------- -----------------
Change in net assets resulting from distributions to shareholders (6,313,403) (6,815,881)
- --------------------------------------------------------------------------- ----------------- -----------------
CAPITAL CONTRIBUTION-- 32,313 --
- --------------------------------------------------------------------------- ----------------- -----------------
SHARE TRANSACTIONS--
- ---------------------------------------------------------------------------
Proceeds from sale of shares 3,319,509,601 2,866,960,080
- ---------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 1,279,467 1,821,823
- ---------------------------------------------------------------------------
Cost of shares redeemed (3,298,316,597) (2,825,318,501)
- --------------------------------------------------------------------------- ----------------- -----------------
Change in net assets resulting from share transactions 22,472,471 43,463,402
- --------------------------------------------------------------------------- ----------------- -----------------
Change in net assets 22,472,471 43,493,725
- ---------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------
Beginning of period 137,089,307 93,595,582
- --------------------------------------------------------------------------- ----------------- -----------------
End of period $ 159,561,778 $ 137,089,307
- --------------------------------------------------------------------------- ----------------- -----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL OBLIGATIONS FUND
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Money Market Obligations Trust II (the "Trust"), (formerly, Lehman Brothers
Institutional Funds Group 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 three portfolios. The financial statements included herein
are only those of Municipal Obligations Fund (the "Fund"), (formerly, Municipal
Money Market 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 dividend income exempt from
federal regular income tax consistent with stability of principal.
The Fund offers three classes of shares: Institutional Shares (formerly, Class A
Shares), Institutional Service Shares (formerly, Class B Shares), and
Institutional Capital Shares (formerly Class E Shares). As of November 15, 1996,
the Fund's Class C Shares were no longer operational.
(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.
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
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
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 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 Investment Company Act of 1940.
Additional information on each restricted security held at January 31, 1997
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Colorado Municipal Securities Trust 11/19/96 $ 3,375,000
New Jersey Housing & Mortgage Financing Authority 10/02/96 3,090,000
Pennsylvania Housing Finance Authority 10/01/96 4,000,000
</TABLE>
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 ($0.001 par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL SHARES 1997 1996
<S> <C> <C>
- ------------------------------------------------------------------------------ ---------------- ----------------
Shares sold 3,310,319,398 2,859,696,960
- ------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 1,275,572 1,821,819
- ------------------------------------------------------------------------------
Shares redeemed (3,287,154,333) (2,820,023,841)
- ------------------------------------------------------------------------------ ---------------- ----------------
Net change resulting from Institutional Share transactions 24,440,637 41,494,938
- ------------------------------------------------------------------------------ ---------------- ----------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL SERVICE SHARES 1997 1996
<S> <C> <C>
- ------------------------------------------------------------------------------ ---------------- ----------------
Shares sold 300 --
- ------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 1 --
- ------------------------------------------------------------------------------
Shares redeemed (102) --
- ------------------------------------------------------------------------------ ---------------- ----------------
Net change resulting from Institutional Service Share transactions 199 --
- ------------------------------------------------------------------------------ ---------------- ----------------
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL CAPITAL SHARES 1997 1996
<S> <C> <C>
- ------------------------------------------------------------------------------ ---------------- ----------------
Shares sold 5,039,630 --
- ------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 3,892 --
- ------------------------------------------------------------------------------
Shares redeemed (5,043,323) --
- ------------------------------------------------------------------------------ ---------------- ----------------
Net change resulting from Institutional Capital Share transactions 199 --
- ------------------------------------------------------------------------------ ---------------- ----------------
<CAPTION>
YEAR ENDED JANUARY 31,
CLASS C SHARES 1997(B) 1996(A)
<S> <C> <C>
- ------------------------------------------------------------------------------ ---------------- ----------------
Shares sold 4,150,273 7,263,120
- ------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 2 4
- ------------------------------------------------------------------------------
Shares redeemed (6,118,839) (5,294,660)
- ------------------------------------------------------------------------------ ---------------- ----------------
Net change resulting from Class C Share transactions (1,968,564) 1,968,464
- ------------------------------------------------------------------------------ ---------------- ----------------
Net change resulting from share transactions 22,472,471 43,463,402
- ------------------------------------------------------------------------------ ---------------- ----------------
(a) For the period from April 18, 1995 (date of initial public offering) to January 31, 1996.
(b) As of November 15, 1996, the Fund's Class C Shares were no longer operational.
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.20% of the Fund's
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
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.
Federated Management became the Fund's investment adviser on November 15, 1996.
Prior to November 15, 1996, Lehman Brothers Global Asset Management, Inc. (the
"Former Adviser") served as the Fund's investment adviser.
For the period ended January 31, 1997, the advisers earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
ADVISER FEE EARNED FEE WAIVED
<S> <C> <C>
Federated Management $ 76,352 $ 76,352
- ---------------------------------------------------------------------------------- ------------- --------------
Lehman Brothers Global Asset Management $ 287,184 $ 162,444
- ---------------------------------------------------------------------------------- ------------- --------------
</TABLE>
CAPITAL CONTRIBUTION--The Former Adviser made a capital contribution to the fund
on November 15, 1996, of an amount equal to the accumulated net realized loss on
investments balance carried by the Fund.
This transaction resulted in a permanent book and tax difference. As such, the
paid-in-capital and accumulated net realized gain/loss accounts have been
adjusted accordingly. This adjustment did not affect net investment income, net
realized gains/losses, or 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. FServ became the Fund's
administrator on November 15, 1996. Prior to November 15, 1996, First Data
Investors Services Group, Inc. ("FDISG") served as the Fund's administrator.
For the period ended January 31, 1997, the administrators earned fees as
follows:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
ADMINISTRATOR FEE EARNED FEE WAIVED
<S> <C> <C>
FServ $ 19,609 $ --
- ---------------------------------------------------------------------------------- ------------- --------------
FDISG $ 143,592 $ 100,933
- ---------------------------------------------------------------------------------- ------------- --------------
</TABLE>
DISTRIBUTION SERVICES FEE--Pursuant to Rule 12b-1 under the Act, as amended, the
Fund had adopted Distribution Agreements ("Service Agreements") with
institutional investors such as banks, savings and loan associations and other
financial institutions with respect to the Fund's former Class B, Class C and
Class E Shares. All such Service Agreements were terminated effective
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
November 15, 1996. Prior to November 15, 1996, Lehman Brothers, Inc., acted as
the Fund's distributor.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS") the Fund will pay FSS up to 0.25% of
average daily net assets of the Fund for the period. There is no present
intention of paying or accruing the Shareholder Services Fee for the
Institutional Shares. The fee paid to FSS is used to finance certain services
for shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion. FSS became the Fund's
shareholder servicing agent on November 15, 1996.
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. FSSC
became the Fund's transfer and dividend disbursing agent on November 15, 1996.
Prior to November 15, 1996, FDISG served as the Fund's transfer and dividend
disbursing agent.
For the period ended January 31, 1997, the transfer and dividend disbursing
agents earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
TRANSFER AND DIVIDEND DISBURSING AGENT FEE EARNED FEE WAIVED
<S> <C> <C>
FSSC $ 4,521 $ --
- ---------------------------------------------------------------------------------- ------------- --------------
FDISG $ 24,935 $ --
- ---------------------------------------------------------------------------------- ------------- --------------
</TABLE>
PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting records for
which it receives a fee. The fee is based on the level of the Trust's average
daily net assets for the period, plus out-of-pocket expenses. All portfolio
accounting fees for the period ended January 31, 1997 were paid to FServ.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of
MUNICIPAL OBLIGATIONS FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Municipal Obligations Fund, formerly Municipal
Money Market Fund (a portfolio of Money Market Obligations Trust II, formerly a
Portfolio of Lehman Brothers Institutional Funds Group Trust) as of January 31,
1997, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Municipal Obligations Fund at January 31, 1997, and the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and financial highlights for each of the
periods indicated therein, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 14, 1997
ADDRESSES
- --------------------------------------------------------------------------------
Municipal Obligations Fund
Institutional Service Shares Federated Investors Tower
Pittsburgh, PA 15222-3779
- --------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, PA 15222-3779
- --------------------------------------------------------------------------------
Investment Adviser
Federated Management 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 Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, PA 15219
- --------------------------------------------------------------------------------
MUNICIPAL
OBLIGATIONS FUND
(FORMERLY, MUNICIPAL MONEY
MARKET FUND)
INSTITUTIONAL SERVICE SHARES
(FORMERLY, CLASS B SHARES)
PROSPECTUS
A Portfolio of Money Market Obligations
Trust II (formerly, Lehman Brothers
Institutional Funds Group Trust), an
Open-End Management Investment Company
Prospectus dated March 31, 1997
[LOGO OF FEDERATED INVESTORS]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[RECYCLED PAPER LOGO]
Cusip 608912200
G01881-06-SS (3/97)
MUNICIPAL OBLIGATIONS FUND
(A PORTFOLIO OF MONEY MARKET OBLIGATIONS TRUST II)
(FORMERLY, MUNICIPAL MONEY MARKET FUND, A PORTFOLIO OF
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST)
INSTITUTIONAL CAPITAL SHARES (FORMERLY, CLASS E SHARES)
PROSPECTUS
The Institutional Capital Shares (formerly, Class E Shares) of Municipal
Obligations Fund (formerly, Municipal Money Market Fund) (the "Fund") offered by
this prospectus represent interests in a portfolio of Money Market Obligations
Trust II (formerly, Lehman Brothers Institutional Funds Group Trust) (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 March 31,
1997, 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 the Fund at
the address listed in the back of this prospectus. 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated March 31, 1997
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL CAPITAL SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Municipal Securities 6
Investment Risks 6
Investment Limitations 7
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Institutional Capital
Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 10
- ------------------------------------------------------
HOW TO REDEEM SHARES 11
- ------------------------------------------------------
ACCOUNT AND SHARE INFORMATION 12
- ------------------------------------------------------
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
State and Local Taxes 13
OTHER CLASSES OF SHARES 13
- ------------------------------------------------------
PERFORMANCE INFORMATION 14
- ------------------------------------------------------
LAST MEETING OF SHAREHOLDERS 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 16
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 17
- ------------------------------------------------------
FINANCIAL STATEMENTS 18
- ------------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 37
- ------------------------------------------------------
ADDRESSES 38
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
INSTITUTIONAL CAPITAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<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
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)......................................................................... 0.07%
12b-1 Fee................................................................................................. None
Total Other Expenses...................................................................................... 0.23%
Shareholder Services Fee (after waiver) (2)............................................... 0.10%
Total Operating Expenses (3).............................................................................. 0.30%
</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
0.20%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholders services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its sole
discretion. The maximum shareholder services fee is 0.25%.
(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending January 31, 1998. The total
Institutional Capital Shares operating expenses were 0.30% for fiscal year
ended January 31, 1997 and would have been 0.65% absent the voluntary
waivers of portions of the management fee, administrative fee, custodian
fee, and shareholder services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Capital Shares of
the Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
<TABLE>
<S> <C> <C> <C> <C>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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............. $3 $10 $17 $38
</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 OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL CAPITAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 37.
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1997(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- --------------------------------------------------------------------------------------------------- -------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------
Net investment income 0.03
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------
Distributions from net investment income (0.03)
- --------------------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 1.00
- --------------------------------------------------------------------------------------------------- -------
TOTAL RETURN (B) 3.42%
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------
Expenses 0.30%
- ---------------------------------------------------------------------------------------------------
Net investment income 2.90%
- ---------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.35%
- ---------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 0.30
- ---------------------------------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from February 1, 1996 (date of initial
public offering) to January 31, 1997.
(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 16, 1992. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established three classes of shares known as Institutional Shares,
Institutional Service Shares and Institutional Capital Shares. This prospectus
relates only to Institutional Capital Shares of the Fund, which are designed
primarily for financial institutions, financial intermediaries and institutional
investors as a convenient means of accumulating an interest in a professionally
managed portfolio investing in short-term municipal securities. A minimum
initial investment of $1,000,000 over a one-year period 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 may be changed by the Board of Trustees 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 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 to 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.
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.
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.
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.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and agrees that
on a stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an agreed
upon rate. The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but does not ensure this result. However, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the securities to be
purchased, are: segregated on the Fund's records at the trade date; marked to
market daily; and maintained until the transaction is settled.
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,
including non-negotiable time deposits and repurchase agreements providing for
settlement in more than seven days after notice to 10% of its net assets.
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 the
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. 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
obligations" 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
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 may not:
borrow money, except that the Fund may (i) borrow money for temporary or
emergency purposes (not for leveraging or investment) from banks, or
subject to specific authorization by the SEC, from funds advised by the
adviser or an affiliate of the adviser, and (ii) engage in reverse
repurchase agreements; provided that (i) and (ii) in combination do not
exceed one-third of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings). The Fund may
not mortgage, pledge or hypothecate any assets except in connection with
such borrowings and reverse repurchase agreements and then only in
amounts not exceeding one-third of the value of the Fund's total assets
at the time of such borrowing; or
purchase any securities which would cause 25% or more of the value of its
total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, or in industrial development bonds or
other securities, the interest upon which is paid from revenues of
similar types of projects (unless the Fund is in a temporary defensive
position); provided that there is no limitation with respect to
investments in U.S. government securities.
The above investment limitations cannot be changed without shareholder approval.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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
Management, 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 0.20% of the Fund's average daily net assets. 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 Management, 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 Management 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 $110 billion invested across
over 300 funds under management and/or administration by its subsidiaries,
as of December 31, 1996, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 2,000
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,500
financial institutions nationwide.
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 INSTITUTIONAL CAPITAL SHARES
Federated Securities Corp. is the principal distributor for Institutional
Capital 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.
ADMINISTRATION OF THE FUND
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement
with Federated Shareholder Services, a subsidiary of Federated Investors, under
which the Fund may make payments up to 0.25% of the average daily net asset
value of its shares, computed at an annual rate, to obtain certain personal
services for shareholders and to maintain shareholder accounts. From time to
time and for such periods as deemed appropriate, the amount stated above may be
reduced voluntarily. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares 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 Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their 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.
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 specified below:
<TABLE>
<CAPTION>
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS
<S> <C>
.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 shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Capital Shares from the value of Fund assets attributable to Institutional
Capital Shares, and dividing the remainder by the number of Institutional
Capital 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 on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Fund reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $1,000,000. However, an account may be opened with
a smaller amount as long as the minimum is reached within one year of opening
the account. Financial institutions may impose different minimum investment
requirements on their customers.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve 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) that 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 Obligations
Fund--Institutional Capital Shares; 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 Obligations Fund--Institutional
Capital Shares. 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.
INVEST-BY-PHONE. Once an account has been opened, a shareholder may use
invest-by-phone for investments if an authorization form has been filed with
Federated Shareholder Services Company, the transfer agent for shares of the
Fund. Approximately two weeks after sending the form to Federated Shareholder
Services Company, the shareholder may call Federated Shareholder Services
Company to purchase shares. Federated Shareholder Services Company will send a
request for monies to the shareholder's commercial bank, savings bank, or credit
union ("bank") via the Automated Clearing House. The shareholder's bank, which
must be an Automated Clearing House member, will then forward the monies to
Federated Shareholder Services Company. The purchase is normally entered the
next business day after the initial phone request. For further information and
an application, call the Fund.
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 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. 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 and the class designation; 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.
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. Shares purchased by
wire before 3:00 p.m. (Eastern time) begin earning dividends that day. Shares
purchased by check begin earning dividends the day after the check is converted
into federal funds.
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 $1,000,000 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 all classes of each portfolio in the Trust
have equal voting rights, except that in matters affecting only a particular
portfolio or class, only shareholders of that portfolio or class 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.
As of March 10, 1997, Excel Industries, Elkhart, organized in the state of
Indiana owned 81.24% of the voting securities of the Fund, and, therefore, may,
for certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders.
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, Donnelly & Meck, 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.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers other classes. Institutional Shares are sold at net asset
value primarily to entities holding shares in an agency or fiduciary capacity,
financial institutions, financial intermediaries and institutional investors and
are subject to a minimum initial investment of $1,000,000. Institutional Service
Shares are sold at net asset value primarily to financial institutions,
financial intermediaries and institutional investors and are subject to a
minimum initial investment of $1,000,000.
All classes are subject to certain of the same expenses.
Neither Institutional Shares nor Institutional Service Shares are distributed
with a 12b-1 Plan but both are subject to shareholder services fees. Currently,
Institutional Shares are accruing no shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield and total
return. The performance figures will be calculated separately for each class of
shares.
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 shares 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.
LAST MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
A Special Meeting of Municipal Money Market Fund, a portfolio of Lehman Brothers
Institutional Funds Group Trust was held on November 13, 1996. On October 11,
1996, the record date for shareholders voting at the meeting, there were
186,801,093 total outstanding shares. The following items were considered by
shareholders and the results of their voting were as follows:
<TABLE>
<CAPTION>
WITHHELD
AGENDA ITEM FOR AGAINST ABSTAIN AUTHORITY TO VOTE
<S> <C> <C> <C> <C>
1. Approval of the Investment Advisory Agreement between
Federated Management and the Trust with respect to the
Fund 96,738,939 -0- -0- -0-
2. Election of Trustees
John F. Donahue 96,738,939 -0- -0- -0-
Thomas G. Bigley 96,738,939 -0- -0- -0-
John T. Conroy, Jr. 96,738,939 -0- -0- -0-
William J. Copeland 96,738,939 -0- -0- -0-
J. Christopher Donahue 96,738,939 -0- -0- -0-
James E. Dowd 96,738,939 -0- -0- -0-
Lawrence D. Ellis, M.D. 96,738,939 -0- -0- -0-
Edward L. Flaherty, Jr. 96,738,939 -0- -0- -0-
Peter E. Madden 96,738,939 -0- -0- -0-
Gregor F. Meyer 96,738,939 -0- -0- -0-
John E. Murray, Jr. 96,738,939 -0- -0- -0-
Wesley W. Posvar 96,738,939 -0- -0- -0-
Marjorie P. Smuts 96,738,939 -0- -0- -0-
</TABLE>
MUNICIPAL OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------- --------- --------- --------- -----------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------
Net investment income 0.04 0.04 0.03 0.02
- -----------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------
Distributions from net investment income (0.04) (0.04) (0.03) (0.02)
- -----------------------------------------------------------------
Distributions from net realized gains (loss) -- (0.00)** -- --
- ----------------------------------------------------------------- --------- --------- --------- -----------
Total Distributions (0.04) (0.04) (0.03) (0.02)
- ----------------------------------------------------------------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------- --------- --------- --------- -----------
TOTAL RETURN (B) 3.56% 4.03% 3.04% 2.46%
- -----------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------
Expenses 0.18% 0.18% 0.15% 0.13%*
- -----------------------------------------------------------------
Net investment income 3.48% 3.95% 2.86% 2.53%*
- -----------------------------------------------------------------
Expense waiver/reimbursement (c) 0.20% 0.12% 0.16% 0.38%*
- -----------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------
Net assets, end of period (000 omitted) $159,561 $135,120 $93,595 $350,975
- -----------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
** Amount represents less than $0.0001 per share.
(a) Reflects operations for the period from February 8, 1993 (date of initial
public investment) to January 31, 1994.
(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)
MUNICIPAL OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1997(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- --------------------------------------------------------------------------------------------------- -------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------
Net investment income 0.03
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------
Distributions from net investment income (0.03)
- --------------------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 1.00
- --------------------------------------------------------------------------------------------------- -------
TOTAL RETURN (B) 3.31%
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------
Expenses 0.43%
- ---------------------------------------------------------------------------------------------------
Net investment income 3.08%
- ---------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.21%
- ---------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 0.30
- ---------------------------------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from February 1, 1996 (date of initial
public offering) to January 31, 1997.
(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)
MUNICIPAL OBLIGATIONS FUND
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(A) SHORT-TERM MUNICIPALS--101.2%
- ------------------------------------------------------------------------------------------------
ARIZONA--0.8%
---------------------------------------------------------------------------------
$ 1,350,000 Maricopa County, AZ Unified School District No. 11, (Series A), 4.40% TANs,
7/31/1997 $ 1,353,189
--------------------------------------------------------------------------------- --------------
ARKANSAS--0.6%
---------------------------------------------------------------------------------
1,000,000 Arkadelphia, AR, Industrial Development Revenue Bonds (Series 1996) Weekly VRDNs
(Siplast, Inc.)/(Den Danske Bank A/S LOC) 1,000,000
--------------------------------------------------------------------------------- --------------
CALIFORNIA--0.9%
---------------------------------------------------------------------------------
1,500,000 San Bernardino County, CA, 4.50% TRANs (Landesbank
Hessen-Thueringen, Frankfurt and Toronto-Dominion
Bank LOCs), 6/30/1997 1,503,684
--------------------------------------------------------------------------------- --------------
COLORADO--3.5%
---------------------------------------------------------------------------------
3,375,000 (b)Colorado Municipal Securities Trust, Series 1996B Weekly VRDNs (Colorado
Health Facilities Authority)/(MBIA Insurance Corporation INS)/(Norwest Bank
Minnesota, Minneapolis LIQ) 3,375,000
---------------------------------------------------------------------------------
2,200,000 Colorado State General Fund, 4.50% TRANs, 6/27/1997 2,206,449
--------------------------------------------------------------------------------- --------------
Total 5,581,449
--------------------------------------------------------------------------------- --------------
DISTRICT OF COLUMBIA--1.5%
---------------------------------------------------------------------------------
2,400,000 District of Columbia Housing Finance Agency, Multi-Family Housing Revenue Bonds
(1995 Series A) Weekly VRDNs (Tyler House)/(PNC Bank, N.A. LOC) 2,400,000
--------------------------------------------------------------------------------- --------------
FLORIDA--2.1%
---------------------------------------------------------------------------------
2,400,000 Ocean Highway and Port Authority, Revenue Bonds (Series 1990) Weekly VRDNs (ABN
AMRO Bank N.V., Amsterdam LOC) 2,400,000
---------------------------------------------------------------------------------
1,000,000 Orange County, FL HFA, (Series 1996B), 3.65% TOBs (Westdeutsche Landesbank
Girozentrale INV), Mandatory Tender 4/1/1997 1,000,000
--------------------------------------------------------------------------------- --------------
Total 3,400,000
--------------------------------------------------------------------------------- --------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(A) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
GEORGIA--3.5%
---------------------------------------------------------------------------------
$ 1,500,000 Bowdon, GA Development Authority Weekly VRDNs (Trintex Corporation)/(First Union
National Bank, Charlotte, N.C. LOC) $ 1,500,000
---------------------------------------------------------------------------------
3,000,000 Coweta County, GA IDA, (Series 1995) Weekly VRDNs (Lanelco L.L.C. Project)/(NBD
Bank, Michigan LOC) 3,000,000
---------------------------------------------------------------------------------
1,000,000 Franklin County, GA Industrial Building Authority, (Series 1995) Weekly VRDNs
(Bosal Industries, Inc.)/(ABN AMRO Bank N.V., Amsterdam LOC) 1,000,000
--------------------------------------------------------------------------------- --------------
Total 5,500,000
--------------------------------------------------------------------------------- --------------
HAWAII--2.8%
---------------------------------------------------------------------------------
4,500,000 Hawaii Secondary Market Services Corp., Student Loan Revenue Bonds (Senior 1995
Series II) Weekly VRDNs (National Westminster Bank, PLC, London LOC) 4,500,000
--------------------------------------------------------------------------------- --------------
ILLINOIS--3.7%
---------------------------------------------------------------------------------
300,000 Chicago O'Hare International Airport, Special Facility Revenue Bonds (Series
1990) Weekly VRDNs (Compagnie Nationale Air France Project)/(Societe Generale,
Paris LOC) 300,000
---------------------------------------------------------------------------------
1,400,000 Illinois Development Finance Authority, (Series 1989) Weekly VRDNs (Addison 450
Limited Partnership)/(American National Bank, Chicago LOC) 1,400,000
---------------------------------------------------------------------------------
1,900,000 Illinois Development Finance Authority, Industrial Development Revenue Bonds
(Series 1996) Weekly VRDNs (Bimba Manufacturing Company)/(Harris Trust & Savings
Bank, Chicago LOC) 1,900,000
---------------------------------------------------------------------------------
1,000,000 Illinois Development Finance Authority, Sewerage Facility Revenue Bonds (Series
1993) Weekly VRDNs (The NutraSweet Company)/ (Monsanto Co. GTD) 1,000,000
---------------------------------------------------------------------------------
700,000 Illinois Student Assistance Commission, (Series 1996A) Weekly VRDNs (Bank of
America Illinois LOC) 700,000
---------------------------------------------------------------------------------
600,000 Southwestern Illinois Development Authority, (Series 1991) Weekly VRDNs (Robinson
Steel Co.)/(American National Bank, Chicago LOC) 600,000
--------------------------------------------------------------------------------- --------------
Total 5,900,000
--------------------------------------------------------------------------------- --------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(A) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
INDIANA--4.0%
---------------------------------------------------------------------------------
$ 150,000 Indiana Economic Development Commission, Economic Development Revenue Bonds
(Series 1988) Daily VRDNs (Mobel Inc.)/(Credit Commercial De France, Paris LOC) $ 150,000
---------------------------------------------------------------------------------
1,200,000 Indiana Economic Development Commission, Economic Development Revenue Bonds
(Series 1988) Daily VRDNs (Shadeland Avenue Associates)/(Credit Commercial De
France, Paris LOC) 1,200,000
---------------------------------------------------------------------------------
1,000,000 Indiana Secondary Market For Education Loans, Inc., Education Loan Revenue Bonds
(Series 1988B) Weekly VRDNs (AMBAC INS)/ (Student Loan Marketing Association LIQ) 1,000,000
---------------------------------------------------------------------------------
4,000,000 Tippecanoe County, IN Economic Development Revenue, (Series 1991) Weekly VRDNs
(Consolidated Industries Inc.)/(Chemical Bank, New York LOC) 4,000,000
--------------------------------------------------------------------------------- --------------
Total 6,350,000
--------------------------------------------------------------------------------- --------------
KENTUCKY--8.6%
---------------------------------------------------------------------------------
1,000,000 Graves County, KY, School Building Revenue Bonds (Series 1988) Weekly VRDNs
(Seaboard Farms Project)/(Bank of New York, New York LOC) 1,000,000
---------------------------------------------------------------------------------
1,560,000 Jefferson County, KY, Industrial Building Revenue Refunding Bonds (Series 1987)
Weekly VRDNs (National City Bank, Kentucky LOC) 1,560,000
---------------------------------------------------------------------------------
5,000,000 Kentucky Pollution Abatement & Water Resource Finance Authority Daily VRDNs
(Toyota Motor Credit Corp.) 5,000,000
---------------------------------------------------------------------------------
2,500,000 Louisville, KY, Airport Lease Revenue Bonds (Series 1989B) Weekly VRDNs (National
City Bank, Kentucky LOC) 2,500,000
---------------------------------------------------------------------------------
3,600,000 Mayfield, KY, (Series 1989) Weekly VRDNs (Seaboard Farms Project)/(SunTrust Bank,
Atlanta LOC) 3,600,000
--------------------------------------------------------------------------------- --------------
Total 13,660,000
--------------------------------------------------------------------------------- --------------
LOUISIANA--0.6%
---------------------------------------------------------------------------------
1,000,000 Louisiana State Recovery District, Sales Tax Revenue Bonds, 3.90% Bonds (United
States Treasury COL)/(FGIC INS), 7/1/1997 1,000,000
--------------------------------------------------------------------------------- --------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(A) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
MAINE--0.3%
---------------------------------------------------------------------------------
$ 485,000 Lewiston, ME, (Series A), 6.00% Bonds (FSA INS), 3/1/1997 $ 485,954
--------------------------------------------------------------------------------- --------------
MARYLAND--1.8%
---------------------------------------------------------------------------------
1,400,000 Carroll County, MD, Variable Rate Economic Development Refunding Revenue Bonds
(Series 1995B) Weekly VRDNs (Evapco, Inc. Project)/(Nationsbank of Maryland, N.A.
LOC) 1,400,000
---------------------------------------------------------------------------------
1,400,000 Montgomery County, MD Weekly VRDNs (Information Systems and Networks
Corporation)/(PNC Bank, N.A. LOC) 1,400,000
--------------------------------------------------------------------------------- --------------
Total 2,800,000
--------------------------------------------------------------------------------- --------------
MASSACHUSETTS--2.4%
---------------------------------------------------------------------------------
670,000 Marblehead, MA, 4.25% Bonds, 2/1/1997 670,000
---------------------------------------------------------------------------------
1,100,000 New Bedford, MA, 4.50% RANs (Fleet National Bank, Providence, R.I. LOC),
6/30/1997 1,102,373
---------------------------------------------------------------------------------
1,000,000 Springfield, MA, 4.50% BANs (Fleet National Bank, Providence, R.I. LOC),
6/27/1997 1,001,921
---------------------------------------------------------------------------------
1,000,000 Springfield, MA, 4.60% BANs, 7/11/1997 1,002,105
--------------------------------------------------------------------------------- --------------
Total 3,776,399
--------------------------------------------------------------------------------- --------------
MINNESOTA--6.3%
---------------------------------------------------------------------------------
10,000,000 Minnesota State Higher Education Coordinating Board, 1992
(Series C) Weekly VRDNs (First Bank NA, Minneapolis LIQ) 10,000,000
--------------------------------------------------------------------------------- --------------
MISSISSIPPI--6.9%
---------------------------------------------------------------------------------
1,168,000 Greenville, MS IDA Weekly VRDNs (Mebane Packaging Corp)/ (First Union National
Bank, Charlotte, N.C. LOC) 1,168,000
---------------------------------------------------------------------------------
4,500,000 Mississippi Business Finance Corp., (Series 1995) Weekly VRDNs (Mississippi
Baking Company L.L.C. Project)/(First National Bank of Maryland, Baltimore LOC) 4,500,000
---------------------------------------------------------------------------------
5,400,000 Mississippi Business Finance Corp., Series 1995 Weekly VRDNs (Schuller
International, Inc.)/(Bank of New York, New York LOC) 5,400,000
--------------------------------------------------------------------------------- --------------
Total 11,068,000
--------------------------------------------------------------------------------- --------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(A) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
MISSOURI--3.1%
---------------------------------------------------------------------------------
$ 3,000,000 Missouri Higher Education Loan Authority, (Series 1988A) Weekly VRDNs (National
Westminster Bank, PLC, London LOC) $ 3,000,000
---------------------------------------------------------------------------------
1,900,000 Missouri State HEFA, (Series 1996D), 4.50% TRANs (Rockwood R-VI School District),
9/8/1997 1,906,589
--------------------------------------------------------------------------------- --------------
Total 4,906,589
--------------------------------------------------------------------------------- --------------
NEVADA--0.4%
---------------------------------------------------------------------------------
700,000 Nevada State Department of Community & Industrial Development Weekly VRDNs
(Kinplex Company Project)/(Credit Commercial De France, Paris LOC) 700,000
--------------------------------------------------------------------------------- --------------
NEW JERSEY--2.0%
---------------------------------------------------------------------------------
20,000 New Jersey EDA, (Series A) Weekly VRDNs (325 Midland Avenue, LLC & Wearbest
Sil-Tex, Ltd.)/(Bank of New York, New York LOC) 20,000
---------------------------------------------------------------------------------
45,000 New Jersey EDA, (Series B) Weekly VRDNs (325 Midland Avenue, LLC & Wearbest
Sil-Tex, Ltd.)/(Bank of New York, New York LOC) 45,000
---------------------------------------------------------------------------------
3,090,000 (b)New Jersey Housing & Mortgage Financing Authority, (Series
1989-D), 3.80% TOBs (MBIA Insurance Corporation INS)/(Citibank
NA, New York LIQ), Optional Tender 4/1/1997 3,090,000
--------------------------------------------------------------------------------- --------------
Total 3,155,000
--------------------------------------------------------------------------------- --------------
NEW MEXICO--1.2%
---------------------------------------------------------------------------------
1,955,000 New Mexico Educational Asistance Foundation, (Series A), 6.05% Bonds (AMBAC INS),
4/1/1997 1,961,283
--------------------------------------------------------------------------------- --------------
NEW YORK--6.7%
---------------------------------------------------------------------------------
1,547,250 Geneva, NY, 4.125% BANs, 1/15/1998 1,553,284
---------------------------------------------------------------------------------
2,134,000 Groton Central School District, NY, 4.125% BANs, 1/21/1998 2,142,465
---------------------------------------------------------------------------------
2,000,000 New York City, NY, (Series B), 4.50% RANs (Bank of Nova Scotia, Toronto, Canadian
Imperial Bank of Commerce, Toronto and Commerzbank AG, Frankfurt LOCs), 6/30/1997 2,005,972
---------------------------------------------------------------------------------
1,000,000 North Babylon Union Free School District, NY, 4.40% TANs,
6/26/1997 1,001,499
---------------------------------------------------------------------------------
1,000,000 Royalton-Hartland, NY CSD, 4.50% BANs, 8/15/1997 1,002,566
---------------------------------------------------------------------------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(A) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
NEW YORK--CONTINUED
---------------------------------------------------------------------------------
$ 3,000,000 Sodus Central School District, NY, 4.00% BANs, 2/4/1998 $ 3,005,760
--------------------------------------------------------------------------------- --------------
Total 10,711,546
--------------------------------------------------------------------------------- --------------
NORTH CAROLINA--1.8%
---------------------------------------------------------------------------------
2,800,000 Person County, NC Industrial Facilities & Pollution Control Financing Authority
Daily VRDNs (Carolina Power & Light Co.)/ (Fuji Bank, Ltd., Tokyo LOC) 2,800,000
--------------------------------------------------------------------------------- --------------
NORTH DAKOTA--0.9%
---------------------------------------------------------------------------------
1,500,000 North Dakota State HFA, (Series C), 3.45% Bonds (FGIC INV),
4/3/1997 1,500,000
--------------------------------------------------------------------------------- --------------
OHIO--4.4%
---------------------------------------------------------------------------------
4,000,000 Brookville, OH, (Series 1988) Weekly VRDNs (Green Tokai)/(Bank of
Tokyo-Mitsubishi Ltd. LOC) 4,000,000
---------------------------------------------------------------------------------
1,000,000 Cincinnati, OH Student Loan Funding Corp., (Series 1992C), 5.25% Bonds, 7/1/1997 1,004,575
---------------------------------------------------------------------------------
2,030,000 Ohio HFA, (CR-18), (Series 1988A), 3.90% TOBs (GNMA COL)/ (Citibank NA, New York
LIQ), Mandatory Tender 2/1/1997 2,030,000
--------------------------------------------------------------------------------- --------------
Total 7,034,575
--------------------------------------------------------------------------------- --------------
OREGON--1.8%
---------------------------------------------------------------------------------
1,000,000 Oregon State Housing and Community Services Department,
(Series G), 4.05% TOBs, Mandatory Tender 8/1/1997 1,000,000
---------------------------------------------------------------------------------
805,000 Oregon State, Economic Devlopment Revenue Bonds (Series 1988C) Weekly VRDNs
(Jepco Development Inc.)/(First Interstate Bank of Oregon NA LOC) 805,000
---------------------------------------------------------------------------------
990,000 Oregon State, Economic Devlopment Revenue Bonds (Series 1988B) Weekly VRDNs
(Domaine Drouhin Oregon, Inc.)/(First Interstate Bank of Oregon NA LOC) 990,000
--------------------------------------------------------------------------------- --------------
Total 2,795,000
--------------------------------------------------------------------------------- --------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(A) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
PENNSYLVANIA--7.0%
---------------------------------------------------------------------------------
$ 3,000,000 Clinton County, PA IDA, Solid Waste Disposal Revenue Bonds (Series 1992A), 3.75%
TOBs (International Paper Co.), Optional Tender 1/15/1998 $ 3,000,000
---------------------------------------------------------------------------------
4,000,000 (b)Pennsylvania Housing Finance Authority, 3.85% TOBs (First National Bank of
Chicago LIQ), Optional Tender 4/1/1997 4,000,000
---------------------------------------------------------------------------------
100,000 Pennsylvania State Higher Education Assistance Agency Weekly VRDNs (Fuji Bank,
Ltd., Tokyo LOC) 100,000
---------------------------------------------------------------------------------
2,000,000 Philadelphia, PA School District, 4.50% TRANs, 6/30/1997 2,003,931
---------------------------------------------------------------------------------
2,000,000 Philadelphia, PA, (Series A of 1996-1997), 4.50% TRANs, 6/30/1997 2,004,314
--------------------------------------------------------------------------------- --------------
Total 11,108,245
--------------------------------------------------------------------------------- --------------
SOUTH CAROLINA--5.2%
---------------------------------------------------------------------------------
700,000 South Carolina Job Development Authority, (Series 1987) Weekly VRDNs (Jewish
Community Center)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 700,000
---------------------------------------------------------------------------------
400,000 South Carolina Job Development Authority, (Series 1988A) Weekly VRDNs (Kent
Manufacturing Company)/(Credit Commercial De France, Paris LOC) 400,000
---------------------------------------------------------------------------------
400,000 South Carolina Job Development Authority, (Series 1988B) Weekly VRDNs (Seacord
Corporation)/(Credit Commercial De France, Paris LOC) 400,000
---------------------------------------------------------------------------------
550,000 South Carolina Job Development Authority, (Series 1990) Weekly VRDNs (NMFO
Associates)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 550,000
---------------------------------------------------------------------------------
1,100,000 South Carolina Job Development Authority, (Series 1990) Weekly VRDNs (Old
Claussen's Bakery)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 1,100,000
---------------------------------------------------------------------------------
650,000 South Carolina Job Development Authority, (Series 1990) Weekly VRDNs (Rice Street
Association)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 650,000
---------------------------------------------------------------------------------
1,105,000 South Carolina Job Development Authority, (Series B) Weekly VRDNs (Osmose Wood
Preserving)/(Credit Commercial De France, Paris LOC) 1,105,000
---------------------------------------------------------------------------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(A) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
SOUTH CAROLINA--CONTINUED
---------------------------------------------------------------------------------
$ 3,410,000 York County, SC IDA, Industrial Development Revenue Bonds (Series 1989) Weekly
VRDNs (Sediver Inc)/(Banque Nationale de Paris LOC) $ 3,410,000
--------------------------------------------------------------------------------- --------------
Total 8,315,000
--------------------------------------------------------------------------------- --------------
TENNESSEE--2.8%
---------------------------------------------------------------------------------
1,900,000 Collierville, TN IDB, Industrial Development Revenue Bonds (Series 1994) Weekly
VRDNs (Ardco, Inc.)/(Harris Trust & Savings Bank, Chicago LOC) 1,900,000
---------------------------------------------------------------------------------
500,000 Metropolitan Nashville, TN Airport Authority, Passenger Facilities Revenue Bonds,
4.80% Bonds (FGIC INS), 7/1/1997 501,494
---------------------------------------------------------------------------------
2,000,000 Oak Ridge, TN IDB, Solid Waste Facility Bonds (Series 1996) Weekly VRDNs (M4
Environmental L.P. Project)/(SunTrust Bank, Atlanta LOC) 2,000,000
--------------------------------------------------------------------------------- --------------
Total 4,401,494
--------------------------------------------------------------------------------- --------------
TEXAS--6.5%
---------------------------------------------------------------------------------
6,000,000 Brazos River Authority, TX, (Series 1996C) Daily VRDNs (Texas Utilities Electric
Co.)/(AMBAC INS)/(Bank of New York, New York LIQ) 6,000,000
---------------------------------------------------------------------------------
700,000 Capital Health Facilities Development Corp of Texas, Health Facilities
Development Revenue Bonds (Series 1986) Weekly VRDNs (The Island on Lake Travis,
Ltd.)/(Credit Suisse, Zurich LOC) 700,000
---------------------------------------------------------------------------------
3,700,000 Gulf Coast, TX IDA, Marine Terminal Revenue Bonds (Series 1993) Daily VRDNs
(Amoco Corp.) 3,700,000
--------------------------------------------------------------------------------- --------------
Total 10,400,000
--------------------------------------------------------------------------------- --------------
UTAH--1.7%
---------------------------------------------------------------------------------
400,000 Salt Lake City, UT, Subordinated Airport Revenue Bonds (Series 1994A) Weekly
VRDNs (Credit Suisse, Zurich LOC) 400,000
---------------------------------------------------------------------------------
800,000 Utah State Board of Regents, Student Loan Revenue Bonds (Series 1993A) Weekly
VRDNs (Student Loan Marketing Association LOC) 800,000
---------------------------------------------------------------------------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(A) SHORT-TERM MUNICIPALS--CONTINUED
- ------------------------------------------------------------------------------------------------
UTAH--CONTINUED
---------------------------------------------------------------------------------
$ 1,535,000 Utah State School District Financing Cooperative, 8.375% TOBs, Mandatory Tender
2/15/1997 $ 1,537,758
--------------------------------------------------------------------------------- --------------
Total 2,737,758
--------------------------------------------------------------------------------- --------------
VIRGINIA--1.4%
---------------------------------------------------------------------------------
1,000,000 Richmond, VA Redevelopment & Housing Authority, (Series B-9) Weekly VRDNs
(Richmond, VA Red Tabacco Row)/(Bayerische Landesbank Girozentrale LOC) 1,000,000
---------------------------------------------------------------------------------
1,300,000 Virginia Peninsula Port Authority Daily VRDNs (Kinyo Virginia, Inc.)/(Industrial
Bank of Japan Ltd., Tokyo LOC) 1,300,000
--------------------------------------------------------------------------------- --------------
Total 2,300,000
--------------------------------------------------------------------------------- --------------
WASHINGTON--0.7%
---------------------------------------------------------------------------------
1,095,000 Washington State Housing Finance Commission, Single-Family Program Bonds (1996
Series 1A-S), 3.80% TOBs, Mandatory Tender 6/2/1997 1,095,000
--------------------------------------------------------------------------------- --------------
WEST VIRGINIA--0.7%
---------------------------------------------------------------------------------
1,100,000 Fayette County, WV, Solid Waste Disposal Facility Revenue Bonds (Series 1995)
Weekly VRDNs (Georgia-Pacific Corp.)/(Industrial Bank of Japan Ltd., Tokyo LOC) 1,100,000
--------------------------------------------------------------------------------- --------------
WISCONSIN--1.3%
---------------------------------------------------------------------------------
2,100,000 Sun Prairie, WI Area School District, 4.25% TRANs, 8/22/1997 2,105,151
--------------------------------------------------------------------------------- --------------
WYOMING--1.3%
---------------------------------------------------------------------------------
2,000,000 Uinta County, WY, PCR Bonds (Series 1984), 3.80% TOBs (Chevron U.S.A.,
Inc.)/(Chevron U.S.A., Inc. GTD), Optional Tender 6/15/1997 2,000,000
--------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 161,405,316
--------------------------------------------------------------------------------- --------------
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 74.8% of the
portfolio as calculated based upon total portfolio market value.
(a) 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. A
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1 or
SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1, ands F-2 by Fitch Investors Service, 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 January 31, 1997, the portfolio securities were rated as follows:
TIER RATING PERCENT BASED ON TOTAL MARKET VALUE (UNAUDITED)
<TABLE>
<CAPTION>
FIRST TIER SECOND TIER
<S> <C>
95.66% 4.34%
</TABLE>
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At January 31, 1997, the securities amounted
to $10,465,000, which represents 6.6% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($159,561,778) at January 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
BANs--Bond Anticipation Notes
COL--Collateralized
CSD--Central School District
EDA--Economic Development Authority
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance
GNMA--Government National Mortgage Association
GTD--Guaranty
HEFA--Health and Education Facilities Authority
HFA--Housing Finance Authority
IDA--Industrial Development Authority
IDB--Industrial Development Bond
INS--Insured
INV--Investment Agreement
LIQ--Liquidity Agreement
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
LOCs--Letter(s) of Credit
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance
PCR--Pollution Control Revenue
PLC--Public Limited Company
RANs--Revenue Anticipation Notes
TANs--Tax Anticipation Notes
TOBs--Tender Option Bonds
TRANs--Tax and Revenue Anticipation Notes
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL OBLIGATIONS FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $ 161,405,316
- -------------------------------------------------------------------------------------------------
Cash 5,703,599
- -------------------------------------------------------------------------------------------------
Income receivable 1,288,612
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 10,819,217
- ------------------------------------------------------------------------------------------------- --------------
Total assets 179,216,744
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------
Payable for investments purchased $ 3,005,760
- ----------------------------------------------------------------------------------
Payable for shares redeemed 16,245,879
- ----------------------------------------------------------------------------------
Income distribution payable 380,348
- ----------------------------------------------------------------------------------
Accrued expenses 22,979
- ---------------------------------------------------------------------------------- -------------
Total liabilities 19,654,966
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 159,537,449 shares outstanding $ 159,561,778
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
- -------------------------------------------------------------------------------------------------
$159,561,180 / 159,536,851 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
INSTITUTIONAL SERVICE SHARES:
- -------------------------------------------------------------------------------------------------
$299 / 299 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
INSTITUTIONAL CAPITAL SHARES:
- -------------------------------------------------------------------------------------------------
$299 / 299 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL OBLIGATIONS FUND
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest $ 6,645,653
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee $ 363,536
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 163,201
- ---------------------------------------------------------------------------------------
Custodian fees 63,131
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 29,456
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 2,870
- ---------------------------------------------------------------------------------------
Auditing fees 12,505
- ---------------------------------------------------------------------------------------
Legal fees 2,143
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 17,899
- ---------------------------------------------------------------------------------------
Shareholder services fee--Institutional Capital Shares 420
- ---------------------------------------------------------------------------------------
Distribution Fee--Class C Shares 4,020
- ---------------------------------------------------------------------------------------
Shareholder registration costs 23,287
- ---------------------------------------------------------------------------------------
Printing and postage 1,272
- ---------------------------------------------------------------------------------------
Insurance premiums 3,093
- ---------------------------------------------------------------------------------------
Miscellaneous 11,648
- --------------------------------------------------------------------------------------- -----------
Total expenses 698,481
- ---------------------------------------------------------------------------------------
Waivers--
- --------------------------------------------------------------------------
Waiver of investment advisory fee $ (238,796)
- --------------------------------------------------------------------------
Waiver of administrative personnel and services fee (100,933)
- --------------------------------------------------------------------------
Waiver of custodian fee (26,250)
- --------------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Capital Shares (252)
- -------------------------------------------------------------------------- -----------
Total waivers (366,231)
- --------------------------------------------------------------------------------------- -----------
Net expenses 332,250
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 6,313,403
- ---------------------------------------------------------------------------------------------------- ------------
Net realized loss on investments (32,313)
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 6,281,090
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL OBLIGATIONS FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 31, 1997 JANUARY 31, 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------
Net investment income $ 6,313,403 $ 6,815,881
- ---------------------------------------------------------------------------
Net realized gain (loss) on investments (32,313) 30,323
- --------------------------------------------------------------------------- ----------------- -----------------
Change in net assets resulting from operations 6,281,090 6,846,204
- --------------------------------------------------------------------------- ----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------
Distributions from net investment income:
- ---------------------------------------------------------------------------
Institutional Shares (6,272,384) (6,749,439)
- ---------------------------------------------------------------------------
Institutional Service Shares (4) --
- ---------------------------------------------------------------------------
Institutional Capital Shares (4,848) --
- ---------------------------------------------------------------------------
Class C Shares (36,167) (60,733)
- ---------------------------------------------------------------------------
Distributions from net realized gains:
- ---------------------------------------------------------------------------
Institutional Shares -- (5,653)
- ---------------------------------------------------------------------------
Class C Shares -- (56)
- --------------------------------------------------------------------------- ----------------- -----------------
Change in net assets resulting from distributions to shareholders (6,313,403) (6,815,881)
- --------------------------------------------------------------------------- ----------------- -----------------
CAPITAL CONTRIBUTION-- 32,313 --
- --------------------------------------------------------------------------- ----------------- -----------------
SHARE TRANSACTIONS--
- ---------------------------------------------------------------------------
Proceeds from sale of shares 3,319,509,601 2,866,960,080
- ---------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 1,279,467 1,821,823
- ---------------------------------------------------------------------------
Cost of shares redeemed (3,298,316,597) (2,825,318,501)
- --------------------------------------------------------------------------- ----------------- -----------------
Change in net assets resulting from share transactions 22,472,471 43,463,402
- --------------------------------------------------------------------------- ----------------- -----------------
Change in net assets 22,472,471 43,493,725
- ---------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------
Beginning of period 137,089,307 93,595,582
- --------------------------------------------------------------------------- ----------------- -----------------
End of period $ 159,561,778 $ 137,089,307
- --------------------------------------------------------------------------- ----------------- -----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL OBLIGATIONS FUND
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Money Market Obligations Trust II (the "Trust"), (formerly, Lehman Brothers
Institutional Funds Group 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 three portfolios. The financial statements included herein
are only those of Municipal Obligations Fund (the "Fund"), (formerly, Municipal
Money Market 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 dividend income exempt from
federal regular income tax consistent with stability of principal.
The Fund offers three classes of shares: Institutional Shares (formerly, Class A
Shares), Institutional Service Shares (formerly, Class B Shares), and
Institutional Capital Shares (formerly Class E Shares). As of November 15, 1996,
the fund's Class C Shares were no longer operational.
(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.
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 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 Investment Company Act of 1940.
Additional information on each restricted security held at January 31, 1997
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Colorado Municipal Securities Trust 11/19/96 $ 3,375,000
New Jersey Housing & Mortgage Financing Authority 10/02/96 3,090,000
Pennsylvania Housing Finance Authority 10/01/96 4,000,000
</TABLE>
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 ($0.001 par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
<S> <C> <C>
INSTITUTIONAL SHARES 1997 1996
- ------------------------------------------------------------------------------ ---------------- ----------------
Shares sold 3,310,319,398 2,859,696,960
- ------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 1,275,572 1,821,819
- ------------------------------------------------------------------------------
Shares redeemed (3,287,154,333) (2,820,023,841)
- ------------------------------------------------------------------------------ ---------------- ----------------
Net change resulting from Institutional Share transactions 24,440,637 41,494,938
- ------------------------------------------------------------------------------ ---------------- ----------------
</TABLE>
MUNICIPAL OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL SERVICE SHARES 1997 1996
<S> <C> <C>
- ------------------------------------------------------------------------------ ---------------- ----------------
Shares sold 300 --
- ------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 1 --
- ------------------------------------------------------------------------------
Shares redeemed (102) --
- ------------------------------------------------------------------------------ ---------------- ----------------
Net change resulting from Institutional Service Share transactions 199 --
- ------------------------------------------------------------------------------ ---------------- ----------------
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL CAPITAL SHARES 1997 1996
<S> <C> <C>
- ------------------------------------------------------------------------------ ---------------- ----------------
Shares sold 5,039,630 --
- ------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 3,892 --
- ------------------------------------------------------------------------------
Shares redeemed (5,043,323) --
- ------------------------------------------------------------------------------ ---------------- ----------------
Net change resulting from Institutional Capital Share transactions 199 --
- ------------------------------------------------------------------------------ ---------------- ----------------
<CAPTION>
YEAR ENDED JANUARY 31,
CLASS C SHARES 1997(B) 1996(A)
<S> <C> <C>
- ------------------------------------------------------------------------------ ---------------- ----------------
Shares sold 4,150,273 7,263,120
- ------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 2 4
- ------------------------------------------------------------------------------
Shares redeemed (6,118,839) (5,294,660)
- ------------------------------------------------------------------------------ ---------------- ----------------
Net change resulting from Class C Share transactions (1,968,564) 1,968,464
- ------------------------------------------------------------------------------ ---------------- ----------------
Net change resulting from share transactions 22,472,471 43,463,402
- ------------------------------------------------------------------------------ ---------------- ----------------
</TABLE>
(a) For the period from April 18, 1995 (date of initial public offering) to
January 31, 1996.
(b) As of November 15, 1996, the Fund's Class C Shares were no longer
operational.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.20% 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.
Federated Management became the Fund's investment adviser on November 15, 1996.
Prior to November 15, 1996, Lehman Brothers Global Asset Management, Inc. (the
"Former Adviser") served as the Fund's investment adviser.
For the period ended January 31, 1997, the advisers earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
ADVISER FEE EARNED FEE WAIVED
<S> <C> <C>
Federated Management $ 76,352 $ 76,352
- ---------------------------------------------------------------------------------- ------------- --------------
Lehman Brothers Global Asset Management $ 287,184 $ 162,444
- ---------------------------------------------------------------------------------- ------------- --------------
</TABLE>
CAPITAL CONTRIBUTION--The Former Adviser made a capital contribution to the fund
on November 15, 1996, of an amount equal to the accumulated net realized loss on
investments balance carried by the Fund.
This transaction resulted in a permanent book and tax difference. As such, the
paid-in-capital and accumulated net realized gain/loss accounts have been
adjusted accordingly. This adjustment did not affect net investment income, net
realized gains/losses, or 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. FServ became the Fund's
administrator on November 15, 1996. Prior to November 15, 1996, First Data
Investors Services Group, Inc. ("FDISG") served as the Fund's administrator.
For the period ended January 31, 1997, the administrators earned fees as
follows:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
ADMINISTRATOR FEE EARNED FEE WAIVED
<S> <C> <C>
FServ $ 19,609 $ --
- ---------------------------------------------------------------------------------- ------------- --------------
FDISG $ 143,592 $ 100,933
- ---------------------------------------------------------------------------------- ------------- --------------
</TABLE>
DISTRIBUTION SERVICES FEE--Pursuant to Rule 12b-1 under the Act, as amended, the
Fund had adopted Distribution Agreements ("Service Agreements") with
institutional investors such as banks, savings and loan associations and other
financial institutions with respect to the Fund's former Class B, Class C and
Class E Shares. All such Service Agreements were terminated effective
November 15, 1996. Prior to November 15, 1996, Lehman Brothers, Inc., acted as
the Fund's distributor.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS") the Fund will pay FSS up to 0.25% of
average daily net assets of the Fund for the period. There is no present
intention of paying or accruing the Shareholder Services fee for the
Institutional Shares. The fee paid to FSS is used to finance certain services
for shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion. FSS became the Fund's
shareholder servicing agent on November 15, 1996.
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. FSSC
became the Fund's transfer and dividend disbursing agent on November 15, 1996.
Prior to November 15, 1996, FDISG served as the Fund's transfer and dividend
disbursing agent.
For the period ended January 31, 1997, the transfer and dividend disbursing
agents earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
TRANSFER AND DIVIDEND DISBURSING AGENT FEE EARNED FEE WAIVED
<S> <C> <C>
FSSC $ 4,521 $ --
- ---------------------------------------------------------------------------------- ------------- --------------
FDISG $ 24,935 $ --
- ---------------------------------------------------------------------------------- ------------- --------------
</TABLE>
PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting records for
which it receives a fee. The fee is based on the level of the Trust's average
daily net assets for the period, plus out-of-pocket expenses. All portfolio
accounting fees for the period ended January 31, 1997 were paid to FServ.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of
MUNICIPAL OBLIGATIONS FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Municipal Obligations Fund, formerly Municipal
Money Market Fund (a portfolio of Money Market Obligations Trust II, formerly a
Portfolio of Lehman Brothers Institutional Funds Group Trust) as of January 31,
1997, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Municipal Obligations Fund at January 31, 1997, and the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and financial highlights for each of the
periods indicated therein, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 14, 1997
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Municipal Obligations Fund
Institutional Capital Shares Federated Investors Tower
Pittsburgh, PA 15222-3779
- -----------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, PA 15222-3779
- -----------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management 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 Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, PA 15219
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
MUNICIPAL
OBLIGATIONS FUND
(FORMERLY, MUNICIPAL MONEY
MARKET FUND)
INSTITUTIONAL CAPITAL SHARES
(FORMERLY, CLASS E SHARES)
PROSPECTUS
Portfolio of Money Market Obligations
Trust II (formerly, Lehman Brothers Institutional
Group Trust), an Open-End
Management
Investment Company
Prospectus dated March 31, 1997
[LOGO] FEDERATED INVESTORS
Since 1955
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[LOGO]
Cusip 608912309
G01881-09 (3/97)
MUNICIPAL OBLIGATIONS FUND
(A PORTFOLIO OF MONEY MARKET OBLIGATIONS TRUST II)
(FORMERLY, MUNICIPAL MONEY MARKET FUND, A PORTFOLIO OF LEHMAN BROTHERS
INSTITUTIONAL FUNDS GROUP TRUST)
INSTITUTIONAL SHARES (FORMERLY, CLASS A SHARES)
INSTITUTIONAL SERVICE SHARES (FORMERLY, CLASS B SHARES)
INSTITUTIONAL CAPITAL SHARES (FORMERLY, CLASS E SHARES)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus(es) of Municipal Obligations Fund (formerly, Municipal Money
Market Fund) (the ``Fund'), a portfolio of Money Market Obligations
Trust II (formerly, Lehman Brothers Institutional Funds Group Trust)
(the ``Trust') dated March 31, 1997. This Statement is not a
prospectus. You may request a copy of a prospectus or a paper copy of
this Statement, if you have received it electronically, free of charge
by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated March 31, 1997
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 608912101
Cusip 608912200
Cusip 608912309
G01881-12 (3/97)
FUND HISTORY 1
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 2
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Restricted and Illiquid Securities 2
Credit Enhancement 2
INVESTMENT LIMITATIONS 2
Regulatory Compliance 4
MONEY MARKET OBLIGATIONS TRUST II MANAGEMENT 4
Share Ownership 8
Trustee Compensation 8
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
Investment Adviser 10
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 11
Fund Administration 11
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Auditors 11
DETERMINING NET ASSET VALUE 11
Shareholder Services 12
REDEMPTION IN KIND 12
MASSACHUSETTS PARTNERSHIP LAW 12
THE FUND'S TAX STATUS 12
PERFORMANCE INFORMATION 13
Yield 13
Effective Yield 13
Tax-Equivalent Yield 13
Tax-Equivalency Table 14
Total Return 15
Performance Comparisons 15
Economic and Market Information 15
ABOUT FEDERATED INVESTORS 15
Mutual Fund Market 16
Institutional Clients 16
Bank Marketing 16
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 16
APPENDIX 17
FUND HISTORY
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated November 16, 1992. On November 15, 1996, the
Board of Trustees (`Trustees'') changed the name of the Trust from
`Lehman Brothers Institutional Funds Group Trust'' to ``Money Market
Obligations Trust II''and the name of the Fund from ``Municipal Money
Market Fund''to ``Municipal Obligations Fund.''
Shares of the Fund are offered in three classes, known as Institutional
Shares, Institutional Service Shares and Institutional Capital Shares
(individually and collectively referred to as `Shares,'' as the context
may require). This Statement of Additional Information relates to the
above-referenced Shares of the Fund.
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of Trustees without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or
any guarantor of either the security or any demand feature.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation
interests frequently provide or secure from another financial institution
irrevocable letters of credit or guarantees and give the Fund the right to
demand payment of the principal amounts of the participation interests plus
accrued interest on short notice (usually within seven days). The
municipal securities subject to the participation interests are not limited
to the Fund's maximum maturity requirements so long as the participation
interests include the right to demand payment from the issuers of those
interests. By purchasing these participation interests, the Fund is buying
a security meeting the maturity and quality requirements of the Fund and
also is receiving the tax-free benefits of the underlying securities.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease
payments by a governmental or nonprofit entity. The lease payments and
other rights under the lease provide for and secure payments on the
certificates. Lease obligations may be limited by municipal charter or the
nature of the appropriation for the lease. Furthermore, a lease may
provide that the participants cannot accelerate lease obligations upon
default. the participants would only be able to enforce lease payments as
they became due. In the event of a default or failure of appropriation,
unless the participation interests are credit enhanced, it is unlikely that
the participants would be able to obtain an acceptable substitute source of
payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors: whether the lease can be terminated
by the lessee; the potential recovery, if any, from a sale of the leased
property upon termination of the lease; the lessee's general credit
strength (e.g., its debt, administrative, economic and financial
characteristics and prospects); the likelihood that the lessee will
discontinue appropriating funding for leased property because the property
is no longer deemed essential to its operations (e.g., the potential for an
`event of non-appropriation''); and any credit enhancement or legal
recourse provided upon an event of non-appropriation or other termination
of the lease.
RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
statistical rating organizations (`NRSROs'') or be of comparable quality
to securities having such ratings. 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
Ratings Group (`S&P''), MIG-1 or MIG-2 by Moody's Investors Service, Inc.
(`Moody's''), or F-1 +, F-1, or F-2 by Fitch Investors Service, Inc.
(`Fitch'') are all considered rated in one of the two highest short-term
rating categories. The Fund will follow applicable regulations in
determining whether a security rated by more than one NRSRO can be treated
as being in one of the two highest short-term rating categories; currently,
such securities must be rated by two NRSROs in one of their two highest
rating categories. See `Regulatory Compliance.''
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is settled. The Fund
does not intend to engage in when-issued and delayed delivery transactions
to an extent that would cause the segregation of more than 20% of the total
value of its assets.
REPURCHASE AGREEMENTS
The Fund believes that under the regular procedures normally in effect for
custody of the Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the
Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the
Fund's adviser to be creditworthy pursuant to guidelines established by the
Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and agrees
that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but does not ensure this result. However,
liquid assets of the Fund, in a dollar amount sufficient to make payment
for the securities to be purchased, are: segregated on the Fund's records
at the trade date; marked to market daily; and maintained until the
transaction is settled.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law, and is generally sold to institutional investors, such as
the Fund, who agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like the Fund through
or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity. The Fund
believes that Section 4(2) commercial paper and possibly certain other
restricted securities which meet the criteria for liquidity established by
the Trustees are quite liquid. The Fund intends, therefore, to treat the
restricted securities which meet the criteria for liquidity established by
the Trustees, including Section 4(2) commercial paper, as determined by the
Fund's investment adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-
enhanced securities based upon the financial condition and ratings of the
party providing the credit enhancement (the `credit enhancer''), rather
than the issuer. Generally, the Fund will not treat credit-enhanced
securities as being issued by the credit enhancer for diversification
purposes. However, under certain circumstances applicable regulations may
require the Fund to treat securities as having been issued by both the
issuer and the credit enhancer.
INVESTMENT LIMITATIONS
DIVERSIFICATION OF INVESTMENTS
The Fund may not purchase securities of any one issuer if as a result more
than 5% of the value of the Fund's assets would be invested in the
securities of such issuer, except that up to 25% of the value of the Fund's
total assets may be invested without regard to such 5% limitation and
provided that there is no limitation with respect to investments in U.S.
government securities.
ISSUING SENIOR SECURITIES, BORROWING MONEY AND PLEDGING ASSETS
The Fund may not borrow money, except that the Fund may (i) borrow money
for temporary or emergency purposes (not for leveraging or investment) from
banks or, subject to specific authorization by the SEC, from funds advised
by the adviser or an affiliate of the adviser, and (ii) engage in reverse
repurchase agreements; provided that (i) and (ii) in combination do not
exceed one-third of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings). The Fund may
not mortgage, pledge, or hypothecate its assets except in connection with
such borrowings and reverse repurchase agreements and then only in amounts
not exceeding one-third of the value of the Fund's total assets.
Additional investments will not be made when borrowings exceed 5% of the
Fund's assets.
LENDING CASH OR SECURITIES
The Fund may not make loans, except that the Fund may (i) purchase or hold
debt obligations in accordance with its investment objective and policies,
(ii) enter into repurchase agreements for securities, (iii) lend portfolio
securities, and (iv) subject to specific authorization by the SEC, lend
money to other funds advised by the adviser or an affiliate of the adviser.
UNDERWRITING
The Fund may not act as an underwriter of securities, except insofar as the
Fund may be deemed an underwriter under applicable securities laws in
selling portfolio securities.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate or real estate limited
partnerships, provided that the Fund may purchase securities of issuers
which invest in real estate or interests therein.
INVESTING IN COMMODITIES AND MINERALS
The Fund may not purchase or sell commodities contracts, or invest in oil,
gas or mineral exploration or development programs or in mineral leases.
CONCENTRATION OF INVESTMENTS
The Fund may not purchase any securities which would cause 25% or more of
the value of its total assets at the time of such purchase to be invested
in the securities of one or more issuers conducting their principal
business activities in the same industry, or in industrial development
bonds or other securities, the interest upon which is paid from revenues of
similar types of projects (unless the Fund is in a temporary defensive
position); provided that there is no limitation with respect to investments
in U.S. government securities.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including repurchase agreements providing for
settlement in more than seven days after notice.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for
clearance of transactions.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not acquire more than 3% of the total outstanding securities
of other investment companies, except as part of a merger, consolidation,
or other acquisition.
In addition, without approval of the holders of a majority of the Fund's
outstanding shares, the Fund may not change its policy of investing at
least 80% of its total assets (except during temporary defensive periods)
in Municipal Securities.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of
and regulations under the Investment Company Act of 1940. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. For example, with limited exceptions,
Rule 2a-7 prohibits the investment of more than 5% of the Fund's total
assets in the securities of any one issuer, although the Fund's investment
limitation only requires such 5% diversification with respect to 75% of its
assets. The Fund will invest more than 5% of its assets in any one issuer
only under the circumstances permitted by Rule 2a-7. The Fund will also
determine the effective maturity of its investments , as well as its
ability to consider a security as having received the requisite short-term
ratings by NRSROs, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without
the approval of its shareholders.
MONEY MARKET OBLIGATIONS TRUST II MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Money Market Obligations Trust II, and principal
occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, President and
Trustee of the Trust.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director,
Member of Executive Committee, University of Pittsburgh; Director or
Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
President and Trustee
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Boca Grande Club
Boca Grande, FL
Birthdate: October 6, 1926
Trustee
Attorney, Retired Member of Miller, Ament, Henny & Kochuba; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or
Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies:
111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate
U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund,
Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA
Trust; Federated Government Income Securities, Inc.; Federated Government
Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series; Federated
Investment Portfolios; Federated Investment Trust; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated
Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 2-5 Years; Federated U.S. Government Securities
Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed
Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds;
RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
Shares.
As of March 10, 1997, the following shareholder(s) of record owned 5% or
more of the outstanding Institutional Shares of the Municipal Obligations
Fund: River Oaks Trust Company, Houston, TX, owned approximately
46,423,491 shares (27.22%); Sinclair Oil Corp., Salt Lake City, UT, owned
approximately 11,300,000 shares (6.63%); Deposit Guaranty National Bank,
Jackson, MS, owned approximately 15,003,212 shares (8.80%); Bacou USA Inc.,
Smithfield, RI, owned approximately 20,894,916 shares (12.25%); and St.
Mary Land & Exploration Co., Denver, CO, owned approximately 15,004,166
shares (8.80%).
As of March 10, 1997, the following shareholder(s) of record owned 5% or
more of the outstanding Institutional Service Shares of the Municipal
Obligations Fund: Peoples Bank, Bridgeport, CT, owned approximately
1,184,000 shares (99.97%).
As of March 10, 1997, the following shareholder(s) of record owned 5% or
more of the outstanding Institutional Capital Shares of the Municipal
Obligations Fund: PNC Securities Corp., Pittsburgh, PA, owned approximately
2,770,000 shares (18.75%); and Excel Industries, Elkhart, IN, owned
approximately 12,000,000 shares (81.24%).
TRUSTEE COMPENSATION
BOARD OF TRUSTEES - LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST FROM FUND COMPLEX *
James A. Carbone, $0 $0 for the Trust and
Co-Chairman and Trustee Fund Complex(2)
Andrew Gordon, $0 $0 for the Trust and
Co-Chariman, Trustee and President Fund Complex(2)
Charles Barber, $25,000 $25,000 for the Trust and
Trustee Fund Complex(1)
Burt N. Dorsett, $25,000 $52,500 for the Trust and
Trustee Fund Complex(2)
Edward J. Kaier, $25,000 $25,000 for the Trust and
Trustee Fund Complex(1)
S. Donald Wiley, $25,000 $25,000 for the Trust and
Trustee Fund Complex(1)
* Represents the total compensation paid to such persons by all investment
companies (including the Trust) from which such person received
compensation during the fiscal year ended January 31, 1997 that are
considered part of the same `fund complex'' as the Trust because they have
common or affiliated investment advisers. The parenthetical number
represents the number of such investment companies, including the Trust.
BOARD OF TRUSTEES - MONEY MARKET OBLIGATIONS TRUST II
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST** TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the
Fund Complex
Thomas G. Bigley $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John T. Conroy, Jr. $0 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
William J. Copeland $0 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
J. Christopher Donahue$0 $0 for the Trust and
President and Trustee 18 other investment companies in the
Fund Complex
James E. Dowd $0 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $0 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Peter E. Madden $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Gregor F. Meyer $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John E. Murray, Jr., $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Wesley W. Posvar $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Marjorie P. Smuts $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
* Information is furnished for the fiscal year ended January 31, 1997.
**New Board of Trustees as of November 15, 1996, per shareholder approval.
# The aggregate compensation is provided for the Trust which is comprised
of three portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a subsidiary
of Federated Investors. All the voting securities of Federated Investors
are owned by a trust, the trustees of which are John F. Donahue, his wife
and his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust, the Fund, or any shareholder
of the Fund for any losses that may be sustained in the purchase, holding,
or sale of any security or for anything done or omitted by it, except acts
or omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Trust.
Prior to November 15, 1996, Lehman Brothers Global Asset Management, New
York, NY, was the investment adviser for the Fund.
ADVISORY FEES
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectus. Prior to November
15, 1996, Lehman Brothers Global Asset Management (the `former adviser''),
New York, NY served as the Fund's adviser. For the period from November
15, 1996, to January 31, 1997, Federated Management earned $76,352 of which
$76,352 was waived. For the period from February 1, 1996, to November 14,
1996, and the fiscal years ended January 31, 1996, and 1995, the former
adviser earned $287,184, $172,515, and $223,512, respectively, of which
$162,444, $44,040, and $150,715, respectively, were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal year(s) ended January 31, 1997, 1996,
and 1995, the Fund paid no brokerage commissions.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. FDISG (the `former administrator''), a subsidiary of First
Data Corporation, Boston, MA, served as the Fund's administrator prior to
November 15, 1996. For the period from November 15, 1996, to January 31,
1997, Federated Services Company earned $19,609 of which $0 was waived.
For the period from February 1, 1996, to November 14, 1996, and the fiscal
years ended January 31, 1996, and 1995, the former administrator earned
$143,592, $172,515 and $223,512, respectively. Waivers by the former
administrator of administration fees and reimbursement of expenses to
maintain the Fund's operating expense ratios at certain levels for the
period from February 1, 1996, to November 14, 1996, and the fiscal years
ended January 31, 1996, and 1995, amounted to $100,933, $127,184, and
$171,438, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses. Prior to November 15, 1996, Boston Safe, Boston, MA, a
wholly-owned subsidiary of Mellon Bank Corporation, served as the custodian
for the Fund.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on the
size, type and number of accounts and transactions made by shareholders.
Prior to November 15, 1996, FDISG served as the Fund's transfer agent.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
PA. Prior to November 15, 1996, Ernst & Young LLP, Boston, MA, were the
independent auditors for the Fund.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization
of premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares
of the Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above may tend to be higher
than a similar computation made by using a method of valuation based upon
market prices and estimates. In periods of rising interest rates, the
opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions in Rule 2a-7
(the `Rule'') promulgated by the Securities and Exchange Commission under
the Investment Company Act of 1940. Under the Rule, the Trustees must
establish procedures reasonably designed to stabilize the net asset value
per share, as computed for purposes of distribution and redemption, at
$1.00 per share, taking into account current market conditions and the
Fund's investment objective. The procedures include monitoring the
relationship between the amortized cost value per share and the net asset
value per share based upon available indications of market value. The
Trustees will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences between the two
methods of determining net asset value.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder
Services to cause services to be provided which are necessary for the
maintenance of shareholder accounts and to encourage personal services to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include but are not limited to providing office space, equipment, telephone
facilities, and various clerical, supervisory, computer, and other
personnel as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine
client inquiries; and assisting clients in changing dividend options,
account designations, and addresses.
By adopting the Shareholder Services Agreement, the Trustees expect that
the fund will benefit by: (1) providing personal services to
shareholders; (2) investing shareholder assets with a minimum of delay and
administrative detail; (3) enhancing shareholder recordkeeping systems; and
(4) responding promptly to shareholders' requests and inquiries concerning
their accounts.
For the period from November 15, 1996, to January 31, 1997, Federated
Shareholder Services earned $420, of which $252 was waived.
Prior to November 15, 1996, the Fund entered into agreements with Service
Organizations (Rule 12b-1 Plan) whose customers are the beneficial owners
of what were formerly called Class B Shares and Class E Shares. For the
period from February 1, 1996, to November 14, 1996, and for the fiscal
years ended January 31, 1996, and January 31, 1995, the Fund did not pay
any service fees.
REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1%
of the Fund's net asset value, whichever is less, for any one shareholder
within a 90-day period. Any redemption beyond this amount will also be in
cash unless the Trustees determine that further payments should be in kind.
In such cases, the Fund will pay all or a portion of the remainder of the
redemption in portfolio instruments valued in the same way as the Fund
determines net asset value. The portfolio instruments will be selected in a
manner that the Trustees deem fair and equitable. Redemption in kind is
not as liquid as a cash redemption. If redemption is made in kind,
shareholders who sell these securities could receive less than the
redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect
its shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for acts or
obligations of the Trust. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required by the Declaration of Trust to
use its property to protect or compensate the shareholder. On request, the
Trust will defend any claim made and pay any judgment against a shareholder
for any act or obligation of the Trust. Therefore, financial loss resulting
from liability as a shareholder will occur only if the Trust itself cannot
meet its obligations to indemnify shareholders and pay judgments against
them.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90%
of its gross income from dividends, interest, and gains from the sale of
securities; derive less than 30% of its gross income from the sale of
securities held less than three months; invest in securities within certain
statutory limits; and distribute to its shareholders at least 90% of its
net income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average
portfolio maturity; type of instruments in which the portfolio is invested;
changes in interest rates; changes in expenses; and the relative amount of
cash flow. To the extent that financial institutions and broker/dealers
charge fees in connection with services provided in conjunction with an
investment in shares of the Fund, the performance will be reduced for those
shareholders paying those fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the `base period.'' This yield is computed by:
determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
shares purchased with dividends earned from the original one share and all
dividends declared on the original and any purchased shares; dividing the
net change in the account's value by the value of the account at the
beginning of the base period to determine the base period return; and
multiplying the base period return by 365/7.
For the seven-day period ended January 31, 1997, the yield for
Institutional Shares was 3.50%.
For the seven-day period ended January 31, 1997, the yield for
Institutional Service Shares was 3.25%.
For the seven-day period ended January 31, 1997, the yield for
Institutional Capital Shares was 3.38%.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base
period return by: adding 1 to the base period return; raising the sum to
the 365/7th power; and subtracting 1 from the result.
For the seven-day period ended January 31, 1997, the effective yield for
Institutional Shares was 3.57%.
For the seven-day period ended January 31, 1997, the effective yield for
Institutional Service Shares was 3.31%.
For the seven-day period ended January 31, 1997, the effective yield for
Institutional Capital Shares was 3.44%.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield
but is adjusted to reflect the taxable yield that the Fund would have had
to earn to equal its actual yield, assuming 39.60% tax rate (the maximum
effective federal rate for individuals) and assuming that the income is
100% tax exempt.
For the seven-day period ended January 31, 1997, the tax-equivalent yield
for Institutional Shares was 5.79%.
For the seven-day period ended January 31, 1997, the tax-equivalent yield
for Institutional Service Shares was 5.38%.
For the seven-day period ended January 31, 1997, the tax-equivalent yield
for Institutional Capital Shares was 5.60%.
TAX-EQUIVALENCY TABLE
A tax-equivalency table may be used in advertising and sales literature.
The interest earned by the municipal securities in the Fund's portfolio
generally remains free from federal regular income tax,* and is often free
from state and local taxes as well. As the table below indicates, a `tax-
free''investment can be an attractive choice for investors, particularly
in times of narrow spreads between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1997
MULTISTATE MUNICIPAL FUNDS
FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
Tax-Exempt
Yield Taxable Yield Equivalent
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional
state and local taxes paid on comparable taxable investments were not
used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator
of past or future performance of the Fund.
*Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local taxes.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a
given period that would equate a $1,000 initial investment to the ending
redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period
by the net asset value per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares
purchased at the beginning of the period with $1,000, adjusted over the
period by any additional shares, assuming the monthly reinvestment of all
dividends and distributions.
For the one-year period ended January 31, 1997, and for the period from
February 8, 1993 (date of initial public investment) through January 31,
1997, the average annual total returns were 3.56% and 3.28%, respectively,
for Institutional Shares. For the period from February 1, 1996 (date of
initial public offering) through January 31, 1997, the average annual total
returns were 3.31% and 3.42%, respectively, for Institutional Service
Shares and for Institutional Capital Shares.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of
money market funds weekly. Donoghue's Money Market Insight
publication reports monthly and 12-month-to-date investment results
for the same money funds.
o BANK RATE MONITOR(C) NATIONAL INDEX, Miami Beach, Florida,
published weekly, is an average of the interest rates of personal
money market deposit accounts at ten of the largest banks and
thrifts in each of the five largest Standard Metropolitan
Statistical Areas. If more than one rate is offered, the lowest rate
is used. Account minimums and compounding methods may vary.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the municipal sector, as of December 31, 1996, Federated Investors
managed 12 bond funds with approximately $2.0 billion in assets and 21
money market funds with approximately $9.5 billion in total assets. In
1976, Federated introduced one of the first municipal bond mutual funds in
the industry and is now one of the largest institutional buyers of
municipal securities. The Funds may quote statistics from organizations
including The Tax Foundation and the National Taxpayers Union regarding the
tax obligations of Americans.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international and global portfolios.
MUTUAL FUND MARKET
Thrity-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3.5 trillion to the more than 6,000
funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with more than
1,600 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any
other mutual fund distributor. Federated's service to financial
professionals and institutions has earned it high ratings in several
surveys performed by DALBAR, Inc. DALBAR is recognized as the industry
benchmark for service quality measurement. The marketing effort to these
firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
STANDARD AND POOR'S RATINGS GROUP LONG-TERM DEBT RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major
PLUS (+) or MINUS (-)The rating of "AA" may be modified by the addition of
a plus or minus sign to show relative standing within this rating category.
MOODY'S INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment some time in the
future.
BAA--Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.
Con. (---) - Municipal Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience,
(c) rentals which begin when facilities are completed, or (d) payments to
which some other limiting condition attaches. Parenthetical rating denotes
probable credit stature upon completion of construction or elimination of
basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in generic classification of
"Aa" in its corporate bond rating system. The modifier 1 indicates that
the company ranks in the higher end of its generic rating category, the
modifier 2 indicates a mid-range ranking, and the modifier 3 indicates that
the company ranks at the lower end of its generic rating category.
Those municipal bonds in the `Aa'' to ``B'' groups which Moody's believes
possess the strongest investment attributes are designated by the symbols
`Aa1,'' ``A1,'' `Baa1,'' ``Ba1,'' and `B1.''
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated F-
1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
PLUS (+) OR MINUS (-): Plus or minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the AAA category.
To provide more detailed indications of credit quality, the Fitch ratings
from and including "AA" or "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
o Well established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2--Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded
as having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issues.
Fitch may also use the symbol "LOC" with its short-term ratings to indicate
that the rating is based upon a letter of credit issued by a commercial
bank.
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL NOTE RATINGS
A Standard & Poor's rating reflects the liquidity factors and market access
risks unique to notes due in the three years or less. The following
summarizes the two highest rating categories used by Standard & Poor's
Corporation for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit strong capacity
to pay principal and interest. Those issues determined to possess a very
strong capacity to pay are given a plus (+) designation.
`SP-2'' - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade ("MIG"). Such ratings recognize
the differences between short-term credit risk and long-term risk. A
short-term rating may also be assigned on an issue having a demand feature.
Such ratings will be designated as "VMIG." The following summarizes the
two highest ratings used by Moody's Investors Service, Inc. for short-term
notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
Fitch uses the short-term ratings described under Commercial Paper Ratings
for municipal notes.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRIME CASH OBLIGATIONS FUND
(A PORTFOLIO OF MONEY MARKET OBLIGATIONS TRUST II)
(FORMERLY, PRIME MONEY MARKET FUND, A PORTFOLIO OF
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST)
INSTITUTIONAL SHARES (FORMERLY, CLASS A SHARES)
PROSPECTUS
The Institutional Shares (formerly, Class A Shares) of Prime Cash Obligations
Fund (formerly, Prime Money Market Fund) (the "Fund") offered by this prospectus
represent interests in a portfolio of Money Market Obligations Trust II
(formerly, Lehman Brothers Institutional Funds Group Trust) (the "Trust"), an
open-end management investment company (a mutual fund). The Fund invests in
short-term money market securities to achieve 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 March 31,
1997, 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 the Fund at
the address listed in the back of this prospectus. 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated March 31, 1997
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Institutional Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
ACCOUNT AND SHARE INFORMATION 11
- ------------------------------------------------------
TAX INFORMATION 12
- ------------------------------------------------------
Federal Income Tax 12
State and Local Taxes 12
OTHER CLASSES OF SHARES 12
- ------------------------------------------------------
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
LAST MEETING OF SHAREHOLDERS 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 15
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL CAPITAL SHARES 16
- ------------------------------------------------------
FINANCIAL STATEMENTS 17
- ------------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 31
- ------------------------------------------------------
ADDRESSES 32
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<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
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)..................................................... 0.06%
12b-1 Fee............................................................................ None
Total Other Expenses................................................................. 0.12%
Shareholder Services Fee(2)................................................ 0.00%
Total Operating Expenses(3).......................................................... 0.18%
</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 0.20%.
(2) Institutional Shares has no present intention of paying or accruing the
shareholder services fee during the fiscal year ending January 31, 1998. If
Institutional Shares were paying or accruing the shareholder services fee,
Institutional Shares would be able to pay up to 0.25% of its average daily net
assets for the shareholder services fee. See "Fund Information."
(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending January 31, 1998. The total Institutional
Shares operating expenses were 0.18% for fiscal year ended January 31, 1997 and
would have been 0.32% absent the voluntary waivers of portions of the management
fee, administrative fee, and custodian fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SHARES OF THE
FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF
THE VARIOUS COSTS AND EXPENSES, SEE "FUND 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............. $2 $ 6 $10 $ 23
</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.
PRIME CASH OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 31.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------------------
1997 1996 1995 1994(a)
------ ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------
Net investment income 0.05 0.06 0.04 0.03
- -----------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------
Distributions from net investment income (0.05) (0.06) (0.04) (0.03)
- ----------------------------------------------- ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------- ------ ------ ------ -------
TOTAL RETURN (B) 5.38% 6.08% 4.52% 3.14%
- -----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------
Expenses 0.18% 0.17% 0.12% 0.11% *
- -----------------------------------------------
Net investment income 5.25% 5.90% 4.30% 3.16% *
- -----------------------------------------------
Expense waiver/reimbursement (c) 0.14% 0.08% 0.13% 0.22% *
- -----------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------
Net assets, end of period (000 omitted) $1,572,912 $3,919,186 $1,538,802 $2,866,353
- -----------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 8, 1993 (date of initial
public investment) to January 31, 1994.
(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 16, 1992. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established three classes of shares known as Institutional Shares,
Institutional Service Shares and Institutional Capital Shares. This prospectus
relates only to Institutional Shares of the Fund, which are designed primarily
for entities holding shares in an agency or fiduciary capacity, financial
institutions, financial intermediaries and institutional investors as a
convenient means of accumulating an interest in a professionally managed
portfolio investing in short-term money market securities. A minimum initial
investment of $1,000,000 over a one-year period 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 current income consistent with stability
of principal and liquidity. This investment objective may be changed by the
Board of Trustees 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 money
market 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 without shareholder approval. Shareholders will
be notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are either rated in the highest short-term rating category by
one or more nationally recognized statistical rating organizations ("NRSROs") or
are of comparable quality to securities having such ratings. Examples of these
instruments include, but are not limited to:
- domestic issues of corporate debt obligations, including variable rate
demand notes;
- commercial paper (including Canadian Commercial Paper and Europaper);
- certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");
- short-term credit facilities;
- asset-backed securities;
- obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities;
- other money market instruments; and
- obligations issued by state and local government agencies.
The Fund invests only in instruments denominated and payable in U.S. dollars.
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.
BANK INSTRUMENTS. The Fund only invests in Bank Instruments either issued
by an institution having capital, surplus and undivided profits over $100
million, or insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"). Bank Instruments may include
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). The Fund will treat
securities credit enhanced with a bank's letter of credit as Bank
Instruments.
ASSET-BACKED SECURITIES. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans or
accounts receivable. The securities may take the form of beneficial
interests in special purpose trusts, limited partnership interests, or
commercial paper or other debt securities issued by a special purpose
corporation. Although the securities often have some form of credit or
liquidity enhancement, payments on the securities depend predominantly upon
collections of the loans and receivables held by the issuer.
SHORT-TERM CREDIT FACILITIES. The Fund may enter into, or acquire
participations in, short-term borrowing arrangements with corporations,
consisting of either a short-term revolving credit facility or a master
note agreement payable upon demand. Under these arrangements, the borrower
may reborrow funds during the term of the facility. The Fund treats any
commitments to provide such advances as a standby commitment to purchase
the borrower's notes.
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.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and agrees that
on a stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an agreed
upon rate. The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but does not ensure this result. However, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the securities to be
purchased, are: segregated on the Fund's records at the trade date; marked to
market daily; and maintained until the transaction is settled.
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,
including non-negotiable time deposits and repurchase agreements providing for
settlement in more than seven days after notice to 10% of its net assets.
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.
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.
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.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or long-term basis, or
both, to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/ dealers, banks, or
other institutions which the adviser has determined are creditworthy under
guidelines established by the Trustees and will receive collateral at all times
equal to at least 100% of the value of the securities loaned. There is the risk
that when lending portfolio securities, the securities may not be available to
the Fund on a timely basis and the Fund may, therefore, lose the opportunity to
sell the securities at a desirable price. In addition, in the event that a
borrower of securities would file for bankruptcy or become insolvent,
disposition of the securities may be delayed pending court action.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, Canadian Commercial Paper, and Europaper are subject to
different risks than domestic obligations of domestic banks or corporations.
Examples of these risks include international economic and political
developments, foreign governmental restrictions that may adversely affect the
payment of principal or interest, foreign withholding or other taxes on interest
income, difficulties in obtaining or enforcing a judgment against the issuing
entity, and the possible impact of interruptions in the flow of international
currency transactions. Risks may also exist for ECDs, ETDs, and Yankee CDs
because the banks issuing these instruments, or their domestic or foreign
branches, are not necessarily subject to the same regulatory requirements that
apply to domestic banks, such as reserve requirements, loan limitations,
examinations, accounting, auditing, recordkeeping, and the public availability
of information. These factors will be carefully considered by the Fund's adviser
in selecting investments for the Fund.
INVESTMENT LIMITATIONS
The Fund may not:
- borrow money, except that the Fund may (i) borrow money for temporary or
emergency purposes (not for leveraging or investment) from banks, or
subject to specific authorization by the SEC, from funds advised by the
adviser or an affiliate of the adviser, and (ii) engage in reverse
repurchase agreements; provided that (i) and (ii) in combination do not
exceed one-third of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings). The Fund may
not mortgage, pledge or hypothecate any assets except in connection with
such borrowings and reverse repurchase agreements and then only in
amounts not exceeding one-third of the value of the Fund's total assets
at the time of such borrowing; or
- purchase any securities which would cause 25% or more of the value of its
total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, (unless the Fund is in a temporary
defensive position); provided that there is no limitation with respect to
investments in U.S. government securities or, in bank instruments issued
by domestic banks.
The above investment limitations cannot be changed without shareholder
approval.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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
Management, 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 0.20% of the Fund's average daily net assets. 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 Management, 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 Management 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 $110 billion invested across
over 300 funds under management and/or administration by its subsidiaries,
as of December 31, 1996, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 2,000
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,500
financial institutions nationwide.
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 INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional 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.
ADMINISTRATION OF THE FUND
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to 0.25% of the average
daily net asset value of its shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder accounts.
From time to time and for such periods as deemed appropriate, the amount stated
above may be reduced voluntarily. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares 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 Fund and Federated Shareholder
Services.
Currently, Institutional Shares are accruing no shareholder services fees.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their 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.
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 specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
- ------------ ------------------------------------
<S> <C>
.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 shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Shares from the value of Fund assets attributable to Institutional Shares, and
dividing the remainder by the number of Institutional 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 on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Fund reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $1,000,000. However, an account may be opened with
a smaller amount as long as the minimum is reached within one year of opening
the account. Financial institutions may impose different minimum investment
requirements on their customers.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve 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) that 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: Prime Cash Obligations
Fund-- Institutional Shares; 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: Prime Cash Obligations Fund--Institutional
Shares. 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.
INVEST-BY-PHONE. Once an account has been opened, a shareholder may use
invest-by-phone for investments if an authorization form has been filed with
Federated Shareholder Services Company, the transfer agent for shares of the
Fund. Approximately two weeks after sending the form to Federated
Shareholder Services Company, the shareholder may call Federated Shareholder
Services Company to purchase shares. Federated Shareholder Services Company will
send a request for monies to the shareholder's commercial bank, savings bank, or
credit union ("bank") via the Automated Clearing House. The shareholder's bank,
which must be an Automated Clearing House member, will then forward the monies
to Federated Shareholder Services Company. The purchase is normally entered the
next business day after the initial phone request. For further information and
an application, call the Fund.
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 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 3:00 p.m. (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. 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 and the class designation; 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.
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. Shares purchased by
wire before 3:00 p.m. (Eastern time) begin earning dividends that day. Shares
purchased by check begin earning dividends the day after the check is converted
into federal funds.
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 $1,000,000 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 all classes of each portfolio in the Trust
have equal voting rights, except that in matters affecting only a particular
portfolio or class, only shareholders of that portfolio or class 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, Donnelly & Meck, 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.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers other classes. Institutional Service Shares are sold at net
asset value primarily to financial institutions, financial intermediaries and
institutional investors and are subject to a minimum initial investment of
$1,000,000. Institutional Capital Shares are sold at net asset value primarily
to financial institutions, financial intermediaries and institutional investors
and are subject to a minimum initial investment of $1,000,000.
All classes are subject to certain of the same expenses.
Neither Institutional Service Shares nor Institutional Capital Shares are
distributed with a 12b-1 Plan but both are subject to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield and total
return. The performance figures will be calculated separately for each class of
shares.
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 shares 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.
LAST MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
A Special Meeting of Prime Money Market Fund, a portfolio of Lehman Brothers
Institutional Funds Group Trust was held on November 13, 1996. On October 11,
1996, the record date for shareholders voting at the meeting, there were
2,468,843,605 total outstanding shares. The following items were considered by
shareholders and the results of their voting were as follows:
<TABLE>
<CAPTION>
WITHHELD
AGENDA ITEM FOR AGAINST ABSTAIN AUTHORITY TO VOTE
- -------------------------- ----------------- -------------- ------------- -----------------
<S> <C> <C> <C> <C>
1. Approval of the
Investment Advisory
Agreement between
Federated Management and
the Trust with respect to
the Fund 1,286,430,982 62,006,079 4,368,976 -0-
2. Election of Trustees
John F. Donahue 1,352,368,038 -0- -0- 438,000
Thomas G. Bigley 1,352,368,038 -0- -0- 438,000
John T. Conroy, Jr. 1,352,368,038 -0- -0- 438,000
William J. Copeland 1,352,368,038 -0- -0- 438,000
J. Christopher Donahue 1,352,368,038 -0- -0- 438,000
James E. Dowd 1,352,368,038 -0- -0- 438,000
Lawrence D. Ellis, M.D. 1,352,368,038 -0- -0- 438,000
Edward L. Flaherty, Jr. 1,352,368,038 -0- -0- 438,000
Peter E. Madden 1,352,368,038 -0- -0- 438,000
Gregor F. Meyer 1,352,368,038 -0- -0- 438,000
John E. Murray, Jr. 1,352,368,038 -0- -0- 438,000
Wesley W. Posvar 1,352,368,038 -0- -0- 438,000
Marjorie P. Smuts 1,352,368,038 -0- -0- 438,000
</TABLE>
PRIME CASH OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------------
1997 1996 1995 1994(a)
------ ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------
Net investment income 0.05 0.06 0.04 0.01
- ------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------
Distributions from net investment income (0.05) (0.06) (0.04) (0.01)
- ------------------------------------------------------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------ ------ ------ ------ -------
TOTAL RETURN (B) 5.11% 5.83% 4.21% 0.99%
- ------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------
Expenses 0.43% 0.42% 0.37% 0.36% *
- ------------------------------------------------------
Net investment income 5.02% 5.65% 4.05% 2.91% *
- ------------------------------------------------------
Expense waiver/reimbursement (c) 0.14% 0.08% 0.13% 0.22% *
- ------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------
Net assets, end of period (000 omitted) $412,762 $324,474 $342,673 $350,666
- ------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 2, 1993 (date of initial
public offering) to January 31, 1994.
(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)
PRIME CASH OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL CAPITAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------
1997 1996 1995(a)
------ ------ -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------
Net investment income 0.05 0.06 0.02
- ---------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------
Distributions from net investment income (0.05) (0.06) (0.02)
- --------------------------------------------------------------- ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------- ------ ------ -------
TOTAL RETURN (B) 5.23% 5.94% 1.66%
- ---------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------
Expenses 0.32% 0.32% 0.27% *
- ---------------------------------------------------------------
Net investment income 5.00% 5.75% 4.15% *
- ---------------------------------------------------------------
Expense waiver/reimbursement (c) 0.18% 0.08% 0.12% *
- ---------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------
Net assets, end of period (000 omitted) $48,910 $11,811 $8,318
- ---------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from October 6, 1994 (date of initial
public offering) to January 31, 1995.
(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)
PRIME CASH OBLIGATIONS FUND
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------- --------------
<C> <C> <S> <C>
SHORT-TERM NOTES--7.2%
- --------------------------------------------------------------------------------
FINANCE--AUTOMOTIVE--0.3%
-----------------------------------------------------------
$ 3,228,536 Ford Credit Auto Owner Trust 1996-Class-B, Class A-1,
5.514%, 10/15/1997 $ 3,228,535
-----------------------------------------------------------
2,232,251 Nationsbank Auto Owner Trust 1996-A, Class A-1, 5.776%,
8/15/1997 2,233,270
----------------------------------------------------------- --------------
Total 5,461,805
----------------------------------------------------------- --------------
BANKING--0.7%
-----------------------------------------------------------
14,000,000 (b) SALTS III Cayman Island Corp., (Bankers Trust
International, PLC Swap Agreement), 5.788%, 7/23/1997 14,000,000
----------------------------------------------------------- --------------
BROKERAGE--2.5%
-----------------------------------------------------------
50,000,000 (b) Goldman Sachs Group, LP, 5.563%, 4/28/1997 50,000,000
----------------------------------------------------------- --------------
FINANCE--AUTOMOTIVE--0.8%
-----------------------------------------------------------
10,000,000 Ford Credit Auto Lease Trust 1996-1, Class A-1, 5.451%,
11/15/1997 9,999,213
-----------------------------------------------------------
6,000,000 WFS Financial Owner Trust 1996-D, Class A-1, 5.500%,
1/16/1998 6,000,000
----------------------------------------------------------- --------------
Total 15,999,213
----------------------------------------------------------- --------------
FINANCE--COMMERCIAL--2.9%
-----------------------------------------------------------
10,000,000 Cargill Lease Receivables Trust 1996-A, Class A-1, 5.613%,
12/20/1997 10,000,000
-----------------------------------------------------------
10,000,000 General Electric Capital Corp., 4.915%, 2/12/1997 9,999,895
-----------------------------------------------------------
10,000,000 General Electric Capital Corp., 4.915%, 2/13/1997 9,999,885
-----------------------------------------------------------
10,000,000 General Electric Capital Corp., 4.948%, 2/10/1997 9,999,899
-----------------------------------------------------------
10,000,000 General Electric Capital Corp., 5.004%, 2/5/1997 9,999,963
-----------------------------------------------------------
10,000,000 General Electric Capital Corp., 5.080%, 2/3/1997 10,000,009
----------------------------------------------------------- --------------
Total 59,999,651
----------------------------------------------------------- --------------
TOTAL SHORT-TERM NOTES 145,460,669
----------------------------------------------------------- --------------
</TABLE>
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------- --------------
<C> <C> <S> <C>
BANK NOTE--2.5%
- --------------------------------------------------------------------------------
BANKING--2.5%
-----------------------------------------------------------
$ 50,000,000 First Union National Bank, Charlotte, N.C., 5.670%,
4/28/1997 $ 50,002,236
----------------------------------------------------------- --------------
CERTIFICATES OF DEPOSIT--8.1%
- --------------------------------------------------------------------------------
BANKING--8.1%
-----------------------------------------------------------
55,000,000 Abbey National Treasury Services, PLC, (Guaranteed by Abbey
National Bank PLC, London), 5.410%-5.450%, 5/27/1997 54,997,205
-----------------------------------------------------------
80,000,000 Banque Nationale de Paris, 5.375%, 2/27/1997 80,000,285
-----------------------------------------------------------
30,000,000 Societe Generale, Paris, 5.370%, 2/19/1997 30,000,050
----------------------------------------------------------- --------------
TOTAL CERTIFICATES OF DEPOSIT 164,997,540
----------------------------------------------------------- --------------
(A) COMMERCIAL PAPER--55.3%
- --------------------------------------------------------------------------------
BANKING--15.4%
-----------------------------------------------------------
30,000,000 Abbey National N.A. Corp., (Guaranteed by Abbey National
Bank PLC, London), 5.402%, 3/11/1997 29,831,217
-----------------------------------------------------------
100,000,000 Bank of Nova Scotia, Toronto, 5.393%-5.434%,
3/6/1997-3/17/1997 99,447,228
-----------------------------------------------------------
25,000,000 Den Danske Corp., Inc., (Guaranteed by Den Danske Bank
A/S), 5.530%, 7/17/1997 24,379,806
-----------------------------------------------------------
30,000,000 Deutsche Bank Financial, Inc., (Guaranteed by Deutsche
Bank, AG), 5.404%, 3/12/1997 29,826,775
-----------------------------------------------------------
36,000,000 ING US Funding, (Guaranteed by Internationale Nederlanden
Bank N.V.), 5.520%, 7/8/1997 35,156,910
-----------------------------------------------------------
30,000,000 National Australia Funding, Inc., (Guaranteed by National
Australia Bank, Ltd., Melbourne), 5.423%, 4/17/1997 29,665,625
-----------------------------------------------------------
65,000,000 Svenska Handelsbanken, Inc., (Guaranteed by Svenska
Handelsbanken, Stockholm), 5.406%-5.530%,
4/14/1997-7/25/1997 64,243,755
----------------------------------------------------------- --------------
Total 312,551,316
----------------------------------------------------------- --------------
BROKERAGE--5.3%
-----------------------------------------------------------
109,000,000 Merrill Lynch & Co., Inc., 5.372%-5.423%,
2/18/1997-4/9/1997 108,205,406
----------------------------------------------------------- --------------
</TABLE>
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------- --------------
<C> <C> <S> <C>
(A) COMMERCIAL PAPER--CONTINUED
- --------------------------------------------------------------------------------
CHEMICALS--3.4%
-----------------------------------------------------------
$ 70,000,000 Du Pont (E.I.) de Nemours & Co., 5.427%-5.446%,
2/19/1997-4/7/1997 $ 69,468,931
----------------------------------------------------------- --------------
ENTERTAINMENT--1.9%
-----------------------------------------------------------
40,000,000 Disney (Walt) Holding Co., 5.445%, 5/1/1997 39,475,889
----------------------------------------------------------- --------------
FINANCE--AUTOMOTIVE--3.7%
-----------------------------------------------------------
75,000,000 Ford Motor Credit Corp., 5.393%-5.457%, 2/4/1997-4/11/1997 74,479,104
----------------------------------------------------------- --------------
FINANCE--COMMERCIAL--16.5%
-----------------------------------------------------------
103,000,000 Asset Securitization Cooperative Corp., 5.404%-5.438%,
3/5/1997-3/18/1997 102,372,826
-----------------------------------------------------------
5,000,000 Beta Finance, Inc., 5.402%, 3/3/1997 4,977,792
-----------------------------------------------------------
15,000,000 CIESCO, Inc., 5.575%, 4/1/1997 14,866,267
-----------------------------------------------------------
10,000,000 CIT Group Holdings, Inc., 5.523%, 2/3/1997 9,996,933
-----------------------------------------------------------
25,000,000 CXC, Inc., 5.435%, 4/21/1997 24,705,396
-----------------------------------------------------------
36,000,000 Corporate Asset Funding Co., Inc. (CAFCO), 5.466%, 4/9/1997 35,642,890
-----------------------------------------------------------
25,325,000 Falcon Asset Securitization Corp., 5.445%, 4/16/1997 25,045,454
-----------------------------------------------------------
25,000,000 General Electric Capital Corp., 5.441%, 3/10/1997 24,863,049
-----------------------------------------------------------
70,410,000 Greenwich Funding Corp., 5.384%-5.519%, 2/28/1997-4/22/1997 69,750,221
-----------------------------------------------------------
24,475,000 PREFCO-Preferred Receivables Funding Co., 5.421%-5.486%,
2/28/1997-4/17/1997 24,274,741
----------------------------------------------------------- --------------
Total 336,495,569
----------------------------------------------------------- --------------
FINANCE--RETAIL--8.6%
-----------------------------------------------------------
30,000,000 American Express Credit Corp., 5.434%, 6/10/1997 29,431,325
-----------------------------------------------------------
65,000,000 Associates Corp. of North America, 5.380%-5.503%,
2/3/1997-2/21/1997 64,927,250
-----------------------------------------------------------
34,000,000 McKenna Triangle National Corp., 5.377%, 2/25/1997 33,879,867
-----------------------------------------------------------
47,000,000 New Center Asset Trust, A1+/P1 Series, 5.424%, 4/29/1997 46,392,329
----------------------------------------------------------- --------------
Total 174,630,771
----------------------------------------------------------- --------------
</TABLE>
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------- --------------
<C> <C> <S> <C>
(A) COMMERCIAL PAPER--CONTINUED
- --------------------------------------------------------------------------------
OIL & OIL FINANCE--0.5%
-----------------------------------------------------------
$ 10,000,000 Koch Industries, Inc., 5.583%, 2/3/1997 $ 9,996,900
----------------------------------------------------------- --------------
TOTAL COMMERCIAL PAPER 1,125,303,886
----------------------------------------------------------- --------------
GOVERNMENT AGENCY--0.5%
- --------------------------------------------------------------------------------
FEDERAL HOME LOAN BANK, FLOATING RATE NOTE--0.5%
-----------------------------------------------------------
10,000,000 5.480%, 5/8/1997 10,001,983
----------------------------------------------------------- --------------
(C) VARIABLE RATE OBLIGATIONS--6.0%
- --------------------------------------------------------------------------------
BANKING--6.0%
-----------------------------------------------------------
1,000,000 Chestnut Hills Apartments, Ltd., (Huntington National Bank,
Columbus, OH LOC), 5.51%, 2/6/1997 1,000,000
-----------------------------------------------------------
7,135,000 Franklin County, OH, (Edison Wielding), (Series 1995),
(Huntington National Bank, Columbus, OH LOC), 5.59%,
2/6/1997 7,135,000
-----------------------------------------------------------
7,500,000 Henry County Ohio, Series 1996 Automatic Feed Project,
(Huntington National Bank, Columbus, OH LOC), 5.630%,
2/6/1997 7,500,000
-----------------------------------------------------------
85,000,000 SMM Trust, Series 1996-I, (Morgan Guaranty Trust Co., New
York Swap Agreement), 5.488%, 3/1/1997 85,000,000
-----------------------------------------------------------
20,000,000 SMM Trust, Series 1996-U, (Morgan Guaranty Trust Co., New
York Swap Agreement), 5.425%, 2/20/1997 20,000,000
-----------------------------------------------------------
1,250,000 TDB Realty, Ltd., (Huntington National Bank, Columbus, OH
LOC), 5.46%, 2/6/1997 1,250,000
----------------------------------------------------------- --------------
TOTAL VARIABLE RATE OBLIGATIONS 121,885,000
----------------------------------------------------------- --------------
TIME DEPOSIT--3.7%
- --------------------------------------------------------------------------------
BANKING--3.7%
-----------------------------------------------------------
75,000,000 Royal Bank of Canada, Montreal, 5.625%, 2/3/1997 75,000,000
----------------------------------------------------------- --------------
</TABLE>
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------- --------------
<C> <C> <S> <C>
(D) REPURCHASE AGREEMENTS--16.7%
- --------------------------------------------------------------------------------
$104,000,000 Bear, Stearns and Co., 5.580%, dated 1/31/1997, due
2/3/1997 $ 104,000,000
-----------------------------------------------------------
116,800,000 Daiwa Securities America, Inc., 5.580%, dated 1/31/1997,
due 2/3/1997 116,800,000
-----------------------------------------------------------
43,624,000 Sanwa-BGK Securities Co., L.P., 5.350%, dated 1/31/1997,
due 2/3/1997 43,624,000
-----------------------------------------------------------
75,000,000 UBS Securities, Inc., 5.530%, dated 1/31/1997, due 2/3/1997 75,000,000
----------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS 339,424,000
----------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST(E) $2,032,075,314
----------------------------------------------------------- --------------
</TABLE>
(a) Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At January 31, 1997, these securities
amounted to $64,000,000 which represents 3.1% of net assets.
(c) Current rate and next reset date shown.
(d) 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.
(e) Also represents costs for the federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($2,034,583,776) at January 31, 1997.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
LOC -- Letter of Credit
LP -- Limited Partnership
PLC -- Public Limited Company
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME CASH OBLIGATIONS FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments in repurchase agreements $ 339,424,000
- --------------------------------------------------------------
Investments in securities 1,692,651,314
- --------------------------------------------------------------
Total investments in securities, at amortized cost and value $2,032,075,314
- -------------------------------------------------------------------------------
Income receivable 6,931,533
- -------------------------------------------------------------------------------
Receivable for shares sold 847,773
- ------------------------------------------------------------------------------- --------------
Total assets 2,039,854,620
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Payable for shares redeemed 4,182
- --------------------------------------------------------------
Income distribution payable 4,606,770
- --------------------------------------------------------------
Payable to Bank 395,949
- --------------------------------------------------------------
Accrued expenses 263,943
- -------------------------------------------------------------- --------------
Total liabilities 5,270,844
- ------------------------------------------------------------------------------- --------------
NET ASSETS for 2,034,583,776 shares outstanding $2,034,583,776
- ------------------------------------------------------------------------------- --------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
$1,572,912,843 / 1,572,912,843 shares outstanding $1.00
- ------------------------------------------------------------------------------- --------------
INSTITUTIONAL SERVICE SHARES:
$412,761,858 / 412,761,858 shares outstanding $1.00
- ------------------------------------------------------------------------------- --------------
INSTITUTIONAL CAPITAL SHARES:
$48,909,075 / 48,909,075 shares outstanding $1.00
- ------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME CASH OBLIGATIONS FUND
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------
Interest $155,374,916
- --------------------------------------------------------------------------------------------
EXPENSES--
- --------------------------------------------------------------------------------------------
Investment advisory fee $ 5,725,774
- -----------------------------------------------------------------------------
Administrative personnel and services fee 2,410,623
- -----------------------------------------------------------------------------
Custodian fees 348,920
- -----------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 406,494
- -----------------------------------------------------------------------------
Directors'/Trustees' fees 53,321
- -----------------------------------------------------------------------------
Auditing fees 12,615
- -----------------------------------------------------------------------------
Legal fees 34,886
- -----------------------------------------------------------------------------
Portfolio accounting fees 54,368
- -----------------------------------------------------------------------------
Share registration costs 18,566
- -----------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 624,090
- -----------------------------------------------------------------------------
Distribution services fee--Institutional Capital Shares 18,885
- -----------------------------------------------------------------------------
Distribution services fee--Class C Shares 35,124
- -----------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 211,366
- -----------------------------------------------------------------------------
Shareholder services fee--Institutional Capital Shares 11,501
- -----------------------------------------------------------------------------
Printing and postage 29,480
- -----------------------------------------------------------------------------
Miscellaneous 73,495
- ----------------------------------------------------------------------------- -----------
Total expenses 10,069,508
- -----------------------------------------------------------------------------
Waivers--
- -----------------------------------------------------------------------------
Waiver of investment advisory fee $(2,154,500)
- ---------------------------------------------------------------
Waiver of administrative personnel and services fee (1,681,402)
- ---------------------------------------------------------------
Waiver of custodian fees (215,672)
- ---------------------------------------------------------------
Waiver of shareholder services fee--Institutional Capital
Shares (6,901)
- --------------------------------------------------------------- -----------
Total waivers (4,058,475)
- ----------------------------------------------------------------------------- -----------
Net expenses 6,011,033
- -------------------------------------------------------------------------------------------- ------------
Net investment income 149,363,883
- -------------------------------------------------------------------------------------------- ------------
Net realized loss on investments (930,171)
- -------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $148,433,712
- -------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME CASH OBLIGATIONS FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------
Net investment income $ 149,363,883 $ 261,679,856
- ----------------------------------------------------------
Net realized gain (loss) on investments (930,171) (159,065)
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from operations 148,433,712 261,520,791
- ---------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------
Distributions from net investment income:
- ----------------------------------------------------------
Institutional Shares (131,246,169) (238,538,736)
- ----------------------------------------------------------
Institutional Service Shares (16,786,956) (21,823,102)
- ----------------------------------------------------------
Institutional Capital Shares (861,359) (668,435)
- ----------------------------------------------------------
Class C Shares (489,156) (649,583)
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from distributions to
shareholders (149,383,640) (261,679,856)
- ---------------------------------------------------------- ---------------- ----------------
CAPITAL CONTRIBUTION 1,107,973 --
- ---------------------------------------------------------- ---------------- ----------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------
Proceeds from sale of shares 44,315,024,567 100,956,434,456
- ----------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 70,429,183 96,866,406
- ----------------------------------------------------------
Cost of shares redeemed (46,619,754,483) (98,681,453,306)
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from share
transactions (2,234,300,733) 2,371,847,556
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets (2,234,142,688) 2,371,688,491
- ----------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------
Beginning of period 4,268,726,464 1,897,037,973
- ---------------------------------------------------------- ---------------- ----------------
End of period (including undistributed net investment of
$0 and $19,757, respectively.) $ 2,034,583,776 $ 4,268,726,464
- ---------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME CASH OBLIGATIONS FUND
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Money Market Obligations Trust II (the "Trust") (formerly, Lehman Brothers
Institutional Funds Group 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 three portfolios. The financial statements included herein
are only those of Prime Cash Obligations Fund (the "Fund") (formerly, Prime
Money Market 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 a high level of current income
consistent with stability of principal and liquidity.
The Fund offers three classes of shares: Institutional Shares (formerly, Class A
Shares), Institutional Service Shares (formerly, Class B Shares), and
Institutional Capital Shares (formerly, Class E Shares). As of November 15,
1996, the Fund's Class C Shares were no longer operational.
(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"). 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
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
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 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 Investment Company Act of 1940.
Additional information on each restricted security held at January 31, 1997
is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Goldman Sachs Group 01/27/97 $50,000,000
Salts III Cayman Island Corp. 01/21/97 $14,000,000
</TABLE>
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 ($0.001 par value) for each
class of shares.
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------
1997 1996
--------------- ---------------
INSTITUTIONAL SHARES SHARES SHARES
- ---------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Shares sold 40,032,958,456 97,578,640,948
- ----------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 69,513,711 95,915,354
- ----------------------------------------------------------
Shares redeemed (42,448,889,011) (95,294,028,189)
- ---------------------------------------------------------- --------------- ---------------
Net change resulting from Institutional Share
transactions (2,346,416,844) 2,380,528,113
- ---------------------------------------------------------- --------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------
1997 1996
--------------- ---------------
INSTITUTIONAL SERVICE SHARES SHARES SHARES
- ---------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Shares sold 3,521,627,120 2,718,357,901
- ----------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 64,147 175,069
- ----------------------------------------------------------
Shares redeemed (3,433,416,889) (2,736,718,080)
- ---------------------------------------------------------- --------------- ---------------
Net change resulting from Institutional Service Share
transactions 88,274,378 (18,185,110)
- ---------------------------------------------------------- --------------- ---------------
</TABLE>
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------
1997 1996
-------------- -------------
INSTITUTIONAL CAPITAL SHARES SHARES SHARES
- ------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Shares sold 730,851,647 603,114,534
- -------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 756,768 668,432
- -------------------------------------------------------------
Shares redeemed (694,511,244) (600,288,961)
- ------------------------------------------------------------- -------------- -------------
Net change resulting from Institutional Capital Share
transactions 37,097,171 3,494,005
- ------------------------------------------------------------- -------------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------
1997(A) 1996
-------------- -------------
CLASS C SHARES SHARES SHARES
- ------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Shares sold 29,587,344 56,321,073
- -------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 94,557 107,551
- -------------------------------------------------------------
Shares redeemed (42,937,339) (50,418,076)
- ------------------------------------------------------------- -------------- -------------
Net change resulting from Capital C Share transactions (13,255,438) 6,010,548
- ------------------------------------------------------------- -------------- -------------
Net change resulting from share transactions (2,234,300,733) 2,371,847,556
- ------------------------------------------------------------- -------------- -------------
</TABLE>
(a) As of November 15, 1996, the Fund's Class C Shares were no longer
operational.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.20% 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.
Federated Management became the Fund's investment adviser on November 15, 1996.
Prior to November 15, 1996, Lehman Brothers Global Asset Management, Inc. (the
"former Adviser") served as the Fund's investment adviser.
For the period ended January 31, 1997, the advisers earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
ADVISER FEE EARNED FEE WAIVED
- ---------------------------- ----------- -----------
<S> <C> <C>
Federated Management $ 911,504 $ 505,519
Lehman Brothers Global Asset
Management $4,814,270 $1,648,981
</TABLE>
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
CAPITAL CONTRIBUTION--The former Adviser made a capital contribution to the Fund
on November 15, 1996, of an amount equal to the accumulated net realized loss on
investments balance carried by the Fund.
This transaction resulted in a permanent book and tax difference. As such, the
paid-in-capital and accumulated net realized gain/loss accounts have been
adjusted accordingly. This adjustment did not affect net investment income, net
realized gains/losses, or 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. FServ became the Fund's
administrator on November 15, 1996. Prior to November 15, 1996, First Data
Investors Services Group, Inc. ("FDISG") served as the Fund's administrator. For
the period ended January 31, 1997, the administrators earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
ADMINISTRATOR FEE EARNED FEE WAIVED
- ------------------ ----------- -----------
<S> <C> <C>
FServ $ 30,284 $ --
FDISG $2,380,339 $1,681,402
</TABLE>
DISTRIBUTION SERVICES FEE--Pursuant to Rule 12b-1 under the Act, as amended, the
Fund had adopted Distribution Agreements ("Service Agreements") with
institutional investors such as banks, savings and loan associations and other
financial institutions with respect to the Fund's former Class B, Class C and
Class E shares. All such Service Agreements were terminated effective November
15, 1996. Prior to November 15, 1996, Lehman Brothers, Inc., acted as the Fund's
distributor.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. There is no present
intention of paying or accruing the shareholder services fee for the
Institutional Shares. The fee paid to FSS is used to finance certain services
for shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion. FSS became the Fund's
shareholder servicing agent on November 15, 1996.
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. FSSC
became the Fund's transfer and dividend disbursing agent on November 15, 1996.
Prior to November 15, 1996, FDISG served as the Fund's transfer and dividend
disbursing agent.
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
For the period ended January 31, 1997 the transfer and dividend disbursing
agents earned fees as follows:
<TABLE>
<CAPTION>
TRANSFER AND DIVIDEND AMOUNT OF
DISBURSING AGENT FEE EARNED
- --------------------------- -----------
<S> <C>
FSSC $ 920
FDISG $ 405,574
</TABLE>
PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting records for
which it receives a fee. The fee is based on the level of the Trust's average
daily net assets for the period, plus out-of-pocket expenses. All portfolio
accounting fees for the year ended January 31, 1997, were paid to FServ.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of
PRIME CASH OBLIGATIONS FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prime Cash Obligations Fund, formerly Prime
Money Market Fund (a portfolio of Money Market Obligations Trust II, formerly a
Portfolio of Lehman Brothers Institutional Funds Group Trust) as of January 31,
1997, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Prime
Cash Obligations Fund at January 31, 1997, and the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 14, 1997
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Prime Cash Obligations Fund
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Advisor
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRIME CASH OBLIGATIONS
FUND
(FORMERLY, PRIME MONEY MARKET FUND)
INSTITUTIONAL SHARES
(FORMERLY, CLASS A SHARES)
PROSPECTUS
A Portfolio of Money Market
Obligations Trust II (formerly,
Lehman Brothers
Institutional Funds Group Trust), an
Open-End
Management Investment Company
Prospectus dated March 31, 1997
LOGO
Cusip 608912705
G01881-03-IS (3/97)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRIME CASH OBLIGATIONS FUND
(A PORTFOLIO OF MONEY MARKET OBLIGATIONS TRUST II)
(FORMERLY, PRIME MONEY MARKET FUND, A PORTFOLIO OF
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST)
INSTITUTIONAL SERVICE SHARES (FORMERLY, CLASS B SHARES)
PROSPECTUS
The Institutional Service Shares (formerly, Class B Shares) of Prime Cash
Obligations Fund (formerly, Prime Money Market Fund) (the "Fund") offered by
this prospectus represent interests in a portfolio of Money Market Obligations
Trust II (formerly, Lehman Brothers Institutional Funds Group Trust) (the
"Trust"), an open-end management investment company (a mutual fund). The Fund
invests in short-term money market securities to achieve 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 March 31,
1997, 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 the Fund at
the address listed in the back of this prospectus. 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated March 31, 1997
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Institutional Service Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
ACCOUNT AND SHARE INFORMATION 11
- ------------------------------------------------------
TAX INFORMATION 12
- ------------------------------------------------------
Federal Income Tax 12
State and Local Taxes 12
OTHER CLASSES OF SHARES 12
- ------------------------------------------------------
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
LAST MEETING OF SHAREHOLDERS 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 15
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL CAPITAL SHARES 16
- ------------------------------------------------------
FINANCIAL STATEMENTS 17
- ------------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 31
- ------------------------------------------------------
ADDRESSES 32
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<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
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)..................................................... 0.06%
12b-1 Fee............................................................................ None
Total Other Expenses................................................................. 0.37%
Shareholder Services Fee................................................ 0.25%
Total Operating Expenses(2).......................................................... 0.43%
</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 0.20%.
(2) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending January 31, 1998. The total Institutional
Service Shares operating expenses were 0.43% for fiscal year ended January 31,
1997 and would have been 0.57% absent the voluntary waivers of portions of the
management fee, administrative fee and custodian fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES OF
THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE
DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "FUND 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............. $4 $14 $24 $ 54
</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.
PRIME CASH OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 31.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------------
1997 1996 1995 1994(a)
------ ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------
Net investment income 0.05 0.06 0.04 0.01
- ------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------
Distributions from net investment income (0.05) (0.06) (0.04) (0.01)
- ------------------------------------------------------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------ ------ ------ ------ -------
TOTAL RETURN (B) 5.11% 5.83% 4.21% 0.99%
- ------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------
Expenses 0.43% 0.42% 0.37% 0.36% *
- ------------------------------------------------------
Net investment income 5.02% 5.65% 4.05% 2.91% *
- ------------------------------------------------------
Expense waiver/reimbursement (c) 0.14% 0.08% 0.13% 0.22% *
- ------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------
Net assets, end of period (000 omitted) $412,762 $324,474 $342,673 $350,666
- ------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 2, 1993 (date of initial
public offering) to January 31, 1994.
(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 16, 1992. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established three classes of shares known as Institutional Shares,
Institutional Service Shares and Institutional Capital Shares. This prospectus
relates only to Institutional Service Shares of the Fund, which are designed
primarily for financial institutions, financial intermediaries and institutional
investors as a convenient means of accumulating an interest in a professionally
managed portfolio investing in short-term money market securities. A minimum
initial investment of $1,000,000 over a one-year period 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 current income consistent with stability
of principal and liquidity. This investment objective may be changed by the
Board of Trustees 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 money
market 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 without shareholder approval. Shareholders will
be notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are either rated in the highest short-term rating category by
one or more nationally recognized statistical rating organizations ("NRSROs") or
are of comparable quality to securities having such ratings. Examples of these
instruments include, but are not limited to:
- domestic issues of corporate debt obligations, including variable rate
demand notes;
- commercial paper (including Canadian Commercial Paper and Europaper);
- certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");
- short-term credit facilities;
- asset-backed securities;
- obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities;
- other money market instruments; and
- obligations issued by state and local government agencies.
The Fund invests only in instruments denominated and payable in U.S. dollars.
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.
BANK INSTRUMENTS. The Fund only invests in Bank Instruments either issued
by an institution having capital, surplus and undivided profits over $100
million, or insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"). Bank Instruments may include
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). The Fund will treat
securities credit enhanced with a bank's letter of credit as Bank
Instruments.
ASSET-BACKED SECURITIES. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans or
accounts receivable. The securities may take the form of beneficial
interests in special purpose trusts, limited partnership interests, or
commercial paper or other debt securities issued by a special purpose
corporation. Although the securities often have some form of credit or
liquidity enhancement, payments on the securities depend predominantly upon
collections of the loans and receivables held by the issuer.
SHORT-TERM CREDIT FACILITIES. The Fund may enter into, or acquire
participations in, short-term borrowing arrangements with corporations,
consisting of either a short-term revolving credit facility or a master
note agreement payable upon demand. Under these arrangements, the borrower
may reborrow funds during the term of the facility. The Fund treats any
commitments to provide such advances as a standby commitment to purchase
the borrower's notes.
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.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and agrees that
on a stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an agreed
upon rate. The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but does not ensure this result. However, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the securities to be
purchased, are: segregated on the Fund's records at the trade date; marked to
market daily; and maintained until the transaction is settled.
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,
including non-negotiable time deposits and repurchase agreements providing for
settlement in more than seven days after notice to 10% of its net assets.
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.
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.
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.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or long-term basis, or
both, to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/ dealers, banks, or
other institutions which the adviser has determined are creditworthy under
guidelines established by the Trustees and will receive collateral at all times
equal to at least 100% of the value of the securities loaned. There is the risk
that when lending portfolio securities, the securities may not be available to
the Fund on a timely basis and the Fund may, therefore, lose the opportunity to
sell the securities at a desirable price. In addition, in the event that a
borrower of securities would file for bankruptcy or become insolvent,
disposition of the securities may be delayed pending court action.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, Canadian Commercial Paper, and Europaper are subject to
different risks than domestic obligations of domestic banks or corporations.
Examples of these risks include international economic and political
developments, foreign governmental restrictions that may adversely affect the
payment of principal or interest, foreign withholding or other taxes on interest
income, difficulties in obtaining or enforcing a judgment against the issuing
entity, and the possible impact of interruptions in the flow of international
currency transactions. Risks may also exist for ECDs, ETDs, and Yankee CDs
because the banks issuing these instruments, or their domestic or foreign
branches, are not necessarily subject to the same regulatory requirements that
apply to domestic banks, such as reserve requirements, loan limitations,
examinations, accounting, auditing, recordkeeping, and the public availability
of information. These factors will be carefully considered by the Fund's adviser
in selecting investments for the Fund.
INVESTMENT LIMITATIONS
The Fund may not:
- borrow money, except that the Fund may (i) borrow money for temporary or
emergency purposes (not for leveraging or investment) from banks, or
subject to specific authorization by the SEC, from funds advised by the
adviser or an affiliate of the adviser, and (ii) engage in reverse
repurchase agreements; provided that (i) and (ii) in combination do not
exceed one-third of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings). The Fund may
not mortgage, pledge or hypothecate any assets except in connection with
such borrowings and reverse repurchase agreements and then only in
amounts not exceeding one-third of the value of the Fund's total assets
at the time of such borrowing; or
- purchase any securities which would cause 25% or more of the value of its
total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, (unless the Fund is in a temporary
defensive position); provided that there is no limitation with respect to
investments in U.S. government securities or, in bank instruments issued
by domestic banks.
The above investment limitations cannot be changed without shareholder approval.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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
Management, 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 0.20% of the Fund's average daily net assets. 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 Management, 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 Management 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 $110 billion invested across
over 300 funds under management and/or administration by its subsidiaries,
as of December 31, 1996, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 2,000
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,500
financial institutions nationwide.
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 INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service 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.
ADMINISTRATION OF THE FUND
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to 0.25% of the average
daily net asset value of its shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder accounts.
From time to time and for such periods as deemed appropriate, the amount stated
above may be reduced voluntarily. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares 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 Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their 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.
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 specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
- ------------ ------------------------------------
<S> <C>
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% 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 shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Service Shares from the value of Fund assets attributable to Institutional
Service Shares, and dividing the remainder by the number of Institutional
Service 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 on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Fund reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $1,000,000. However, an account may be opened with
a smaller amount as long as the minimum is reached within one year of opening
the account. Financial institutions may impose different minimum investment
requirements on their customers.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve 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) that 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:
Prime Cash Obligations Fund-- Institutional Service Shares; 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: Prime Cash Obligations Fund--Institutional
Service Shares. 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.
INVEST-BY-PHONE. Once an account has been opened, a shareholder may use
invest-by-phone for investments if an authorization form has been filed with
Federated Shareholder Services Company, the transfer agent for shares of the
Fund. Approximately two weeks after sending the form to Federated Shareholder
Services Company, the shareholder may call Federated Shareholder Services
Company to purchase shares. Federated Shareholder Services Company will send a
request for monies to the shareholder's commercial bank, savings bank, or credit
union ("bank") via the Automated Clearing House. The shareholder's bank, which
must be an Automated Clearing House member, will then forward the monies to
Federated Shareholder Services Company. The purchase is normally entered the
next business day after the initial phone request. For further information and
an application, call the Fund.
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 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 3:00 p.m. (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. 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 and the class designation; 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.
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. Shares purchased by
wire before 3:00 p.m. (Eastern time) begin earning dividends that day. Shares
purchased by check begin earning dividends the day after the check is converted
into federal funds.
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 $1,000,000 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 all classes of each portfolio in the Trust
have equal voting rights, except that in matters affecting only a particular
portfolio or class, only shareholders of that portfolio or class 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.
As of March 10, 1997, Harris Trust and Savings Bank, Chicago, organized in the
state of Illinois owned 83.27% of the voting securities of the Fund, and,
therefore, may, for certain purposes, be deemed to control the Fund and be able
to affect the outcome of certain matters presented for a vote of shareholders.
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, Donnelly & Meck, 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.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers other classes. Institutional Shares are sold at net asset
value primarily to entities holding shares in an agency or fiduciary capacity,
financial institutions, financial intermediaries and
institutional investors and are subject to a minimum initial investment of
$1,000,000. Institutional Capital Shares are sold at net asset value primarily
to financial institutions, financial intermediaries and institutional investors
and are subject to a minimum initial investment of $1,000,000.
All classes are subject to certain of the same expenses.
Neither Institutional Shares nor Institutional Capital Shares are distributed
with a 12b-1 Plan but both are subject to shareholder services fees. Currently,
Institutional Shares are accruing no shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield and total
return. The performance figures will be calculated separately for each class of
shares.
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 shares 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.
LAST MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
A Special Meeting of Prime Money Market Fund, a portfolio of Lehman Brothers
Institutional Funds Group Trust was held on November 13, 1996. On October 11,
1996, the record date for shareholders voting at the meeting, there were
2,468,843,605 total outstanding shares. The following items were considered by
shareholders and the results of their voting were as follows:
<TABLE>
<CAPTION>
WITHHELD
AGENDA ITEM FOR AGAINST ABSTAIN AUTHORITY TO VOTE
- ----------------------------- ----------------- -------------- --------- -----------------
<S> <C> <C> <C> <C>
1. Approval of the Investment
Advisory Agreement between
Federated Management and the
Trust with respect to the
Fund 1,286,430,982 62,006,079 4,368,976 -0-
2. Election of Trustees
John F. Donahue 1,352,368,038 -0- -0- 438,000
Thomas G. Bigley............. 1,352,368,038 -0- -0- 438,000
John T. Conroy, Jr........... 1,352,368,038 -0- -0- 438,000
William J. Copeland.......... 1,352,368,038 -0- -0- 438,000
J. Christopher Donahue....... 1,352,368,038 -0- -0- 438,000
James E. Dowd................ 1,352,368,038 -0- -0- 438,000
Lawrence D. Ellis, M.D....... 1,352,368,038 -0- -0- 438,000
Edward L. Flaherty, Jr....... 1,352,368,038 -0- -0- 438,000
Peter E. Madden.............. 1,352,368,038 -0- -0- 438,000
Gregor F. Meyer.............. 1,352,368,038 -0- -0- 438,000
John E. Murray, Jr........... 1,352,368,038 -0- -0- 438,000
Wesley W. Posvar............. 1,352,368,038 -0- -0- 438,000
Marjorie P. Smuts............ 1,352,368,038 -0- -0- 438,000
</TABLE>
PRIME CASH OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------------------
1997 1996 1995 1994(a)
------ ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------
Net investment income 0.05 0.06 0.04 0.03
- -----------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------
Distributions from net investment income (0.05) (0.06) (0.04) (0.03)
- ----------------------------------------------- ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------- ------ ------ ------ -------
TOTAL RETURN (B) 5.38% 6.08% 4.52% 3.14%
- -----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------
Expenses 0.18% 0.17% 0.12% 0.11% *
- -----------------------------------------------
Net investment income 5.25% 5.90% 4.30% 3.16% *
- -----------------------------------------------
Expense waiver/reimbursement (c) 0.14% 0.08% 0.13% 0.22% *
- -----------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------
Net assets, end of period (000 omitted) $1,572,912 $3,919,186 $1,538,802 $2,866,353
- -----------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 8, 1993 (date of initial
public investment) to January 31, 1994.
(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)
PRIME CASH OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL CAPITAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------
1997 1996 1995(a)
------ ------ -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------
Net investment income 0.05 0.06 0.02
- ---------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------
Distributions from net investment income (0.05) (0.06) (0.02)
- --------------------------------------------------------------- ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------- ------ ------ -------
TOTAL RETURN (B) 5.23% 5.94% 1.66%
- ---------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------
Expenses 0.32% 0.32% 0.27% *
- ---------------------------------------------------------------
Net investment income 5.00% 5.75% 4.15% *
- ---------------------------------------------------------------
Expense waiver/reimbursement (c) 0.18% 0.08% 0.12% *
- ---------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------
Net assets, end of period (000 omitted) $48,910 $11,811 $8,318
- ---------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from October 6, 1994 (date of initial
public offering) to January 31, 1995.
(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)
PRIME CASH OBLIGATIONS FUND
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------- --------------
<C> <C> <S> <C>
SHORT-TERM NOTES--7.2%
- --------------------------------------------------------------------------------
FINANCE--AUTOMOTIVE--0.3%
-----------------------------------------------------------
$ 3,228,536 Ford Credit Auto Owner Trust 1996-Class-B, Class A-1,
5.514%, 10/15/1997 $ 3,228,535
-----------------------------------------------------------
2,232,251 Nationsbank Auto Owner Trust 1996-A, Class A-1, 5.776%,
8/15/1997 2,233,270
----------------------------------------------------------- --------------
Total 5,461,805
----------------------------------------------------------- --------------
BANKING--0.7%
-----------------------------------------------------------
14,000,000 (b) SALTS III Cayman Island Corp., (Bankers Trust
International, PLC Swap Agreement), 5.788%, 7/23/1997 14,000,000
----------------------------------------------------------- --------------
BROKERAGE--2.5%
-----------------------------------------------------------
50,000,000 (b) Goldman Sachs Group, LP, 5.563%, 4/28/1997 50,000,000
----------------------------------------------------------- --------------
FINANCE--AUTOMOTIVE--0.8%
-----------------------------------------------------------
10,000,000 Ford Credit Auto Lease Trust 1996-1, Class A-1, 5.451%,
11/15/1997 9,999,213
-----------------------------------------------------------
6,000,000 WFS Financial Owner Trust 1996-D, Class A-1, 5.500%,
1/16/1998 6,000,000
----------------------------------------------------------- --------------
Total 15,999,213
----------------------------------------------------------- --------------
FINANCE--COMMERCIAL--2.9%
-----------------------------------------------------------
10,000,000 Cargill Lease Receivables Trust 1996-A, Class A-1, 5.613%,
12/20/1997 10,000,000
-----------------------------------------------------------
10,000,000 General Electric Capital Corp., 4.915%, 2/12/1997 9,999,895
-----------------------------------------------------------
10,000,000 General Electric Capital Corp., 4.915%, 2/13/1997 9,999,885
-----------------------------------------------------------
10,000,000 General Electric Capital Corp., 4.948%, 2/10/1997 9,999,899
-----------------------------------------------------------
10,000,000 General Electric Capital Corp., 5.004%, 2/5/1997 9,999,963
-----------------------------------------------------------
10,000,000 General Electric Capital Corp., 5.080%, 2/3/1997 10,000,009
----------------------------------------------------------- --------------
Total 59,999,651
----------------------------------------------------------- --------------
TOTAL SHORT-TERM NOTES 145,460,669
----------------------------------------------------------- --------------
</TABLE>
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------- --------------
<C> <C> <S> <C>
BANK NOTE--2.5%
- --------------------------------------------------------------------------------
BANKING--2.5%
-----------------------------------------------------------
$ 50,000,000 First Union National Bank, Charlotte, N.C., 5.670%,
4/28/1997 $ 50,002,236
----------------------------------------------------------- --------------
CERTIFICATES OF DEPOSIT--8.1%
- --------------------------------------------------------------------------------
BANKING--8.1%
-----------------------------------------------------------
55,000,000 Abbey National Treasury Services, PLC, (Guaranteed by Abbey
National Bank PLC, London), 5.410%-5.450%, 5/27/1997 54,997,205
-----------------------------------------------------------
80,000,000 Banque Nationale de Paris, 5.375%, 2/27/1997 80,000,285
-----------------------------------------------------------
30,000,000 Societe Generale, Paris, 5.370%, 2/19/1997 30,000,050
----------------------------------------------------------- --------------
TOTAL CERTIFICATES OF DEPOSIT 164,997,540
----------------------------------------------------------- --------------
(A) COMMERCIAL PAPER--55.3%
- --------------------------------------------------------------------------------
BANKING--15.4%
-----------------------------------------------------------
30,000,000 Abbey National N.A. Corp., (Guaranteed by Abbey National
Bank PLC, London), 5.402%, 3/11/1997 29,831,217
-----------------------------------------------------------
100,000,000 Bank of Nova Scotia, Toronto, 5.393%-5.434%,
3/6/1997-3/17/1997 99,447,228
-----------------------------------------------------------
25,000,000 Den Danske Corp., Inc., (Guaranteed by Den Danske Bank
A/S), 5.530%, 7/17/1997 24,379,806
-----------------------------------------------------------
30,000,000 Deutsche Bank Financial, Inc., (Guaranteed by Deutsche
Bank, AG), 5.404%, 3/12/1997 29,826,775
-----------------------------------------------------------
36,000,000 ING US Funding, (Guaranteed by Internationale Nederlanden
Bank N.V.), 5.520%, 7/8/1997 35,156,910
-----------------------------------------------------------
30,000,000 National Australia Funding, Inc., (Guaranteed by National
Australia Bank, Ltd., Melbourne), 5.423%, 4/17/1997 29,665,625
-----------------------------------------------------------
65,000,000 Svenska Handelsbanken, Inc., (Guaranteed by Svenska
Handelsbanken, Stockholm), 5.406%-5.530%,
4/14/1997-7/25/1997 64,243,755
----------------------------------------------------------- --------------
Total 312,551,316
----------------------------------------------------------- --------------
BROKERAGE--5.3%
-----------------------------------------------------------
109,000,000 Merrill Lynch & Co., Inc., 5.372%-5.423%,
2/18/1997-4/9/1997 108,205,406
----------------------------------------------------------- --------------
</TABLE>
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------- --------------
<C> <C> <S> <C>
(A) COMMERCIAL PAPER--CONTINUED
- --------------------------------------------------------------------------------
CHEMICALS--3.4%
-----------------------------------------------------------
$ 70,000,000 Du Pont (E.I.) de Nemours & Co., 5.427%-5.446%,
2/19/1997-4/7/1997 $ 69,468,931
----------------------------------------------------------- --------------
ENTERTAINMENT--1.9%
-----------------------------------------------------------
40,000,000 Disney (Walt) Holding Co., 5.445%, 5/1/1997 39,475,889
----------------------------------------------------------- --------------
FINANCE--AUTOMOTIVE--3.7%
-----------------------------------------------------------
75,000,000 Ford Motor Credit Corp., 5.393%-5.457%, 2/4/1997-4/11/1997 74,479,104
----------------------------------------------------------- --------------
FINANCE--COMMERCIAL--16.5%
-----------------------------------------------------------
103,000,000 Asset Securitization Cooperative Corp., 5.404%-5.438%,
3/5/1997-3/18/1997 102,372,826
-----------------------------------------------------------
5,000,000 Beta Finance, Inc., 5.402%, 3/3/1997 4,977,792
-----------------------------------------------------------
15,000,000 CIESCO, Inc., 5.575%, 4/1/1997 14,866,267
-----------------------------------------------------------
10,000,000 CIT Group Holdings, Inc., 5.523%, 2/3/1997 9,996,933
-----------------------------------------------------------
25,000,000 CXC, Inc., 5.435%, 4/21/1997 24,705,396
-----------------------------------------------------------
36,000,000 Corporate Asset Funding Co., Inc. (CAFCO), 5.466%, 4/9/1997 35,642,890
-----------------------------------------------------------
25,325,000 Falcon Asset Securitization Corp., 5.445%, 4/16/1997 25,045,454
-----------------------------------------------------------
25,000,000 General Electric Capital Corp., 5.441%, 3/10/1997 24,863,049
-----------------------------------------------------------
70,410,000 Greenwich Funding Corp., 5.384%-5.519%, 2/28/1997-4/22/1997 69,750,221
-----------------------------------------------------------
24,475,000 PREFCO-Preferred Receivables Funding Co., 5.421%-5.486%,
2/28/1997-4/17/1997 24,274,741
----------------------------------------------------------- --------------
Total 336,495,569
----------------------------------------------------------- --------------
FINANCE--RETAIL--8.6%
-----------------------------------------------------------
30,000,000 American Express Credit Corp., 5.434%, 6/10/1997 29,431,325
-----------------------------------------------------------
65,000,000 Associates Corp. of North America, 5.380%-5.503%,
2/3/1997-2/21/1997 64,927,250
-----------------------------------------------------------
34,000,000 McKenna Triangle National Corp., 5.377%, 2/25/1997 33,879,867
-----------------------------------------------------------
47,000,000 New Center Asset Trust, A1+/P1 Series, 5.424%, 4/29/1997 46,392,329
----------------------------------------------------------- --------------
Total 174,630,771
----------------------------------------------------------- --------------
</TABLE>
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------- --------------
<C> <C> <S> <C>
(A) COMMERCIAL PAPER--CONTINUED
- --------------------------------------------------------------------------------
OIL & OIL FINANCE--0.5%
-----------------------------------------------------------
$ 10,000,000 Koch Industries, Inc., 5.583%, 2/3/1997 $ 9,996,900
----------------------------------------------------------- --------------
TOTAL COMMERCIAL PAPER 1,125,303,886
----------------------------------------------------------- --------------
GOVERNMENT AGENCY--0.5%
- --------------------------------------------------------------------------------
FEDERAL HOME LOAN BANK, FLOATING RATE NOTE--0.5%
-----------------------------------------------------------
10,000,000 5.480%, 5/8/1997 10,001,983
----------------------------------------------------------- --------------
(C) VARIABLE RATE OBLIGATIONS--6.0%
- --------------------------------------------------------------------------------
BANKING--6.0%
-----------------------------------------------------------
1,000,000 Chestnut Hills Apartments, Ltd., (Huntington National Bank,
Columbus, OH LOC), 5.51%, 2/6/1997 1,000,000
-----------------------------------------------------------
7,135,000 Franklin County, OH, (Edison Wielding), (Series 1995),
(Huntington National Bank, Columbus, OH LOC), 5.59%,
2/6/1997 7,135,000
-----------------------------------------------------------
7,500,000 Henry County Ohio, Series 1996 Automatic Feed Project,
(Huntington National Bank, Columbus, OH LOC), 5.630%,
2/6/1997 7,500,000
-----------------------------------------------------------
85,000,000 SMM Trust, Series 1996-I, (Morgan Guaranty Trust Co., New
York Swap Agreement), 5.488%, 3/1/1997 85,000,000
-----------------------------------------------------------
20,000,000 SMM Trust, Series 1996-U, (Morgan Guaranty Trust Co., New
York Swap Agreement), 5.425%, 2/20/1997 20,000,000
-----------------------------------------------------------
1,250,000 TDB Realty, Ltd., (Huntington National Bank, Columbus, OH
LOC), 5.46%, 2/6/1997 1,250,000
----------------------------------------------------------- --------------
TOTAL VARIABLE RATE OBLIGATIONS 121,885,000
----------------------------------------------------------- --------------
TIME DEPOSIT--3.7%
- --------------------------------------------------------------------------------
BANKING--3.7%
-----------------------------------------------------------
75,000,000 Royal Bank of Canada, Montreal, 5.625%, 2/3/1997 75,000,000
----------------------------------------------------------- --------------
</TABLE>
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------- --------------
<C> <C> <S> <C>
(D) REPURCHASE AGREEMENTS--16.7%
- --------------------------------------------------------------------------------
$104,000,000 Bear, Stearns and Co., 5.580%, dated 1/31/1997, due
2/3/1997 $ 104,000,000
-----------------------------------------------------------
116,800,000 Daiwa Securities America, Inc., 5.580%, dated 1/31/1997,
due 2/3/1997 116,800,000
-----------------------------------------------------------
43,624,000 Sanwa-BGK Securities Co., L.P., 5.350%, dated 1/31/1997,
due 2/3/1997 43,624,000
-----------------------------------------------------------
75,000,000 UBS Securities, Inc., 5.530%, dated 1/31/1997, due 2/3/1997 75,000,000
----------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS 339,424,000
----------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST(E) $2,032,075,314
----------------------------------------------------------- --------------
</TABLE>
(a) Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At January 31, 1997, these securities
amounted to $64,000,000 which represents 3.1% of net assets.
(c) Current rate and next reset date shown.
(d) 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.
(e) Also represents costs for the federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($2,034,583,776) at January 31, 1997.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
LOC -- Letter of Credit
LP -- Limited Partnership
PLC -- Public Limited Company
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME CASH OBLIGATIONS FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments in repurchase agreements $ 339,424,000
- --------------------------------------------------------------
Investments in securities 1,692,651,314
- --------------------------------------------------------------
Total investments in securities, at amortized cost and value $2,032,075,314
- -------------------------------------------------------------------------------
Income receivable 6,931,533
- -------------------------------------------------------------------------------
Receivable for shares sold 847,773
- ------------------------------------------------------------------------------- --------------
Total assets 2,039,854,620
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Payable for shares redeemed 4,182
- --------------------------------------------------------------
Income distribution payable 4,606,770
- --------------------------------------------------------------
Payable to Bank 395,949
- --------------------------------------------------------------
Accrued expenses 263,943
- -------------------------------------------------------------- --------------
Total liabilities 5,270,844
- ------------------------------------------------------------------------------- --------------
NET ASSETS for 2,034,583,776 shares outstanding $2,034,583,776
- ------------------------------------------------------------------------------- --------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
$1,572,912,843 / 1,572,912,843 shares outstanding $1.00
- ------------------------------------------------------------------------------- --------------
INSTITUTIONAL SERVICE SHARES:
$412,761,858 / 412,761,858 shares outstanding $1.00
- ------------------------------------------------------------------------------- --------------
INSTITUTIONAL CAPITAL SHARES:
$48,909,075 / 48,909,075 shares outstanding $1.00
- ------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME CASH OBLIGATIONS FUND
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------
Interest $155,374,916
- --------------------------------------------------------------------------------------------
EXPENSES--
- --------------------------------------------------------------------------------------------
Investment advisory fee $ 5,725,774
- -----------------------------------------------------------------------------
Administrative personnel and services fee 2,410,623
- -----------------------------------------------------------------------------
Custodian fees 348,920
- -----------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 406,494
- -----------------------------------------------------------------------------
Directors'/Trustees' fees 53,321
- -----------------------------------------------------------------------------
Auditing fees 12,615
- -----------------------------------------------------------------------------
Legal fees 34,886
- -----------------------------------------------------------------------------
Portfolio accounting fees 54,368
- -----------------------------------------------------------------------------
Share registration costs 18,566
- -----------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 624,090
- -----------------------------------------------------------------------------
Distribution services fee--Institutional Capital Shares 18,885
- -----------------------------------------------------------------------------
Distribution services fee--Class C Shares 35,124
- -----------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 211,366
- -----------------------------------------------------------------------------
Shareholder services fee--Institutional Capital Shares 11,501
- -----------------------------------------------------------------------------
Printing and postage 29,480
- -----------------------------------------------------------------------------
Miscellaneous 73,495
- ----------------------------------------------------------------------------- -----------
Total expenses 10,069,508
- -----------------------------------------------------------------------------
Waivers--
- -----------------------------------------------------------------------------
Waiver of investment advisory fee $(2,154,500)
- ---------------------------------------------------------------
Waiver of administrative personnel and services fee (1,681,402)
- ---------------------------------------------------------------
Waiver of custodian fees (215,672)
- ---------------------------------------------------------------
Waiver of shareholder services fee--Institutional Capital
Shares (6,901)
- --------------------------------------------------------------- -----------
Total waivers (4,058,475)
- ----------------------------------------------------------------------------- -----------
Net expenses 6,011,033
- -------------------------------------------------------------------------------------------- ------------
Net investment income 149,363,883
- -------------------------------------------------------------------------------------------- ------------
Net realized loss on investments (930,171)
- -------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $148,433,712
- -------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME CASH OBLIGATIONS FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------
Net investment income $ 149,363,883 $ 261,679,856
- ----------------------------------------------------------
Net realized gain (loss) on investments (930,171) (159,065)
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from operations 148,433,712 261,520,791
- ---------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------
Distributions from net investment income:
- ----------------------------------------------------------
Institutional Shares (131,246,169) (238,538,736)
- ----------------------------------------------------------
Institutional Service Shares (16,786,956) (21,823,102)
- ----------------------------------------------------------
Institutional Capital Shares (861,359) (668,435)
- ----------------------------------------------------------
Class C Shares (489,156) (649,583)
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from distributions to
shareholders (149,383,640) (261,679,856)
- ---------------------------------------------------------- ---------------- ----------------
CAPITAL CONTRIBUTION 1,107,973 --
- ---------------------------------------------------------- ---------------- ----------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------
Proceeds from sale of shares 44,315,024,567 100,956,434,456
- ----------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 70,429,183 96,866,406
- ----------------------------------------------------------
Cost of shares redeemed (46,619,754,483) (98,681,453,306)
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from share
transactions (2,234,300,733) 2,371,847,556
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets (2,234,142,688) 2,371,688,491
- ----------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------
Beginning of period 4,268,726,464 1,897,037,973
- ---------------------------------------------------------- ---------------- ----------------
End of period (including undistributed net investment of
$0 and $19,757, respectively.) $ 2,034,583,776 $ 4,268,726,464
- ---------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME CASH OBLIGATIONS FUND
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Money Market Obligations Trust II (the "Trust") (formerly, Lehman Brothers
Institutional Group 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 three portfolios. The financial statements included herein are
only those of Prime Cash Obligations Fund (the "Fund") (formerly, Prime Money
Market 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 a high level of current income consistent
with stability of principal and liquidity.
The Fund offers three classes of shares: Institutional Shares (formerly, Class A
Shares), Institutional Service Shares (formerly, Class B Shares), and
Institutional Capital Shares (formerly, Class E Shares). As of November 15,
1996, the Fund's Class C Shares were no longer operational.
(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"). 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
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
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 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 Investment Company Act of 1940.
Additional information on each restricted security held at January 31, 1997
is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Goldman Sachs Group 01/27/97 $50,000,000
Salts III Cayman Island Corp. 01/21/97 $14,000,000
</TABLE>
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 ($0.001 par value) for each
class of shares.
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------
1997 1996
--------------- ---------------
INSTITUTIONAL SHARES SHARES SHARES
- ---------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Shares sold 40,032,958,456 97,578,640,948
- ----------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 69,513,711 95,915,354
- ----------------------------------------------------------
Shares redeemed (42,448,889,011) (95,294,028,189)
- ---------------------------------------------------------- --------------- ---------------
Net change resulting from Institutional Share
transactions (2,346,416,844) 2,380,528,113
- ---------------------------------------------------------- --------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------
1997 1996
--------------- ---------------
INSTITUTIONAL SERVICE SHARES SHARES SHARES
- ---------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Shares sold 3,521,627,120 2,718,357,901
- ----------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 64,147 175,069
- ----------------------------------------------------------
Shares redeemed (3,433,416,889) (2,736,718,080)
- ---------------------------------------------------------- --------------- ---------------
Net change resulting from Institutional Service Share
transactions 88,274,378 (18,185,110)
- ---------------------------------------------------------- --------------- ---------------
</TABLE>
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------
1997 1996
-------------- -------------
INSTITUTIONAL CAPITAL SHARES SHARES SHARES
- ------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Shares sold 730,851,647 603,114,534
- -------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 756,768 668,432
- -------------------------------------------------------------
Shares redeemed (694,511,244) (600,288,961)
- ------------------------------------------------------------- -------------- -------------
Net change resulting from Institutional Capital Share
transactions 37,097,171 3,494,005
- ------------------------------------------------------------- -------------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------
1997(A) 1996
-------------- -------------
CLASS C SHARES SHARES SHARES
- ------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Shares sold 29,587,344 56,321,073
- -------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 94,557 107,551
- -------------------------------------------------------------
Shares redeemed (42,937,339) (50,418,076)
- ------------------------------------------------------------- -------------- -------------
Net change resulting from Capital C Share transactions (13,255,438) 6,010,548
- ------------------------------------------------------------- -------------- -------------
Net change resulting from share transactions (2,234,300,733) 2,371,847,556
- ------------------------------------------------------------- -------------- -------------
</TABLE>
(a) As of November 15, 1996, the Fund's Class C Shares were no longer
operational.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.20% 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.
Federated Management became the Fund's investment adviser on November 15, 1996.
Prior to November 15, 1996, Lehman Brothers Global Asset Management, Inc. (the
"former Adviser") served as the Fund's investment adviser.
For the period ended January 31, 1997, the advisers earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
ADVISER FEE EARNED FEE WAIVED
- ---------------------------- ----------- -----------
<S> <C> <C>
Federated Management $ 911,504 $ 505,519
Lehman Brothers Global Asset
Management $4,814,270 $1,648,981
</TABLE>
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
CAPITAL CONTRIBUTION--The former Adviser made a capital contribution to the Fund
on November 15, 1996, of an amount equal to the accumulated net realized loss on
investments balance carried by the Fund.
This transaction resulted in a permanent book and tax difference. As such, the
paid-in-capital and accumulated net realized gain/loss accounts have been
adjusted accordingly. This adjustment did not affect net investment income, net
realized gains/losses, or 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. FServ became the Fund's
administrator on November 15, 1996. Prior to November 15, 1996, First Data
Investors Services Group, Inc. ("FDISG") served as the Fund's administrator. For
the period ended January 31, 1997, the administrators earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
ADMINISTRATOR FEE EARNED FEE WAIVED
- ------------------ ----------- -----------
<S> <C> <C>
FServ $ 30,284 $ --
FDISG $2,380,339 $1,681,402
</TABLE>
DISTRIBUTION SERVICES FEE--Pursuant to Rule 12b-1 under the Act, as amended, the
Fund had adopted Distribution Agreements ("Service Agreements") with
institutional investors such as banks, savings and loan associations and other
financial institutions with respect to the Fund's former Class B, Class C and
Class E shares. All such Service Agreements were terminated effective November
15, 1996. Prior to November 15, 1996, Lehman Brothers, Inc., acted as the Fund's
distributor.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. There is no present
intention of paying or accruing the shareholder services fee for the
Institutional Shares. The fee paid to FSS is used to finance certain services
for shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion. FSS became the Fund's
shareholder servicing agent on November 15, 1996.
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. FSSC
became the Fund's transfer and dividend disbursing agent on November 15, 1996.
Prior to November 15, 1996, FDISG served as the Fund's transfer and dividend
disbursing agent.
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
For the period ended January 31, 1997 the transfer and dividend disbursing
agents earned fees as follows:
<TABLE>
<CAPTION>
TRANSFER AND DIVIDEND AMOUNT OF
DISBURSING AGENT FEE EARNED
- --------------------------- -----------
<S> <C>
FSSC $ 920
FDISG $ 405,574
</TABLE>
PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting records for
which it receives a fee. The fee is based on the level of the Trust's average
daily net assets for the period, plus out-of-pocket expenses. All portfolio
accounting fees for the year ended January 31, 1997, were paid to FServ.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of
PRIME CASH OBLIGATIONS FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prime Cash Obligations Fund, formerly Prime
Money Market Fund (a portfolio of Money Market Obligations Trust II, formerly a
Portfolio of Lehman Brothers Institutional Funds Group Trust) as of January 31,
1997, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Prime
Cash Obligations Fund at January 31, 1997, and the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 14, 1997
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Prime Cash Obligations Fund
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRIME CASH OBLIGATIONS
FUND
(FORMERLY, PRIME MONEY MARKET FUND)
INSTITUTIONAL SERVICE SHARES
(FORMERLY, CLASS B SHARES)
PROSPECTUS
A Portfolio of Money Market
Obligations Trust II (formerly,
Lehman Brothers
Institutional Funds Group Trust), an
Open-End
Management Investment Company
Prospectus dated March 31, 1997
LOGO
Cusip 608912804
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRIME CASH OBLIGATIONS FUND
(A PORTFOLIO OF MONEY MARKET OBLIGATIONS TRUST II)
(FORMERLY, PRIME MONEY MARKET FUND, A PORTFOLIO OF
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST)
INSTITUTIONAL CAPITAL SHARES (FORMERLY, CLASS E SHARES)
PROSPECTUS
The Institutional Capital Shares (formerly, Class E Shares) of Prime Cash
Obligations Fund (formerly, Prime Money Market Fund) (the "Fund") offered by
this prospectus represent interests in a portfolio of Money Market Obligations
Trust II (formerly, Lehman Brothers Institutional Funds Group Trust) (the
"Trust"), an open-end management investment company (a mutual fund). The Fund
invests in short-term money market securities to achieve 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 March 31,
1997, 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 the Fund at
the address listed in the back of this prospectus. 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated March 31, 1997
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL CAPITAL SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Institutional Capital Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
ACCOUNT AND SHARE INFORMATION 11
- ------------------------------------------------------
TAX INFORMATION 12
- ------------------------------------------------------
Federal Income Tax 12
State and Local Taxes 12
OTHER CLASSES OF SHARES 12
- ------------------------------------------------------
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
LAST MEETING OF SHAREHOLDERS 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 15
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 16
- ------------------------------------------------------
FINANCIAL STATEMENTS 17
- ------------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 31
- ------------------------------------------------------
ADDRESSES 32
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
INSTITUTIONAL CAPITAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<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
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)..................................................... 0.06%
12b-1 Fee............................................................................ None
Total Other Expenses................................................................. 0.24%
Shareholder Services Fee (after waiver)(2)................................. 0.10%
Total Operating Expenses(3).......................................................... 0.30%
</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 0.20%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholders services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%.
(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending January 31, 1998. The total Institutional
Capital Shares operating expenses were 0.32% for fiscal year ended January 31,
1997 and would have been 0.50% absent the voluntary waivers of portions of the
management, fee administrative fee, custodian fee, and shareholder services fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL CAPITAL SHARES OF
THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE
DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "FUND 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............. $3 $10 $17 $ 38
</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.
PRIME CASH OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL CAPITAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 31.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------
1997 1996 1995(a)
------ ------ -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------
Net investment income 0.05 0.06 0.02
- ---------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------
Distributions from net investment income (0.05) (0.06) (0.02)
- --------------------------------------------------------------- ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------- ------ ------ -------
TOTAL RETURN (B) 5.23% 5.94% 1.66%
- ---------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------
Expenses 0.32% 0.32% 0.27% *
- ---------------------------------------------------------------
Net investment income 5.00% 5.75% 4.15% *
- ---------------------------------------------------------------
Expense waiver/reimbursement (c) 0.18% 0.08% 0.12% *
- ---------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------
Net assets, end of period (000 omitted) $48,910 $11,811 $8,318
- ---------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from October 6, 1994 (date of initial
public offering) to January 31, 1995.
(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 16, 1992. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established three classes of shares known as Institutional Shares,
Institutional Service Shares and Institutional Capital Shares. This prospectus
relates only to Institutional Capital Shares of the Fund, which are designed
primarily for financial institutions, financial intermediaries and institutional
investors as a convenient means of accumulating an interest in a professionally
managed portfolio investing in short-term money market securities. A minimum
initial investment of $1,000,000 over a one-year period 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 current income consistent with stability
of principal and liquidity. This investment objective may be changed by the
Board of Trustees 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 money
market 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 without shareholder approval. Shareholders will
be notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are either rated in the highest short-term rating category by
one or more nationally recognized statistical rating organizations ("NRSROs") or
are of comparable quality to securities having such ratings. Examples of these
instruments include, but are not limited to:
- domestic issues of corporate debt obligations, including variable rate
demand notes;
- commercial paper (including Canadian Commercial Paper and Europaper);
- certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");
- short-term credit facilities;
- asset-backed securities;
- obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities;
- other money market instruments; and
- obligations issued by state and local government agencies.
The Fund invests only in instruments denominated and payable in U.S. dollars.
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.
BANK INSTRUMENTS. The Fund only invests in Bank Instruments either issued
by an institution having capital, surplus and undivided profits over $100
million, or insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"). Bank Instruments may include
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). The Fund will treat
securities credit enhanced with a bank's letter of credit as Bank
Instruments.
ASSET-BACKED SECURITIES. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans or
accounts receivable. The securities may take the form of beneficial
interests in special purpose trusts, limited partnership interests, or
commercial paper or other debt securities issued by a special purpose
corporation. Although the securities often have some form of credit or
liquidity enhancement, payments on the securities depend predominantly upon
collections of the loans and receivables held by the issuer.
SHORT-TERM CREDIT FACILITIES. The Fund may enter into, or acquire
participations in, short-term borrowing arrangements with corporations,
consisting of either a short-term revolving credit facility or a master
note agreement payable upon demand. Under these arrangements, the borrower
may reborrow funds during the term of the facility. The Fund treats any
commitments to provide such advances as a standby commitment to purchase
the borrower's notes.
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.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and agrees that
on a stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an agreed
upon rate. The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but does not ensure this result. However, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the securities to be
purchased, are: segregated on the Fund's records at the trade date; marked to
market daily; and maintained until the transaction is settled.
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,
including non-negotiable time deposits and repurchase agreements providing for
settlement in more than seven days after notice to 10% of its net assets.
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.
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.
5
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.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or long-term basis, or
both, to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/ dealers, banks, or
other institutions which the adviser has determined are creditworthy under
guidelines established by the Trustees and will receive collateral at all times
equal to at least 100% of the value of the securities loaned. There is the risk
that when lending portfolio securities, the securities may not be available to
the Fund on a timely basis and the Fund may, therefore, lose the opportunity to
sell the securities at a desirable price. In addition, in the event that a
borrower of securities would file for bankruptcy or become insolvent,
disposition of the securities may be delayed pending court action.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, Canadian Commercial Paper, and Europaper are subject to
different risks than domestic obligations of domestic banks or corporations.
Examples of these risks include international economic and political
developments, foreign governmental restrictions that may adversely affect the
payment of principal or interest, foreign withholding or other taxes on interest
income, difficulties in obtaining or enforcing a judgment against the issuing
entity, and the possible impact of interruptions in the flow of international
currency transactions. Risks may also exist for ECDs, ETDs, and Yankee CDs
because the banks issuing these instruments, or their domestic or foreign
branches, are not necessarily subject to the same regulatory requirements that
apply to domestic banks, such as reserve requirements, loan limitations,
examinations, accounting, auditing, recordkeeping, and the public availability
of information. These factors will be carefully considered by the Fund's adviser
in selecting investments for the Fund.
INVESTMENT LIMITATIONS
The Fund may not:
- borrow money, except that the Fund may (i) borrow money for temporary or
emergency purposes (not for leveraging or investment) from banks, or
subject to specific authorization by the SEC, from funds advised by the
adviser or an affiliate of the adviser, and (ii) engage in reverse
repurchase agreements; provided that (i) and (ii) in combination do not
exceed one-third of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings). The Fund may
not mortgage, pledge or hypothecate any assets except in connection with
such borrowings and reverse repurchase agreements and then only in
amounts not exceeding one-third of the value of the Fund's total assets
at the time of such borrowing; or
- purchase any securities which would cause 25% or more of the value of its
total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, (unless the Fund is in a temporary
defensive position);
provided that there is no limitation with respect to investments in U.S.
government securities or, in bank instruments issued by domestic banks.
The above investment limitations cannot be changed without shareholder approval.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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
Management, 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 0.20% of the Fund's average daily net assets. 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 Management, 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 Management 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 $110 billion invested across
over 300 funds under management and/or administration by its subsidiaries,
as of December 31, 1996, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 2,000
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,500
financial institutions nationwide.
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 INSTITUTIONAL CAPITAL SHARES
Federated Securities Corp. is the principal distributor for Institutional
Capital 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.
ADMINISTRATION OF THE FUND
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement
with Federated Shareholder Services, a subsidiary of Federated Investors, under
which the Fund may make payments up to 0.25% of the average daily net asset
value of its shares, computed at an annual rate, to obtain certain personal
services for shareholders and to maintain shareholder accounts. From time to
time and for such periods as deemed appropriate, the amount stated above may be
reduced voluntarily. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares 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 Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their 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.
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 specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
- ------------ ------------------------------------
<S> <C>
.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 shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Capital Shares from the value of Fund assets attributable to Institutional
Capital Shares, and dividing the remainder by the number of Institutional
Capital 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 on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Fund reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $1,000,000. However, an account may be opened with
a smaller amount as long as the minimum is reached within one year of opening
the account. Financial institutions may impose different minimum investment
requirements on their customers.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve 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) that 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: Prime Cash Obligations
Fund-- Institutional Capital Shares; 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: Prime Cash Obligations Fund--Institutional
Capital Shares. 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.
INVEST-BY-PHONE. Once an account has been opened, a shareholder may use
invest-by-phone for investments if an authorization form has been filed with
Federated Shareholder Services Company, the transfer agent for shares of the
Fund. Approximately two weeks after sending the form to Federated Shareholder
Services Company, the shareholder may call Federated Shareholder Services
Company to purchase shares. Federated Shareholder Services Company will send a
request for monies to the shareholder's commercial bank, savings bank, or credit
union ("bank") via the Automated Clearing House. The shareholder's bank, which
must be an Automated Clearing House member, will then forward the monies to
Federated Shareholder Services Company. The purchase is normally entered the
next business day after the initial phone request. For further information and
an application, call the Fund.
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 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 3:00 p.m. (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. 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 and the class designation; 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.
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. Shares purchased by
wire before 3:00 p.m. (Eastern time) begin earning dividends that day. Shares
purchased by check begin earning dividends the day after the check is converted
into federal funds.
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 $1,000,000 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 all classes of each portfolio in the Trust
have equal voting rights, except that in matters affecting only a particular
portfolio or class, only shareholders of that portfolio or class 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.
As of March 10, 1997, Heart Special Trust Account, New York, organized in the
state of New York owned 75.94% of the voting securities of the Fund, and,
therefore, may, for certain purposes, be deemed to control the Fund and be able
to affect the outcome of certain matters presented for a vote of shareholders.
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, Donnelly & Meck, 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.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers other classes. Institutional Shares are sold at net asset
value primarily to entities holding shares in an agency or fiduciary capacity,
financial institutions, financial intermediaries and institutional investors and
are subject to a minimum initial investment of $1,000,000. Institutional Service
Shares are sold at net asset value primarily to financial institutions,
financial intermediaries and institutional investors and are subject to a
minimum initial investment of $1,000,000.
All classes are subject to certain of the same expenses.
Neither Institutional Shares nor Institutional Service Shares are distributed
with a 12b-1 Plan but both are subject to shareholder services fees. Currently,
Institutional Shares are accruing no shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield and total
return. The performance figures will be calculated separately for each class of
shares.
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 shares 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.
LAST MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
A Special Meeting of Prime Money Market Fund, a portfolio of Lehman Brothers
Institutional Funds Group Trust was held on November 13, 1996. On October 11,
1996, the record date for shareholders voting at the meeting, there were
2,468,843,605 total outstanding shares. The following items were considered by
shareholders and the results of their voting were as follows:
<TABLE>
<CAPTION>
WITHHELD
AGENDA ITEM FOR AGAINST ABSTAIN AUTHORITY TO VOTE
- -------------------------- ----------------- -------------- ------------- -----------------
<S> <C> <C> <C> <C>
1. Approval of the
Investment Advisory
Agreement between
Federated Management and
the Trust with respect to
the Fund 1,286,430,982 62,006,079 4,368,976 -0-
2. Election of Trustees
John F. Donahue 1,352,368,038 -0- -0- 438,000
Thomas G. Bigley 1,352,368,038 -0- -0- 438,000
John T. Conroy, Jr. 1,352,368,038 -0- -0- 438,000
William J. Copeland 1,352,368,038 -0- -0- 438,000
J. Christopher Donahue 1,352,368,038 -0- -0- 438,000
James E. Dowd 1,352,368,038 -0- -0- 438,000
Lawrence D. Ellis, M.D. 1,352,368,038 -0- -0- 438,000
Edward L. Flaherty, Jr. 1,352,368,038 -0- -0- 438,000
Peter E. Madden 1,352,368,038 -0- -0- 438,000
Gregor F. Meyer 1,352,368,038 -0- -0- 438,000
John E. Murray, Jr. 1,352,368,038 -0- -0- 438,000
Wesley W. Posvar 1,352,368,038 -0- -0- 438,000
Marjorie P. Smuts 1,352,368,038 -0- -0- 438,000
</TABLE>
PRIME CASH OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------------------
1997 1996 1995 1994(a)
------ ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------
Net investment income 0.05 0.06 0.04 0.03
- -----------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------
Distributions from net investment income (0.05) (0.06) (0.04) (0.03)
- ----------------------------------------------- ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------- ------ ------ ------ -------
TOTAL RETURN (B) 5.38% 6.08% 4.52% 3.14%
- -----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------
Expenses 0.18% 0.17% 0.12% 0.11% *
- -----------------------------------------------
Net investment income 5.25% 5.90% 4.30% 3.16% *
- -----------------------------------------------
Expense waiver/reimbursement (c) 0.14% 0.08% 0.13% 0.22% *
- -----------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------
Net assets, end of period (000 omitted) $1,572,912 $3,919,186 $1,538,802 $2,866,353
- -----------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 8, 1993 (date of initial
public investment) to January 31, 1994.
(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)
PRIME CASH OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------------
1997 1996 1995 1994(a)
------ ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------
Net investment income 0.05 0.06 0.04 0.01
- ------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------
Distributions from net investment income (0.05) (0.06) (0.04) (0.01)
- ------------------------------------------------------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------ ------ ------ ------ -------
TOTAL RETURN (B) 5.11% 5.83% 4.21% 0.99%
- ------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------
Expenses 0.43% 0.42% 0.37% 0.36% *
- ------------------------------------------------------
Net investment income 5.02% 5.65% 4.05% 2.91% *
- ------------------------------------------------------
Expense waiver/reimbursement (c) 0.14% 0.08% 0.13% 0.22% *
- ------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------
Net assets, end of period (000 omitted) $412,762 $324,474 $342,673 $350,666
- ------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 2, 1993 (date of initial
public offering) to January 31, 1994.
(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)
PRIME CASH OBLIGATIONS FUND
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------- --------------
<C> <C> <S> <C>
SHORT-TERM NOTES--7.2%
- --------------------------------------------------------------------------------
FINANCE--AUTOMOTIVE--0.3%
-----------------------------------------------------------
$ 3,228,536 Ford Credit Auto Owner Trust 1996-Class-B, Class A-1,
5.514%, 10/15/1997 $ 3,228,535
-----------------------------------------------------------
2,232,251 Nationsbank Auto Owner Trust 1996-A, Class A-1, 5.776%,
8/15/1997 2,233,270
----------------------------------------------------------- --------------
Total 5,461,805
----------------------------------------------------------- --------------
BANKING--0.7%
-----------------------------------------------------------
14,000,000 (b) SALTS III Cayman Island Corp., (Bankers Trust
International, PLC Swap Agreement), 5.788%, 7/23/1997 14,000,000
----------------------------------------------------------- --------------
BROKERAGE--2.5%
-----------------------------------------------------------
50,000,000 (b) Goldman Sachs Group, LP, 5.563%, 4/28/1997 50,000,000
----------------------------------------------------------- --------------
FINANCE--AUTOMOTIVE--0.8%
-----------------------------------------------------------
10,000,000 Ford Credit Auto Lease Trust 1996-1, Class A-1, 5.451%,
11/15/1997 9,999,213
-----------------------------------------------------------
6,000,000 WFS Financial Owner Trust 1996-D, Class A-1, 5.500%,
1/16/1998 6,000,000
----------------------------------------------------------- --------------
Total 15,999,213
----------------------------------------------------------- --------------
FINANCE--COMMERCIAL--2.9%
-----------------------------------------------------------
10,000,000 Cargill Lease Receivables Trust 1996-A, Class A-1, 5.613%,
12/20/1997 10,000,000
-----------------------------------------------------------
10,000,000 General Electric Capital Corp., 4.915%, 2/12/1997 9,999,895
-----------------------------------------------------------
10,000,000 General Electric Capital Corp., 4.915%, 2/13/1997 9,999,885
-----------------------------------------------------------
10,000,000 General Electric Capital Corp., 4.948%, 2/10/1997 9,999,899
-----------------------------------------------------------
10,000,000 General Electric Capital Corp., 5.004%, 2/5/1997 9,999,963
-----------------------------------------------------------
10,000,000 General Electric Capital Corp., 5.080%, 2/3/1997 10,000,009
----------------------------------------------------------- --------------
Total 59,999,651
----------------------------------------------------------- --------------
TOTAL SHORT-TERM NOTES 145,460,669
----------------------------------------------------------- --------------
</TABLE>
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------- --------------
<C> <C> <S> <C>
BANK NOTE--2.5%
- --------------------------------------------------------------------------------
BANKING--2.5%
-----------------------------------------------------------
$ 50,000,000 First Union National Bank, Charlotte, N.C., 5.670%,
4/28/1997 $ 50,002,236
----------------------------------------------------------- --------------
CERTIFICATES OF DEPOSIT--8.1%
- --------------------------------------------------------------------------------
BANKING--8.1%
-----------------------------------------------------------
55,000,000 Abbey National Treasury Services, PLC, (Guaranteed by Abbey
National Bank PLC, London), 5.410%-5.450%, 5/27/1997 54,997,205
-----------------------------------------------------------
80,000,000 Banque Nationale de Paris, 5.375%, 2/27/1997 80,000,285
-----------------------------------------------------------
30,000,000 Societe Generale, Paris, 5.370%, 2/19/1997 30,000,050
----------------------------------------------------------- --------------
TOTAL CERTIFICATES OF DEPOSIT 164,997,540
----------------------------------------------------------- --------------
(A) COMMERCIAL PAPER--55.3%
- --------------------------------------------------------------------------------
BANKING--15.4%
-----------------------------------------------------------
30,000,000 Abbey National N.A. Corp., (Guaranteed by Abbey National
Bank PLC, London), 5.402%, 3/11/1997 29,831,217
-----------------------------------------------------------
100,000,000 Bank of Nova Scotia, Toronto, 5.393%-5.434%,
3/6/1997-3/17/1997 99,447,228
-----------------------------------------------------------
25,000,000 Den Danske Corp., Inc., (Guaranteed by Den Danske Bank
A/S), 5.530%, 7/17/1997 24,379,806
-----------------------------------------------------------
30,000,000 Deutsche Bank Financial, Inc., (Guaranteed by Deutsche
Bank, AG), 5.404%, 3/12/1997 29,826,775
-----------------------------------------------------------
36,000,000 ING US Funding, (Guaranteed by Internationale Nederlanden
Bank N.V.), 5.520%, 7/8/1997 35,156,910
-----------------------------------------------------------
30,000,000 National Australia Funding, Inc., (Guaranteed by National
Australia Bank, Ltd., Melbourne), 5.423%, 4/17/1997 29,665,625
-----------------------------------------------------------
65,000,000 Svenska Handelsbanken, Inc., (Guaranteed by Svenska
Handelsbanken, Stockholm), 5.406%-5.530%,
4/14/1997-7/25/1997 64,243,755
----------------------------------------------------------- --------------
Total 312,551,316
----------------------------------------------------------- --------------
BROKERAGE--5.3%
-----------------------------------------------------------
109,000,000 Merrill Lynch & Co., Inc., 5.372%-5.423%,
2/18/1997-4/9/1997 108,205,406
----------------------------------------------------------- --------------
</TABLE>
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------- --------------
<C> <C> <S> <C>
(A) COMMERCIAL PAPER--CONTINUED
- --------------------------------------------------------------------------------
CHEMICALS--3.4%
-----------------------------------------------------------
$ 70,000,000 Du Pont (E.I.) de Nemours & Co., 5.427%-5.446%,
2/19/1997-4/7/1997 $ 69,468,931
----------------------------------------------------------- --------------
ENTERTAINMENT--1.9%
-----------------------------------------------------------
40,000,000 Disney (Walt) Holding Co., 5.445%, 5/1/1997 39,475,889
----------------------------------------------------------- --------------
FINANCE--AUTOMOTIVE--3.7%
-----------------------------------------------------------
75,000,000 Ford Motor Credit Corp., 5.393%-5.457%, 2/4/1997-4/11/1997 74,479,104
----------------------------------------------------------- --------------
FINANCE--COMMERCIAL--16.5%
-----------------------------------------------------------
103,000,000 Asset Securitization Cooperative Corp., 5.404%-5.438%,
3/5/1997-3/18/1997 102,372,826
-----------------------------------------------------------
5,000,000 Beta Finance, Inc., 5.402%, 3/3/1997 4,977,792
-----------------------------------------------------------
15,000,000 CIESCO, Inc., 5.575%, 4/1/1997 14,866,267
-----------------------------------------------------------
10,000,000 CIT Group Holdings, Inc., 5.523%, 2/3/1997 9,996,933
-----------------------------------------------------------
25,000,000 CXC, Inc., 5.435%, 4/21/1997 24,705,396
-----------------------------------------------------------
36,000,000 Corporate Asset Funding Co., Inc. (CAFCO), 5.466%, 4/9/1997 35,642,890
-----------------------------------------------------------
25,325,000 Falcon Asset Securitization Corp., 5.445%, 4/16/1997 25,045,454
-----------------------------------------------------------
25,000,000 General Electric Capital Corp., 5.441%, 3/10/1997 24,863,049
-----------------------------------------------------------
70,410,000 Greenwich Funding Corp., 5.384%-5.519%, 2/28/1997-4/22/1997 69,750,221
-----------------------------------------------------------
24,475,000 PREFCO-Preferred Receivables Funding Co., 5.421%-5.486%,
2/28/1997-4/17/1997 24,274,741
----------------------------------------------------------- --------------
Total 336,495,569
----------------------------------------------------------- --------------
FINANCE--RETAIL--8.6%
-----------------------------------------------------------
30,000,000 American Express Credit Corp., 5.434%, 6/10/1997 29,431,325
-----------------------------------------------------------
65,000,000 Associates Corp. of North America, 5.380%-5.503%,
2/3/1997-2/21/1997 64,927,250
-----------------------------------------------------------
34,000,000 McKenna Triangle National Corp., 5.377%, 2/25/1997 33,879,867
-----------------------------------------------------------
47,000,000 New Center Asset Trust, A1+/P1 Series, 5.424%, 4/29/1997 46,392,329
----------------------------------------------------------- --------------
Total 174,630,771
----------------------------------------------------------- --------------
</TABLE>
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------- --------------
<C> <C> <S> <C>
(A) COMMERCIAL PAPER--CONTINUED
- --------------------------------------------------------------------------------
OIL & OIL FINANCE--0.5%
-----------------------------------------------------------
$ 10,000,000 Koch Industries, Inc., 5.583%, 2/3/1997 $ 9,996,900
----------------------------------------------------------- --------------
TOTAL COMMERCIAL PAPER 1,125,303,886
----------------------------------------------------------- --------------
GOVERNMENT AGENCY--0.5%
- --------------------------------------------------------------------------------
FEDERAL HOME LOAN BANK, FLOATING RATE NOTE--0.5%
-----------------------------------------------------------
10,000,000 5.480%, 5/8/1997 10,001,983
----------------------------------------------------------- --------------
(C) VARIABLE RATE OBLIGATIONS--6.0%
- --------------------------------------------------------------------------------
BANKING--6.0%
-----------------------------------------------------------
1,000,000 Chestnut Hills Apartments, Ltd., (Huntington National Bank,
Columbus, OH LOC), 5.51%, 2/6/1997 1,000,000
-----------------------------------------------------------
7,135,000 Franklin County, OH, (Edison Wielding), (Series 1995),
(Huntington National Bank, Columbus, OH LOC), 5.59%,
2/6/1997 7,135,000
-----------------------------------------------------------
7,500,000 Henry County Ohio, Series 1996 Automatic Feed Project,
(Huntington National Bank, Columbus, OH LOC), 5.630%,
2/6/1997 7,500,000
-----------------------------------------------------------
85,000,000 SMM Trust, Series 1996-I, (Morgan Guaranty Trust Co., New
York Swap Agreement), 5.488%, 3/1/1997 85,000,000
-----------------------------------------------------------
20,000,000 SMM Trust, Series 1996-U, (Morgan Guaranty Trust Co., New
York Swap Agreement), 5.425%, 2/20/1997 20,000,000
-----------------------------------------------------------
1,250,000 TDB Realty, Ltd., (Huntington National Bank, Columbus, OH
LOC), 5.46%, 2/6/1997 1,250,000
----------------------------------------------------------- --------------
TOTAL VARIABLE RATE OBLIGATIONS 121,885,000
----------------------------------------------------------- --------------
TIME DEPOSIT--3.7%
- --------------------------------------------------------------------------------
BANKING--3.7%
-----------------------------------------------------------
75,000,000 Royal Bank of Canada, Montreal, 5.625%, 2/3/1997 75,000,000
----------------------------------------------------------- --------------
</TABLE>
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------- --------------
<C> <C> <S> <C>
(D) REPURCHASE AGREEMENTS--16.7%
- --------------------------------------------------------------------------------
$104,000,000 Bear, Stearns and Co., 5.580%, dated 1/31/1997, due
2/3/1997 $ 104,000,000
-----------------------------------------------------------
116,800,000 Daiwa Securities America, Inc., 5.580%, dated 1/31/1997,
due 2/3/1997 116,800,000
-----------------------------------------------------------
43,624,000 Sanwa-BGK Securities Co., L.P., 5.350%, dated 1/31/1997,
due 2/3/1997 43,624,000
-----------------------------------------------------------
75,000,000 UBS Securities, Inc., 5.530%, dated 1/31/1997, due 2/3/1997 75,000,000
----------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS 339,424,000
----------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST(E) $2,032,075,314
----------------------------------------------------------- --------------
</TABLE>
(a) Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At January 31, 1997, these securities
amounted to $64,000,000 which represents 3.1% of net assets.
(c) Current rate and next reset date shown.
(d) 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.
(e) Also represents costs for the federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($2,034,583,776) at January 31, 1997.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
LOC -- Letter of Credit
LP -- Limited Partnership
PLC -- Public Limited Company
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME CASH OBLIGATIONS FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments in repurchase agreements $ 339,424,000
- --------------------------------------------------------------
Investments in securities 1,692,651,314
- --------------------------------------------------------------
Total investments in securities, at amortized cost and value $2,032,075,314
- -------------------------------------------------------------------------------
Income receivable 6,931,533
- -------------------------------------------------------------------------------
Receivable for shares sold 847,773
- ------------------------------------------------------------------------------- --------------
Total assets 2,039,854,620
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Payable for shares redeemed 4,182
- --------------------------------------------------------------
Income distribution payable 4,606,770
- --------------------------------------------------------------
Payable to Bank 395,949
- --------------------------------------------------------------
Accrued expenses 263,943
- -------------------------------------------------------------- --------------
Total liabilities 5,270,844
- ------------------------------------------------------------------------------- --------------
NET ASSETS for 2,034,583,776 shares outstanding $2,034,583,776
- ------------------------------------------------------------------------------- --------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
$1,572,912,843 / 1,572,912,843 shares outstanding $1.00
- ------------------------------------------------------------------------------- --------------
INSTITUTIONAL SERVICE SHARES:
$412,761,858 / 412,761,858 shares outstanding $1.00
- ------------------------------------------------------------------------------- --------------
INSTITUTIONAL CAPITAL SHARES:
$48,909,075 / 48,909,075 shares outstanding $1.00
- ------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME CASH OBLIGATIONS FUND
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------
Interest $155,374,916
- --------------------------------------------------------------------------------------------
EXPENSES--
- --------------------------------------------------------------------------------------------
Investment advisory fee $ 5,725,774
- -----------------------------------------------------------------------------
Administrative personnel and services fee 2,410,623
- -----------------------------------------------------------------------------
Custodian fees 348,920
- -----------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 406,494
- -----------------------------------------------------------------------------
Directors'/Trustees' fees 53,321
- -----------------------------------------------------------------------------
Auditing fees 12,615
- -----------------------------------------------------------------------------
Legal fees 34,886
- -----------------------------------------------------------------------------
Portfolio accounting fees 54,368
- -----------------------------------------------------------------------------
Share registration costs 18,566
- -----------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 624,090
- -----------------------------------------------------------------------------
Distribution services fee--Institutional Capital Shares 18,885
- -----------------------------------------------------------------------------
Distribution services fee--Class C Shares 35,124
- -----------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 211,366
- -----------------------------------------------------------------------------
Shareholder services fee--Institutional Capital Shares 11,501
- -----------------------------------------------------------------------------
Printing and postage 29,480
- -----------------------------------------------------------------------------
Miscellaneous 73,495
- ----------------------------------------------------------------------------- -----------
Total expenses 10,069,508
- -----------------------------------------------------------------------------
Waivers--
- -----------------------------------------------------------------------------
Waiver of investment advisory fee $(2,154,500)
- ---------------------------------------------------------------
Waiver of administrative personnel and services fee (1,681,402)
- ---------------------------------------------------------------
Waiver of custodian fees (215,672)
- ---------------------------------------------------------------
Waiver of shareholder services fee--Institutional Capital
Shares (6,901)
- --------------------------------------------------------------- -----------
Total waivers (4,058,475)
- ----------------------------------------------------------------------------- -----------
Net expenses 6,011,033
- -------------------------------------------------------------------------------------------- ------------
Net investment income 149,363,883
- -------------------------------------------------------------------------------------------- ------------
Net realized loss on investments (930,171)
- -------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $148,433,712
- -------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME CASH OBLIGATIONS FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------
Net investment income $ 149,363,883 $ 261,679,856
- ----------------------------------------------------------
Net realized gain (loss) on investments (930,171) (159,065)
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from operations 148,433,712 261,520,791
- ---------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------
Distributions from net investment income:
- ----------------------------------------------------------
Institutional Shares (131,246,169) (238,538,736)
- ----------------------------------------------------------
Institutional Service Shares (16,786,956) (21,823,102)
- ----------------------------------------------------------
Institutional Capital Shares (861,359) (668,435)
- ----------------------------------------------------------
Class C Shares (489,156) (649,583)
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from distributions to
shareholders (149,383,640) (261,679,856)
- ---------------------------------------------------------- ---------------- ----------------
CAPITAL CONTRIBUTION 1,107,973 --
- ---------------------------------------------------------- ---------------- ----------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------
Proceeds from sale of shares 44,315,024,567 100,956,434,456
- ----------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 70,429,183 96,866,406
- ----------------------------------------------------------
Cost of shares redeemed (46,619,754,483) (98,681,453,306)
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from share
transactions (2,234,300,733) 2,371,847,556
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets (2,234,142,688) 2,371,688,491
- ----------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------
Beginning of period 4,268,726,464 1,897,037,973
- ---------------------------------------------------------- ---------------- ----------------
End of period (including undistributed net investment of
$0 and $19,757, respectively.) $ 2,034,583,776 $ 4,268,726,464
- ---------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME CASH OBLIGATIONS FUND
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Money Market Obligations Trust II (the "Trust") (formerly, Lehman Brothers
Institutional Funds Group 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 three portfolios. The financial statements included herein
are only those of Prime Cash Obligations Fund (the "Fund") (formerly, Prime
Money Market 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 a high level of current income
consistent with stability of principal and liquidity.
The Fund offers three classes of shares: Institutional Shares (formerly, Class A
Shares), Institutional Service Shares (formerly, Class B Shares), and
Institutional Capital Shares (formerly, Class E Shares). As of November 15,
1996, the Fund's Class C Shares were no longer operational.
(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"). 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
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
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 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 Investment Company Act of 1940.
Additional information on each restricted security held at January 31, 1997
is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Goldman Sachs Group 01/27/97 $50,000,000
Salts III Cayman Island Corp. 01/21/97 $14,000,000
</TABLE>
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 ($0.001 par value) for each
class of shares.
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------
1997 1996
--------------- ---------------
INSTITUTIONAL SHARES SHARES SHARES
- ---------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Shares sold 40,032,958,456 97,578,640,948
- ----------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 69,513,711 95,915,354
- ----------------------------------------------------------
Shares redeemed (42,448,889,011) (95,294,028,189)
- ---------------------------------------------------------- --------------- ---------------
Net change resulting from Institutional Share
transactions (2,346,416,844) 2,380,528,113
- ---------------------------------------------------------- --------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------
1997 1996
--------------- ---------------
INSTITUTIONAL SERVICE SHARES SHARES SHARES
- ---------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Shares sold 3,521,627,120 2,718,357,901
- ----------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 64,147 175,069
- ----------------------------------------------------------
Shares redeemed (3,433,416,889) (2,736,718,080)
- ---------------------------------------------------------- --------------- ---------------
Net change resulting from Institutional Service Share
transactions 88,274,378 (18,185,110)
- ---------------------------------------------------------- --------------- ---------------
</TABLE>
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------
1997 1996
-------------- -------------
INSTITUTIONAL CAPITAL SHARES SHARES SHARES
- ------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Shares sold 730,851,647 603,114,534
- -------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 756,768 668,432
- -------------------------------------------------------------
Shares redeemed (694,511,244) (600,288,961)
- ------------------------------------------------------------- -------------- -------------
Net change resulting from Institutional Capital Share
transactions 37,097,171 3,494,005
- ------------------------------------------------------------- -------------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------
1997(A) 1996
-------------- -------------
CLASS C SHARES SHARES SHARES
- ------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Shares sold 29,587,344 56,321,073
- -------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 94,557 107,551
- -------------------------------------------------------------
Shares redeemed (42,937,339) (50,418,076)
- ------------------------------------------------------------- -------------- -------------
Net change resulting from Capital C Share transactions (13,255,438) 6,010,548
- ------------------------------------------------------------- -------------- -------------
Net change resulting from share transactions (2,234,300,733) 2,371,847,556
- ------------------------------------------------------------- -------------- -------------
</TABLE>
(a) As of November 15, 1996, the Fund's Class C Shares were no longer
operational.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.20% 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.
Federated Management became the Fund's investment adviser on November 15, 1996.
Prior to November 15, 1996, Lehman Brothers Global Asset Management, Inc. (the
"former Adviser") served as the Fund's investment adviser.
For the period ended January 31, 1997, the advisers earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
ADVISER FEE EARNED FEE WAIVED
- ---------------------------- ----------- -----------
<S> <C> <C>
Federated Management $ 911,504 $ 505,519
Lehman Brothers Global Asset
Management $4,814,270 $1,648,981
</TABLE>
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
CAPITAL CONTRIBUTION--The former Adviser made a capital contribution to the Fund
on November 15, 1996, of an amount equal to the accumulated net realized loss on
investments balance carried by the Fund.
This transaction resulted in a permanent book and tax difference. As such, the
paid-in-capital and accumulated net realized gain/loss accounts have been
adjusted accordingly. This adjustment did not affect net investment income, net
realized gains/losses, or 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. FServ became the Fund's
administrator on November 15, 1996. Prior to November 15, 1996, First Data
Investors Services Group, Inc. ("FDISG") served as the Fund's administrator. For
the period ended January 31, 1997, the administrators earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
ADMINISTRATOR FEE EARNED FEE WAIVED
- ------------------ ----------- -----------
<S> <C> <C>
FServ $ 30,284 $ --
FDISG $2,380,339 $1,681,402
</TABLE>
DISTRIBUTION SERVICES FEE--Pursuant to Rule 12b-1 under the Act, as amended, the
Fund had adopted Distribution Agreements ("Service Agreements") with
institutional investors such as banks, savings and loan associations and other
financial institutions with respect to the Fund's former Class B, Class C and
Class E shares. All such Service Agreements were terminated effective November
15, 1996. Prior to November 15, 1996, Lehman Brothers, Inc., acted as the Fund's
distributor.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. There is no present
intention of paying or accruing the shareholder services fee for the
Institutional Shares. The fee paid to FSS is used to finance certain services
for shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion. FSS became the Fund's
shareholder servicing agent on November 15, 1996.
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. FSSC
became the Fund's transfer and dividend disbursing agent on November 15, 1996.
Prior to November 15, 1996, FDISG served as the Fund's transfer and dividend
disbursing agent.
PRIME CASH OBLIGATIONS FUND
- --------------------------------------------------------------------------------
For the period ended January 31, 1997 the transfer and dividend disbursing
agents earned fees as follows:
<TABLE>
<CAPTION>
TRANSFER AND DIVIDEND AMOUNT OF
DISBURSING AGENT FEE EARNED
- --------------------------- -----------
<S> <C>
FSSC $ 920
FDISG $ 405,574
</TABLE>
PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting records for
which it receives a fee. The fee is based on the level of the Trust's average
daily net assets for the period, plus out-of-pocket expenses. All portfolio
accounting fees for the year ended January 31, 1997, were paid to FServ.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of
PRIME CASH OBLIGATIONS FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prime Cash Obligations Fund, formerly Prime
Money Market Fund (a portfolio of Money Market Obligations Trust II, formerly a
Portfolio of Lehman Brothers Institutional Funds Group Trust) as of January 31,
1997, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Prime
Cash Obligations Fund at January 31, 1997, and the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 14, 1997
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
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Prime Cash Obligations Fund
Institutional Capital Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
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Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600
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Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
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PRIME CASH OBLIGATIONS
FUND
(FORMERLY, PRIME MONEY MARKET FUND)
INSTITUTIONAL CAPITAL SHARES
(FORMERLY, CLASS E SHARES)
PROSPECTUS
A Portfolio of Money Market
Obligations Trust II (formerly,
Lehman Brothers
Institutional Funds Group Trust), an
Open-End
Management Investment Company
Prospectus dated March 31, 1997
LOGO
Cusip 608912887
G01881-08-(3/97)
PRIME CASH OBLIGATIONS FUND
(A PORTFOLIO OF MONEY MARKET OBLIGATIONS TRUST II)
(FORMERLY, PRIME MONEY MARKET FUND, A PORTFOLIO OF LEHMAN BROTHERS
INSTITUTIONAL FUNDS GROUP TRUST)
INSTITUTIONAL SHARES (FORMERLY, CLASS A SHARES)
INSTITUTIONAL SERVICE SHARES (FORMERLY, CLASS B SHARES)
INSTITUTIONAL CAPITAL SHARES (FORMERLY, CLASS E SHARES)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus(es) of Prime Cash Obligations Fund (formerly, Prime Money
Market Fund) (the ``Fund'), a portfolio of Money Market Obligations
Trust II (formerly, Lehman Brothers Institutional Funds Group Trust)
(the ``Trust') dated March 31, 1997. This Statement is not a
prospectus. You may request a copy of a prospectus or a paper copy of
this Statement, if you have received it electronically, free of charge
by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated March 31, 1997
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 608912705
Cusip 608912804
Cusip 608912887
G01881-11 (3/97)
FUND HISTORY 1
INVESTMENT POLICIES 1
Acceptable Investments 1
U.S. Government Securities 1
Bank Instruments 1
Ratings 1
Municipal Securities 1
When-Issued and Delayed Delivery Transactions 2
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Restricted and Illiquid Securities 2
Credit Enhancement 2
Lending of Portfolio Securities 2
INVESTMENT LIMITATIONS 3
Regulatory Compliance 4
MONEY MARKET OBLIGATIONS TRUST II MANAGEMENT 4
Share Ownership 8
Trustee Compensation 8
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 10
Investment Adviser 10
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 10
Fund Administration 11
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Auditors 11
DETERMINING NET ASSET VALUE 11
Shareholder Services 11
REDEMPTION IN KIND 12
MASSACHUSETTS PARTNERSHIP LAW 12
THE FUND'S TAX STATUS 12
PERFORMANCE INFORMATION 12
Yield 12
Effective Yield 13
Total Return 13
Performance Comparisons 13
Economic and Market Information 14
ABOUT FEDERATED INVESTORS 14
Mutual Fund Market 14
Institutional Clients 14
Bank Marketing 14
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 14
APPENDIX 15
FUND HISTORY
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated November 16, 1992. On November 15, 1996, the
Board of Trustees (`Trustees'') changed the name of the Trust from
`Lehman Brothers Institutional Funds Group Trust'' to ``Money Market
Obligations Trust II''and the name of the Fund from ``Prime Money Market
Fund''to ``Prime Cash Obligations Fund.''
Shares of the Fund are offered in three classes, known as Institutional
Shares, Institutional Service Shares and Institutional Capital Shares
(individually and collectively referred to as `Shares,'' as the context
may require). This Statement of Additional Information relates to the
above-referenced Shares of the Fund.
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of Trustees without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or
any guarantor of either the security or any demand feature.
U.S. GOVERNMENT SECURITIES
The types of U.S. government securities in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are backed
by:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
othe credit of the agency or instrumentality issuing the obligations.
BANK INSTRUMENTS
The instruments of banks and savings associations whose deposits are
insured by the Bank Insurance Fund (`BIF'') or the Savings Association
Insurance Fund (`SAIF''), such as certificates of deposit, demand and time
deposits, savings shares, and bankers' acceptances, are not necessarily
guaranteed by those organizations. In addition to domestic bank
instruments, the Fund may invest in: Eurodollar Certificates of Deposit
issued by foreign branches of U.S. or foreign banks; Eurodollar Time
Deposits, which are U.S. dollar-denominated deposits in foreign branches of
U.S. or foreign banks; Canadian Time Deposits, which are U.S. dollar-
denominated deposits issued by branches of major Canadian banks located in
the United States; and Yankee Certificates of Deposit, which are U.S.
dollar-denominated certificates of deposit issued by U.S. branches of
foreign banks and held in the United States.
RATINGS
An NRSRO's highest rating category is determined without regard for sub-
categories and gradations. For example, securities rated A-1 or A-1+ by
Standard & Poor's Ratings Group (`S&P''), Prime-1 by Moody's Investors
Service, Inc. (`Moody's''), or F-1 (+ or -) by Fitch Investors Service,
Inc. (`Fitch'') are all considered rated in the highest short-term rating
category. The Fund will follow applicable regulations in determining
whether a security rated by more than one NRSRO can be treated as being in
the highest short-term rating category; currently, such securities must be
rated by two NRSROs in their highest rating category. See `Regulatory
Compliance.''
MUNICIPAL SECURITIES
As stated in the Fund's Prospectus, the Fund may invest in obligations
issued by state and local government entities. Municipal securities are
issued by various public entities to obtain funds for various public
purposes, including the construction of a wide range of public facilities,
the refunding of outstanding obligations, the payment of general operating
expenses and the extension of loans to public institutions and facilities.
Private activity bonds that are issued by or on behalf of public
authorities to finance various privately operated facilities are considered
to be municipal securities and may be purchased by the Fund. Dividends
paid by the Fund that are derived from interest on such municipal
securities would be taxable to the Fund's investors for federal income tax
purposes.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is settled. The Fund
does not intend to engage in when-issued and delayed delivery transactions
to an extent that would cause the segregation of more than 20% of the total
value of its assets.
REPURCHASE AGREEMENTS
The Fund believes that under the regular procedures normally in effect for
custody of the Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the
Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the
Fund's adviser to be creditworthy pursuant to guidelines established by the
Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and agrees
that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but does not ensure this result. However,
liquid assets of the Fund, in a dollar amount sufficient to make payment
for the securities to be purchased, are: segregated on the Fund's records
at the trade date; marked to market daily; and maintained until the
transaction is settled.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law, and is generally sold to institutional investors, such as
the Fund, who agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like the Fund through
or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity. The Fund
believes that Section 4(2) commercial paper and possibly certain other
restricted securities which meet the criteria for liquidity established by
the Trustees are quite liquid. The Fund intends, therefore, to treat the
restricted securities which meet the criteria for liquidity established by
the Trustees, including Section 4(2) commercial paper, as determined by the
Fund's investment adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-
enhanced securities based upon the financial condition and ratings of the
party providing the credit enhancement (the `credit enhancer''), rather
than the issuer. Generally, the Fund will not treat credit-enhanced
securities as being issued by the credit enhancer for diversification
purposes. However, under certain circumstances applicable regulations may
require the Fund to treat securities as having been issued by both the
issuer and the credit enhancer.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker.
INVESTMENT LIMITATIONS
DIVERSIFICATION OF INVESTMENTS
The Fund may not purchase securities of any one issuer if as a result more
than 5% of the value of the Fund's assets would be invested in the
securities of such issuer, except that up to 25% of the value of the Fund's
total assets may be invested without regard to such 5% limitation and
provided that there is no limitation with respect to investments in U.S.
government securities.
ISSUING SENIOR SECURITIES, BORROWING MONEY AND PLEDGING ASSETS
The Fund may not borrow money, except that the Fund may (i) borrow money
for temporary or emergency purposes (not for leveraging or investment) from
banks or, subject to specific authorization by the SEC, from funds advised
by the adviser or an affiliate of the adviser, and (ii) engage in reverse
repurchase agreements; provided that (i) and (ii) in combination do not
exceed one-third of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings). The Fund may
not mortgage, pledge, or hypothecate its assets except in connection with
such borrowings and reverse repurchase agreements and then only in amounts
not exceeding one-third of the value of the Fund's total assets.
Additional investments will not be made when borrowings exceed 5% of the
Fund's assets.
CONCENTRATION OF INVESTMENTS
The Fund may not purchase any securities which would cause 25% or more of
the value of its total assets at the time of such purchase to be invested
in the securities of one or more issuers conducting their principal
business activivites in the same industry, (unless the Fund is in a
temporary defensive position); provided that there is no limitation with
respect to investments in U.S. government securities or, in bank
instruments issued by domestic banks.
LENDING CASH OR SECURITIES
The Fund may not make loans, except that the Fund may (i) purchase or hold
debt obligations in accordance with its investment objective and policies,
(ii) enter into repurchase agreements for securities, (iii) lend portfolio
securities as described in the prospectus, and (iv) subject to specific
authorization by the SEC, lend money to other funds advised by the adviser
or an affiliate of the adviser.
UNDERWRITING
The Fund may not act as an underwriter of securities, except insofar as the
Fund may be deemed an underwriter under applicable securities laws in
selling portfolio securities.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate or real estate limited
partnerships, provided that the Fund may purchase securities of issuers
which invest in real estate or interests therein.
INVESTING IN COMMODITIES AND MINERALS
The Fund may not purchase or sell commodities contracts, or invest in oil,
gas or mineral exploration or development programs or in mineral leases.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including repurchase agreements providing for
settlement in more than seven days after notice.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for
clearance of transactions.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not acquire more than 3% of the total outstanding securities
of other investment companies, except as part of a merger, consolidation,
or other acquisition.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 15% of the value of its total assets in
securities of companies (including predecessors) with less than three years
of continuous operation.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of
and regulations under the Investment Company Act of 1940. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. For example, with limited exceptions,
Rule 2a-7 prohibits the investment of more than 5% of the Fund's total
assets in the securities of any one issuer, although the Fund's investment
limitation only requires such 5% diversification with respect to 75% of its
assets. The Fund will invest more than 5% of its assets in any one issuer
only under the circumstances permitted by Rule 2a-7. The Fund will also
determine the effective maturity of its investments , as well as its
ability to consider a security as having received the requisite short-term
ratings by NRSROs, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without
the approval of its shareholders.
MONEY MARKET OBLIGATIONS TRUST II MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Money Market Obligations Trust II, and principal
occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, President and
Trustee of the Trust.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director,
Member of Executive Committee, University of Pittsburgh; Director or
Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
President and Trustee
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Boca Grande Club
Boca Grande, FL
Birthdate: October 6, 1926
Trustee
Attorney, Retired Member of Miller, Ament, Henny & Kochuba; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or
Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies:
111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate
U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund,
Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA
Trust; Federated Government Income Securities, Inc.; Federated Government
Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series; Federated
Investment Portfolios; Federated Investment Trust; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated
Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 2-5 Years; Federated U.S. Government Securities
Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed
Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds;
RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
Shares.
As of March 10, 1997, the following shareholder(s) of record owned 5% or
more of the outstanding Institutional Shares of the Prime Cash Obligations
Fund: Cudd & Co., New York, NY owned approximately 81,836,160 shares
(5.08%); Wal-Mart Stores Inc., Bentonville, AR, owned approximately
100,000,000 shares (6.21%); and Confederation Life Insurance Company,
Atlanta, GA, owned approximately 209,026,546 shares (12.98%).
As of March 10, 1997, the following shareholder(s) of record owned 5% or
more of the outstanding Institutional Service Shares of the Prime Cash
Obligations Fund: Hare & Co., New York, NY owned approximately 67,210,800
shares (15.14%); and Harris Trust and Savings Bank, Chicago, IL, owned
approximately 369,753,001 shares (83.27%).
As of March 10, 1997, the following shareholder(s) of record owned 5% or
more of the outstanding Institutional Capital Shares of the Prime Cash
Obligations Fund: Heart Special Trust Account., New York, NY owned
approximately 9,472,955 shares (75.94%); Radio 95 of Phoenix, Washington,
DC, owned approximately 1,042,117 shares (8.35%); and Radio 100 of
Maryland, Washington, DC, owned approximately 910,051 shares (7.30%).
TRUSTEE COMPENSATION
BOARD OF TRUSTEES - LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST FROM FUND COMPLEX *
James A. Carbone, $0 $0 for the Trust and
Co-Chairman and Trustee Fund Complex(2)
Andrew Gordon, $0 $0 for the Trust and
Co-Chariman, Trustee and President Fund Complex(2)
Charles Barber, $25,000 $25,000 for the Trust and
Trustee Fund Complex(1)
Burt N. Dorsett, $25,000 $52,500 for the Trust and
Trustee Fund Complex(2)
Edward J. Kaier, $25,000 $25,000 for the Trust and
Trustee Fund Complex(1)
S. Donald Wiley, $25,000 $25,000 for the Trust and
Trustee Fund Complex(1)
* Represents the total compensation paid to such persons by all investment
companies (including the Trust) from which such person received
compensation during the fiscal year ended January 31, 1997 that are
considered part of the same `fund complex'' as the Trust because they have
common or affiliated investment advisers. The parenthetical number
represents the number of such investment companies, including the Trust.
BOARD OF TRUSTEES - MONEY MARKET OBLIGATIONS TRUST II
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST** TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the
Fund Complex
Thomas G. Bigley $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John T. Conroy, Jr. $0 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
William J. Copeland $0 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
J. Christopher Donahue$0 $0 for the Trust and
President and Trustee 18 other investment companies in the
Fund Complex
James E. Dowd $0 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $0 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Peter E. Madden $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Gregor F. Meyer $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John E. Murray, Jr., $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Wesley W. Posvar $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Marjorie P. Smuts $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
* Information is furnished for the fiscal year ended January 31, 1997.
**New Board of Trustees as of November 15, 1996, per shareholder approval.
# The aggregate compensation is provided for the Trust which is comprised
of three portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a subsidiary
of Federated Investors. All the voting securities of Federated Investors
are owned by a trust, the trustees of which are John F. Donahue, his wife
and his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust, the Fund, or any shareholder
of the Fund for any losses that may be sustained in the purchase, holding,
or sale of any security or for anything done or omitted by it, except acts
or omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Trust.
Prior to November 15, 1996, Lehman Brothers Global Asset Management, New
York, NY, was the investment adviser for the Fund.
ADVISORY FEES
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectus. Prior to November
15, 1996, Lehman Brothers Global Asset Management (the `former adviser''),
New York, NY served as the Fund's adviser. For the period from November 15,
1996, to January 31, 1997, Federated Management earned $911,504 of which
$505,519 was waived. For the period from February 1, 1996, to November 14,
1996, and the fiscal years ended January 31, 1996, and 1995, the former
adviser earned $4,814,270, $4,452,829, and $2,386,734, respectively, of
which $1,648,981 and $0;, $0 and $0; and $1,171,734 and $0, respectively,
were waived of advisory fees and reimbursement of expenses to maintain the
Fund's operating expense ratios at certain levels.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal year(s) ended January 31, 1997, 1996,
and 1995, the Fund paid no brokerage commissions.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. FDISG (the `former administrator''), a subsidiary of First
Data Corporation, Boston, MA, served as the Fund's administrator prior to
November 15, 1996. For the period from November 15, 1996, to January 31,
1997, Federated Services Company earned $30,284 of which $0 was waived.
For the period from February 1, 1996, to November 14, 1996, and the fiscal
years ended January 31, 1996, and 1995, the former administrator earned
$2,380,339, $4,452,829 and $2,386,734, respectively. Waivers by the former
administrator of administration fees and reimbursement of expenses to
maintain the Fund's operating expense ratios at certain levels for the
period from February 1, 1996, to November 14, 1996, and the fiscal years
ended January 31, 1996, and 1995, amounted to $1,681,402 and $0; $3,282,923
and $0; and $1,815,227 and $0, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses. Prior to November 15, 1996, Boston Safe, Boston, MA, a
wholly-owned subsidiary of Mellon Bank Corporation, served as the custodian
for the Fund.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on the
size, type and number of accounts and transactions made by shareholders.
Prior to November 15, 1996, FDISG served as the Fund's transfer agent.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
PA. Prior to November 15, 1996, Ernst & Young LLP, Boston, MA, were the
independent auditors for the Fund.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization
of premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares
of the Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above may tend to be higher
than a similar computation made by using a method of valuation based upon
market prices and estimates. In periods of rising interest rates, the
opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions in Rule 2a-7
(the `Rule'') promulgated by the Securities and Exchange Commission under
the Investment Company Act of 1940. Under the Rule, the Trustees must
establish procedures reasonably designed to stabilize the net asset value
per share, as computed for purposes of distribution and redemption, at
$1.00 per share, taking into account current market conditions and the
Fund's investment objective. The procedures include monitoring the
relationship between the amortized cost value per share and the net asset
value per share based upon available indications of market value. The
Trustees will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences between the two
methods of determining net asset value.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder
Services to cause services to be provided which are necessary for the
maintenance of shareholder accounts and to encourage personal services to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include but are not limited to providing office space, equipment, telephone
facilities, and various clerical, supervisory, computer, and other
personnel as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine
client inquiries; and assisting clients in changing dividend options,
account designations, and addresses.
By adopting the Shareholder Services Agreement, the Trustees expect that
the fund will benefit by: (1) providing personal services to
shareholders; (2) investing shareholder assets with a minimum of delay and
administrative detail; (3) enhancing shareholder recordkeeping systems; and
(4) responding promptly to shareholders' requests and inquiries concerning
their accounts.
For the period from November 15, 1996, to January 31, 1997, Federated
Shareholder Services earned $211,366, and $11,501, for the Fund's
Institutional Service Shares, and Institutional Capital Shares,
respectively, of which $0 and $6,901 was waived, respectively.
Prior to November 15, 1996, the Fund entered into agreements with Service
Organizations (Rule 12b-1 Plan) whose customers are the beneficial owners
of what were formerly called Class B Shares and Class E Shares. For the
period from February 1, 1996, to November 14, 1996, the following service
fees were paid by the Fund: Institutional Service Shares, $624,090; and
Institutional Capital Shares, $18,885. For the fiscal year ended January
31, 1996, the following service fees were paid by the Fund: Class B
Shares, $960,077; and Class E Shares, $17,459. For the fiscal year ended
January 31, 1995, the following service fees were paid by the Fund: Class
B Shares, $726,035; and Class E Shares, $5,834.
REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1%
of the Fund's net asset value, whichever is less, for any one shareholder
within a 90-day period. Any redemption beyond this amount will also be in
cash unless the Trustees determine that further payments should be in kind.
In such cases, the Fund will pay all or a portion of the remainder of the
redemption in portfolio instruments valued in the same way as the Fund
determines net asset value. The portfolio instruments will be selected in a
manner that the Trustees deem fair and equitable. Redemption in kind is
not as liquid as a cash redemption. If redemption is made in kind,
shareholders who sell these securities could receive less than the
redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect
its shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for acts or
obligations of the Trust. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required by the Declaration of Trust to
use its property to protect or compensate the shareholder. On request, the
Trust will defend any claim made and pay any judgment against a shareholder
for any act or obligation of the Trust. Therefore, financial loss resulting
from liability as a shareholder will occur only if the Trust itself cannot
meet its obligations to indemnify shareholders and pay judgments against
them.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90%
of its gross income from dividends, interest, and gains from the sale of
securities; derive less than 30% of its gross income from the sale of
securities held less than three months; invest in securities within certain
statutory limits; and distribute to its shareholders at least 90% of its
net income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average
portfolio maturity; type of instruments in which the portfolio is invested;
changes in interest rates; changes in expenses; and the relative amount of
cash flow. To the extent that financial institutions and broker/dealers
charge fees in connection with services provided in conjunction with an
investment in shares of the Fund, the performance will be reduced for those
shareholders paying those fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the `base period.'' This yield is computed by:
determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
shares purchased with dividends earned from the original one share and all
dividends declared on the original and any purchased shares; dividing the
net change in the account's value by the value of the account at the
beginning of the base period to determine the base period return; and
multiplying the base period return by 365/7.
For the seven-day period ended January 31, 1997, the yield for
Institutional Shares was 5.27%.
For the seven-day period ended January 31, 1997, the yield for
Institutional Service Shares was 5.02%.
For the seven-day period ended January 31, 1997, the yield for
Institutional Capital Shares was 5.15%.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base
period return by: adding 1 to the base period return; raising the sum to
the 365/7th power; and subtracting 1 from the result.
For the seven-day period ended January 31, 1997, the effective yield for
Institutional Shares was 5.41%.
For the seven-day period ended January 31, 1997, the effective yield for
Institutional Service Shares was 5.15%.
For the seven-day period ended January 31, 1997, the effective yield for
Institutional Capital Shares was 5.28%.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a
given period that would equate a $1,000 initial investment to the ending
redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period
by the net asset value per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares
purchased at the beginning of the period with $1,000, adjusted over the
period by any additional shares, assuming the monthly reinvestment of all
dividends and distributions.
For the one-year period ended January 31, 1997, and for the period from
February 8, 1993 (date of initial public investment) through January 31,
1997, the average annual total returns were 5.38% and 4.79%, respectively,
for Institutional Shares. For the one-year period ended January 31, 1997,
and for the period from September 2, 1993 (date of initial public offering)
through January 31, 1997, the average annual total returns were 5.11% and
4.80%, respectively, for Institutional Service Shares. For the one-year
period ended January 31, 1997, and for the period from October 6, 1994
(date of initial public offering) through January 31, 1997, the average
annual total returns were 5.23% and 5.55%, respectively, for Institutional
Capital Shares.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories based on total return, which assumes the reinvestment of
all income dividends and capital gains distributions, if any.
oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of
money market funds weekly. Donoghue's Money Market Insight
publication reports monthly and 12-month-to-date investment results
for the same money funds.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
O BANK RATE MONITOR(C) NATIONAL INDEX, Miami Beach, Florida,
published weekly, is an average of the interest rates of personal
money market deposit accounts at ten of the largest banks and
thrifts in each of the five largest Standard Metropolitan
Statistical Areas. If more than one rate is offered, the lowest rate
is used. Account minimums and compounding methods may vary.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1996, Federated managed more than
$50.3 billion in assets across 50 money market funds, including 18
government, 11 prime and 21 municipal with assets approximating $28.0
billion, $12.8 billion and $9.5 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international and global portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3.5 trillion to the more than 6,000
funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with more than
1,600 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any
other mutual fund distributor. Federated's service to financial
professionals and institutions has earned it high ratings in several
surveys performed by DALBAR, Inc. DALBAR is recognized as the industry
benchmark for service quality measurement. The marketing effort to these
firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
STANDARD AND POOR'S RATINGS GROUP LONG-TERM DEBT RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
PLUS (+) or MINUS (-)The rating of "AA" may be modified by the addition of
a plus or minus sign to show relative standing within this rating category.
MOODY'S INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment some time in the
future.
BAA--Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.
Con. (---) - Municipal Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience,
(c) rentals which begin when facilities are completed, or (d) payments to
which some other limiting condition attaches. Parenthetical rating denotes
probable credit stature upon completion of construction or elimination of
basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in generic classification of
"Aa" in its corporate bond rating system. The modifier 1 indicates that
the company ranks in the higher end of its generic rating category, the
modifier 2 indicates a mid-range ranking, and the modifier 3 indicates that
the company ranks at the lower end of its generic rating category.
Those municipal bonds in the `Aa'' to ``B'' groups which Moody's believes
possess the strongest investment attributes are designated by the symbols
`Aa1,'' ``A1,'' `Baa1,'' ``Ba1,'' and `B1.''
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated F-
1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
PLUS (+) OR MINUS (-): Plus or minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the AAA category.
To provide more detailed indications of credit quality, the Fitch ratings
from and including "AA" or "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
DUFF & PHELPS CREDIT RATING CO. LONG-TERM DEBT RATINGS
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- --High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.
A+, A, A- --Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- --Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
THOMSON BANKWATCH LONG-TERM DEBT RATINGS
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long-term debt and
preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The
following summarizes the two highest rating categories used by Thomson
BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high
"AA" - This designation indicates a superior ability to repay principal
and interest on a timely basis with limited incremental risk versus issues
rated in the highest category.
"A" - This designation indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher
ratings.
PLUS (+) OR MINUS (-) -The ratings may include a plus or minus sign
designation which indicates where within the respective category the issue
is placed.
IBCA, INC. LONG-TERM DEBT RATINGS
IBCA assesses the investment quality of unsecured debt with an original
maturity of more than one year which is issued by bank holding companies
and their principal bank subsidiaries. The following summarizes the two
highest categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest
is substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest
is substantial. Adverse changes in business, economic or financial
conditions may increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business economic or financial conditions may
lead to increased investment risk.
IBCA may append a rating of plus (+) or minus (-) to a rating to denote
relative status within these rating categories.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
o Well established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2--Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded
as having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issues.
Fitch may also use the symbol "LOC" with its short-term ratings to indicate
that the rating is based upon a letter of credit issued by a commercial
bank.
DUFF & PHELPS CREDIT RATING CO. COMMERCIAL PAPER RATING DEFINITIONS
The two highest rating categories of Duff & Phelps for investment grade
commercial paper are `D-1'' and ``D-2.'' Duff & Phelps employs three
designations, `D-1+,'' ``D-1'' and `D-1-,'' within the highest rating
category. The following summarizes the two highest rating categories used
by Duff & Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental
protection factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors.
Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs
may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
THOMSON BANKWATCH COMMERCIAL PAPER RATING DEFINITIONS
Thomson BankWatch short-term ratings assess the likelihood of an untimely
payment of principal or interest of debt having a maturity of one year or
less. The following summarizes the two highest ratings used by Thomson
BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.
`TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high a for issues rated "TBW-1."
IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies
and their principal bank subsidiaries. The highest rating category or IBCA
for short-term debt is "A." IBCA employs two designations, "A1+" and "A1,"
within the highest rating category. The following summarizes the two
highest rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a good capacity for timely repayment.
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL NOTE RATINGS
A Standard & Poor's rating reflects the liquidity factors and market access
risks unique to notes due in the three years or less. The following
summarizes the two highest rating categories used by Standard & Poor's
Corporation for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit strong capacity
to pay principal and interest. Those issues determined to possess a very
strong capacity to pay are given a plus (+) designation.
`SP-2'' - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade ("MIG"). Such ratings recognize
the differences between short-term credit risk and long-term risk. A
short-term rating may also be assigned on an issue having a demand feature.
Such ratings will be designated as "VMIG." The following summarizes the
two highest ratings used by Moody's Investors Service, Inc. for short-term
notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
Duff & Phelps and Fitch use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRIME VALUE OBLIGATIONS FUND
(A PORTFOLIO OF MONEY MARKET OBLIGATIONS TRUST II)
(FORMERLY, PRIME VALUE MONEY MARKET FUND, A PORTFOLIO OF
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST)
INSTITUTIONAL SHARES (FORMERLY, CLASS A SHARES)
PROSPECTUS
The Institutional Shares (formerly, Class A Shares) of Prime Value Obligations
Fund (formerly, Prime Value Money Market Fund) (the "Fund") offered by this
prospectus represent interests in a portfolio of Money Market Obligations Trust
II (formerly, Lehman Brothers Institutional Funds Group Trust) (the "Trust"), an
open-end management investment company (a mutual fund). The Fund invests in
short-term money market securities to achieve 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 March 31,
1997, 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 the Fund at
the address listed in the back of this prospectus. 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated March 31, 1997
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Institutional Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
ACCOUNT AND SHARE INFORMATION 11
- ------------------------------------------------------
TAX INFORMATION 12
- ------------------------------------------------------
Federal Income Tax 12
State and Local Taxes 12
OTHER CLASSES OF SHARES 12
- ------------------------------------------------------
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
LAST MEETING OF SHAREHOLDERS 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 15
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL CAPITAL SHARES 16
- ------------------------------------------------------
FINANCIAL STATEMENTS 17
- ------------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 31
- ------------------------------------------------------
ADDRESSES 32
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<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
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)..................................................... 0.05%
12b-1 Fee............................................................................ None
Total Other Expenses................................................................. 0.13%
Shareholder Services Fee(2)............................................. 0.00%
Total Operating Expenses(3).......................................................... 0.18%
</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 0.20%.
(2) Institutional Shares has no present intention of paying or accruing the
shareholder services fee during the fiscal year ending January 31, 1998. If
Institutional Shares were paying or accruing the shareholder services fee,
Institutional Shares would be able to pay up to 0.25% of its average daily net
assets for the shareholder services fee. See "Fund Information."
(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending January 31, 1998. The total Institutional
Shares operating expenses were 0.16% for fiscal year ended January 31, 1997 and
would have been 0.31% 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 Institutional Shares of the
Fund will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Fund 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............. $2 $ 6 $10 $ 23
</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.
PRIME VALUE OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 31.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------------------
1997 1996 1995 1994(a)
------ ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------
Net investment income 0.05 0.06 0.04 0.03
- -----------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------
Distributions from net investment income (0.05) (0.06) (0.04) (0.03)
- ----------------------------------------------- ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------- ------ ------ ------ -------
TOTAL RETURN (B) 5.41% 6.10% 4.51% 3.21%
- -----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------
Expenses 0.16% 0.17% 0.09% 0.07% *
- -----------------------------------------------
Net investment income 5.29% 5.93% 4.20% 3.23% *
- -----------------------------------------------
Expense waiver/reimbursement (c) 0.15% 0.08% 0.16% 0.29% *
- -----------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------
Net assets, end of period (000 omitted) $387,994 $2,754,390 $1,470,317 $3,981,184
- -----------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 8, 1993 (date of initial
public investment) to January 31, 1994.
(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 16, 1992. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established three classes of shares known as Institutional Shares,
Institutional Service Shares and Institutional Capital Shares. This prospectus
relates only to Institutional Shares of the Fund, which are designed primarily
for entities holding shares in an agency or fiduciary capacity, financial
institutions, financial intermediaries and institutional investors as a
convenient means of accumulating an interest in a professionally managed
portfolio investing in short-term money market securities. A minimum initial
investment of $1,000,000 over a one-year period 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 current income consistent with stability
of principal and liquidity. This investment objective may be changed by the
Board of Trustees 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 money
market 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 without shareholder approval. Shareholders will
be notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are either rated in one of the two highest short-term rating
category by one or more nationally recognized statistical rating organizations
("NRSROs") or are of comparable quality to securities having such ratings.
Examples of these instruments include, but are not limited to:
- domestic issues of corporate debt obligations, including variable rate
demand notes;
- commercial paper (including Canadian Commercial Paper and Europaper);
- certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");
- short-term credit facilities;
- asset-backed securities;
- obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities;
- other money market instruments; and
- obligations issued by state and local government agencies.
The Fund invests only in instruments denominated and payable in U.S. dollars.
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.
BANK INSTRUMENTS. The Fund only invests in Bank Instruments either issued
by an institution having capital, surplus and undivided profits over $100
million, or insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"). Bank Instruments may include
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). The Fund will treat
securities credit enhanced with a bank's letter of credit as Bank
Instruments.
ASSET-BACKED SECURITIES. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans or
accounts receivable. The securities may take the form of beneficial
interests in special purpose trusts, limited partnership interests, or
commercial paper or other debt securities issued by a special purpose
corporation. Although the securities often have some form of credit or
liquidity enhancement, payments on the securities depend predominantly upon
collections of the loans and receivables held by the issuer.
SHORT-TERM CREDIT FACILITIES. The Fund may enter into, or acquire
participations in, short-term borrowing arrangements with corporations,
consisting of either a short-term revolving credit facility or a master
note agreement payable upon demand. Under these arrangements, the borrower
may reborrow funds during the term of the facility. The Fund treats any
commitments to provide such advances as a standby commitment to purchase
the borrower's notes.
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.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and agrees that
on a stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an agreed
upon rate. The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but does not ensure this result. However, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the securities to be
purchased, are: segregated on the Fund's records at the trade date; marked to
market daily; and maintained until the transaction is settled.
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,
including non-negotiable time deposits and repurchase agreements providing for
settlement in more than seven days after notice to 10% of its net assets.
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.
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.
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.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or long-term basis, or
both, to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/ dealers, banks, or
other institutions which the adviser has determined are creditworthy under
guidelines established by the Trustees and will receive collateral at all times
equal to at least 100% of the value of the securities loaned. There is the risk
that when lending portfolio securities, the securities may not be available to
the Fund on a timely basis and the Fund may, therefore, lose the opportunity to
sell the securities at a desirable price. In addition, in the event that a
borrower of securities would file for bankruptcy or become insolvent,
disposition of the securities may be delayed pending court action.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, Canadian Commercial Paper, and Europaper are subject to
different risks than domestic obligations of domestic banks or corporations.
Examples of these risks include international economic and political
developments, foreign governmental restrictions that may adversely affect the
payment of principal or interest, foreign withholding or other taxes on interest
income, difficulties in obtaining or enforcing a judgment against the issuing
entity, and the possible impact of interruptions in the flow of international
currency transactions. Risks may also exist for ECDs, ETDs, and Yankee CDs
because the banks issuing these instruments, or their domestic or foreign
branches, are not necessarily subject to the same regulatory requirements that
apply to domestic banks, such as reserve requirements, loan limitations,
examinations, accounting, auditing, recordkeeping, and the public availability
of information. These factors will be carefully considered by the Fund's adviser
in selecting investments for the Fund.
INVESTMENT LIMITATIONS
The Fund may not:
- borrow money, except that the Fund may (i) borrow money for temporary or
emergency purposes (not for leveraging or investment) from banks, or
subject to specific authorization by the SEC, from funds advised by the
adviser or an affiliate of the adviser, and (ii) engage in reverse
repurchase agreements; provided that (i) and (ii) in combination do not
exceed one-third of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings). The Fund may
not mortgage, pledge or hypothecate any assets except in connection with
such borrowings and reverse repurchase agreements and then only in
amounts not exceeding one-third of the value of the Fund's total assets
at the time of such borrowing; or
- purchase any securities which would cause 25% or more of the value of its
total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, except that the Fund intends to invest
25% or more of the value of its total assets in obligations of issuers in
the banking industry or in obligations, such as repurchase agreements,
secured by such obligations; provided that there is no limitation with
respect to investments in U.S. government securities or, in bank
instruments issued or enhanced by approved banks.
The above investment limitations cannot be changed without shareholder approval.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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
Management, 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 0.20% of the Fund's average daily net assets. 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 Management, 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 Management 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 $110 billion invested across
over 300 funds under management and/or administration by its subsidiaries,
as of December 31, 1996, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 2,000
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,500
financial institutions nationwide.
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 INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional 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.
ADMINISTRATION OF THE FUND
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement
with Federated Shareholder Services, a subsidiary of Federated Investors, under
which the Fund may make payments up to 0.25% of the average daily net asset
value of its shares, computed at an annual rate, to obtain certain personal
services for shareholders and to maintain shareholder accounts. From time to
time and for such periods as deemed appropriate, the amount stated above may be
reduced voluntarily. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares 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 Fund and Federated Shareholder
Services.
Currently, Institutional Shares are accruing no shareholder services fees.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their 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.
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 specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
- -------- ------------------------------------
<S> <C>
.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 shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Shares from the value of Fund assets attributable to Institutional Shares, and
dividing the remainder by the number of Institutional 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 on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Fund reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $1,000,000. However, an account may be opened with
a smaller amount as long as the minimum is reached within one year of opening
the account. Financial institutions may impose different minimum investment
requirements on their customers.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve 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) that 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: Prime Value Obligations
Fund-- Institutional Shares; 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: Prime Value Obligations Fund--Institutional
Shares. 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.
INVEST-BY-PHONE. Once an account has been opened, a shareholder may use
invest-by-phone for investments if an authorization form has been filed with
Federated Shareholder Services Company, the transfer agent for shares of the
Fund. Approximately two weeks after sending the form to Federated Shareholder
Services Company, the shareholder may call Federated Shareholder Services
Company to purchase shares. Federated Shareholder Services Company will send a
request for monies to the shareholder's commercial bank, savings bank, or credit
union ("bank") via the Automated Clearing House. The shareholder's bank, which
must be an Automated Clearing House member, will then forward the monies to
Federated Shareholder Services Company. The purchase is normally entered the
next business day after the initial phone request. For further information and
an application, call the Fund.
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 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 3:00 p.m. (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. 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 and the class designation; 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.
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. Shares purchased by
wire before 3:00 p.m. (Eastern time) begin earning dividends that day. Shares
purchased by check begin earning dividends the day after the check is converted
into federal funds.
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 $1,000,000 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 all classes of each portfolio in the Trust
have equal voting rights, except that in matters affecting only a particular
portfolio or class, only shareholders of that portfolio or class 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, Donnelly & Meck, 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.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers other classes. Institutional Service Shares are sold at net
asset value primarily to financial institutions, financial intermediaries and
institutional investors and are subject to a minimum initial investment of
$1,000,000. Institutional Capital Shares are sold at net asset value primarily
to financial institutions, financial intermediaries and institutional investors
and are subject to a minimum initial investment of $1,000,000.
All classes are subject to certain of the same expenses.
Neither Institutional Service Shares nor Institutional Capital Shares are
distributed with a 12b-1 Plan but both are subject to shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield and total
return. The performance figures will be calculated separately for each class of
shares.
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 shares 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.
LAST MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
A Special Meeting of Prime Value Money Market Fund, a portfolio of Lehman
Brothers Institutional Funds Group Trust was held on November 13, 1996. On
October 11, 1996, the record date for shareholders voting at the meeting, there
were 642,034,343 total outstanding shares. The following items were considered
by shareholders and the results of their voting were as follows:
<TABLE>
<CAPTION>
WITHHELD
AGENDA ITEM FOR AGAINST ABSTAIN AUTHORITY TO VOTE
- ------------------------------- --------------- -------------- --------- -----------------
<S> <C> <C> <C> <C>
1. Approval of the Investment
Advisory Agreement between
Federated Management and the
Trust with respect to the Fund 387,845,946 18,056,722 -0- -0-
2. Election of Trustees
John F. Donahue 402,628,122 -0- -0- 3,274,546
Thomas G. Bigley 402,628,122 -0- -0- 3,274,546
John T. Conroy, Jr. 402,628,122 -0- -0- 3,274,546
William J. Copeland 402,628,122 -0- -0- 3,274,546
J. Christopher Donahue 402,628,122 -0- -0- 3,274,546
James E. Dowd 402,628,122 -0- -0- 3,274,546
Lawrence D. Ellis, M.D. 402,628,122 -0- -0- 3,274,546
Edward L. Flaherty, Jr. 402,628,122 -0- -0- 3,274,546
Peter E. Madden 402,628,122 -0- -0- 3,274,546
Gregor F. Meyer 402,628,122 -0- -0- 3,274,546
John E. Murray, Jr. 402,628,122 -0- -0- 3,274,546
Wesley W. Posvar 402,628,122 -0- -0- 3,274,546
Marjorie P. Smuts 402,628,122 -0- -0- 3,274,546
3. Approval of a change to a
fundamental investment
limitation concerning industry
concentration of investment 402,609,351 3,285,526 7,790 -0-
</TABLE>
PRIME VALUE OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------------
1997 1996 1995 1994(a)
------ ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------
Net investment income 0.05 0.06 0.04 0.01
- --------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------
Distributions from net investment income (0.05) (0.06) (0.04) (0.01)
- -------------------------------------------------- ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------- ------ ------ ------ -------
TOTAL RETURN (B) 5.15% 5.84% 4.26% 1.26%
- --------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------
Expenses 0.41% 0.42% 0.34% 0.32% *
- --------------------------------------------------
Net investment income 5.05% 5.68% 3.95% 2.98% *
- --------------------------------------------------
Expense waiver/reimbursement (c) 0.16% 0.08% 0.16% 0.29% *
- --------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------
Net assets, end of period (000 omitted) $18,415 $20,372 $21,739 $17,504
- --------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 1, 1993 (date of initial
public offering) to January 31, 1994.
(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)
PRIME VALUE OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL CAPITAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 31,
1997(a)
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- -------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------
Net investment income 0.05
- -------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------
Distributions from net investment income (0.05)
- ------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 1.00
- ------------------------------------------------------------------------- -------
TOTAL RETURN (B) 5.26%
- -------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------
Expenses 0.28%
- -------------------------------------------------------------------------
Net investment income 5.17%
- -------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.31%
- -------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------
Net assets, end of period (000 omitted) $20,006
- -------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from February 1, 1996 (date of initial
public offering) to January 31, 1997.
(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)
PRIME VALUE OBLIGATIONS FUND
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<C> <C> <S> <C>
ASSET-BACKED SECURITIES--0.5%
- ----------------------------------------------------------------------------------
FINANCE--AUTOMOTIVE--0.5%
--------------------------------------------------------------
$ 2,232,251 Nationsbank Auto Owner Trust 1996-A, 5.776%, 8/15/1997 $ 2,233,270
-------------------------------------------------------------- ------------
CERTIFICATES OF DEPOSIT--7.0%
- ----------------------------------------------------------------------------------
BANKING--7.0%
--------------------------------------------------------------
5,000,000 Bank of Scotland, Edinburgh, 5.480%, 6/13/1997 5,000,178
--------------------------------------------------------------
5,000,000 Svenska Handelsbanken, Inc., (Guaranteed by Svenska
Handelsbanken, Stockholm), 5.430%, 5/5/1997 5,000,222
--------------------------------------------------------------
20,000,000 Toronto-Dominion Bank, 5.467%, 3/27/1997 20,003,020
-------------------------------------------------------------- ------------
TOTAL CERTIFICATES OF DEPOSIT 30,003,420
-------------------------------------------------------------- ------------
CORPORATE NOTES--5.0%
- ----------------------------------------------------------------------------------
BANKING--0.4%
--------------------------------------------------------------
2,000,000 (b) SALTS III Cayman Island Corp., (Bankers Trust International,
PLC Swap Agreement), 5.788%, 7/23/1997 2,000,000
-------------------------------------------------------------- ------------
BROKERAGE--1.2%
--------------------------------------------------------------
5,000,000 (b) Goldman Sachs Group, LP, 5.563%, 4/28/1997 5,000,000
-------------------------------------------------------------- ------------
FINANCE--AUTOMOTIVE--3.4%
--------------------------------------------------------------
10,000,000 Ford Credit Auto Lease Trust 1996-1, 5.451%, 11/15/1997 9,999,213
--------------------------------------------------------------
4,405,129 Olympic Automobile Receivables Trust 1996-D, 5.430%,
12/15/1997 4,405,129
-------------------------------------------------------------- ------------
Total 14,404,342
-------------------------------------------------------------- ------------
TOTAL CORPORATE NOTES 21,404,342
-------------------------------------------------------------- ------------
(A) COMMERCIAL PAPER--54.5%
- ----------------------------------------------------------------------------------
BANKING--11.0%
--------------------------------------------------------------
2,000,000 Bank of Nova Scotia, Toronto, 5.439%, 3/13/1997 1,988,089
--------------------------------------------------------------
5,000,000 Commonwealth Bank of Australia, Sydney, 5.520%-5.540%,
7/21/1997-7/24/1997 4,872,030
--------------------------------------------------------------
30,000,000 Den Danske Bank A/S, 5.398%, 2/11/1997 29,955,750
--------------------------------------------------------------
</TABLE>
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<C> <C> <S> <C>
(A) COMMERCIAL PAPER--CONTINUED
- ----------------------------------------------------------------------------------
BANKING--CONTINUED
--------------------------------------------------------------
$ 5,000,000 Deutsche Bank Financial, Inc., (Guaranteed by Deutsche Bank,
AG), 5.404%, 3/12/1997 $ 4,971,129
--------------------------------------------------------------
5,000,000 Toronto Dominion Holdings (USA), Inc., (Guaranteed by Toronto-
Dominion Bank), 5.457%, 6/13/1997 4,902,650
-------------------------------------------------------------- ------------
Total 46,689,648
-------------------------------------------------------------- ------------
BROKERAGE--1.2%
--------------------------------------------------------------
5,000,000 Merrill Lynch & Co., Inc., 5.382%, 3/5/1997 4,976,400
-------------------------------------------------------------- ------------
CHEMICALS--1.2%
--------------------------------------------------------------
5,000,000 Du Pont (E.I.) de Nemours & Co., 5.446%, 2/19/1997 4,986,625
-------------------------------------------------------------- ------------
ELECTRICAL EQUIPMENT--5.1%
--------------------------------------------------------------
5,000,000 Whirlpool Corp., 5.474%, 3/11/1997 4,971,500
--------------------------------------------------------------
17,000,000 Whirlpool Financial Corp., (Whirlpool Corp. Support
Agreement), 5.474%-5.476%, 2/18/1997-2/25/1997 16,946,900
-------------------------------------------------------------- ------------
Total 21,918,400
-------------------------------------------------------------- ------------
FINANCE--AUTOMOTIVE--8.8%
--------------------------------------------------------------
15,000,000 Ford Motor Credit Corp., 5.393%, 2/4/1997 14,993,363
--------------------------------------------------------------
23,000,000 General Motors Acceptance Corp., 5.453%-5.569%,
4/7/1997-5/23/1997 22,722,695
-------------------------------------------------------------- ------------
Total 37,716,058
-------------------------------------------------------------- ------------
FINANCE--COMMERCIAL--21.4%
--------------------------------------------------------------
23,000,000 Asset Securitization Cooperative Corp., 5.359%-5.418%,
2/14/1997-3/18/1997 22,904,037
--------------------------------------------------------------
12,000,000 Beta Finance, Inc., 5.373%-5.444%, 2/19/1997-5/19/1997 11,913,562
--------------------------------------------------------------
5,000,000 CIESCO, Inc., 5.575%, 4/1/1997 4,955,422
--------------------------------------------------------------
10,000,000 CIT Group Holdings, Inc., 5.381%, 3/4/1997 9,954,275
--------------------------------------------------------------
10,000,000 Falcon Asset Securitization Corp., 5.373%, 2/19/1997 9,973,500
--------------------------------------------------------------
10,000,000 General Electric Capital Corp., 5.432%-5.442%,
5/30/1997-6/6/1997 9,821,289
--------------------------------------------------------------
15,000,000 Greenwich Funding Corp., 5.378%-5.446%, 2/26/1997-6/12/1997 14,857,674
--------------------------------------------------------------
</TABLE>
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<C> <C> <S> <C>
(A) COMMERCIAL PAPER--CONTINUED
- ----------------------------------------------------------------------------------
FINANCE--COMMERCIAL--CONTINUED
--------------------------------------------------------------
$ 7,000,000 PREFCO-Preferred Receivables Funding Co., 5.390%-5.412%,
2/28/1997-4/17/1997 $ 6,950,665
-------------------------------------------------------------- ------------
Total 91,330,424
-------------------------------------------------------------- ------------
FINANCE--RETAIL--3.5%
--------------------------------------------------------------
5,000,000 Household Finance Corp., 5.412%, 3/11/1997 4,971,817
--------------------------------------------------------------
10,000,000 McKenna Triangle National Corp., 5.374%, 2/21/1997 9,970,556
-------------------------------------------------------------- ------------
Total 14,942,373
-------------------------------------------------------------- ------------
PHARMACEUTICALS AND HEALTH CARE--2.3%
--------------------------------------------------------------
10,000,000 Glaxo Wellcome PLC, 5.373%, 2/25/1997 9,964,667
-------------------------------------------------------------- ------------
TOTAL COMMERCIAL PAPER 232,524,595
-------------------------------------------------------------- ------------
(C) NOTES--VARIABLE--20.9%
- ----------------------------------------------------------------------------------
BANKING--14.8%
--------------------------------------------------------------
13,620,000 500 South Front St. L.P., Series A, (Huntington National Bank,
Columbus, OH LOC), 5.530%, 2/6/1997 13,620,000
--------------------------------------------------------------
1,780,000 Alabama State IDA, (Nichols Research Corp.), (SouthTrust Bank
of Alabama, Birmingham LOC), 5.580%, 2/28/1997 1,780,000
--------------------------------------------------------------
1,975,000 Athens-Clarke County, GA IDA, Barrett Project (Series 1995),
(Columbus Bank and Trust Co., GA LOC), 5.730%, 2/6/1997 1,975,000
--------------------------------------------------------------
3,400,000 Blackwell Investments, Inc., (Bank One, Louisiana, LOC),
5.580%, 2/6/1997 3,400,000
--------------------------------------------------------------
2,500,000 Carmel, IN, Telamon Corp Series A, (Huntington National Bank,
Columbus, OH LOC), 5.630%, 2/6/1997 2,500,000
--------------------------------------------------------------
1,100,000 Carmel, IN, Telamon Corp Series B, (Huntington National Bank,
Columbus, OH LOC), 5.630%, 2/6/1997 1,100,000
--------------------------------------------------------------
2,060,000 Congregate Care Corp., (Union Bank of California LOC), 5.688%,
2/5/1997 2,060,000
--------------------------------------------------------------
6,000,000 Dellridge Care Center Limited Partnership, Series 1997, (First
National Bank of Maryland, Baltimore LOC), 5.480%, 2/5/1997 6,000,000
--------------------------------------------------------------
</TABLE>
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<C> <C> <S> <C>
(C) NOTES--VARIABLE--CONTINUED
- ----------------------------------------------------------------------------------
BANKING--CONTINUED
--------------------------------------------------------------
$ 5,000,000 International Processing Corp, (Bank One, Kentucky, Louisville
LOC), 5.580%, 2/6/1997 $ 5,000,000
--------------------------------------------------------------
4,500,000 Melberger, Clifford K. and Ruth B., (PNC Bank, N.A. LOC),
5.492%, 2/3/1997 4,500,000
--------------------------------------------------------------
850,000 Pelham City, IDB, (Columbus Bank and Trust Co., GA LOC),
5.730%, 2/6/1997 850,000
--------------------------------------------------------------
1,315,000 Pelham City, IDB, (Columbus Bank and Trust Co., GA LOC),
5.730%, 2/6/1997 1,315,000
--------------------------------------------------------------
15,000,000 SMM Trust, Series 1996-U, (Morgan Guaranty Trust Co., New York
Swap Agreement), 5.425%, 2/20/1997 15,000,000
--------------------------------------------------------------
1,235,000 Southeast Regional Holdings, LLC, (Series 1995-A), (Columbus
Bank and Trust Co., GA LOC), 5.730%, 2/6/1997 1,235,000
--------------------------------------------------------------
1,650,000 Sylacuaga, AL IDB, Parker Fertilizer Project Series 1992,
(SouthTrust Bank of Alabama, Birmingham LOC), 5.580%, 2/4/1997 1,650,000
--------------------------------------------------------------
1,132,000 Westcourt, (Bank One, Texas N.A. LOC), 5.580%, 2/6/1997 1,132,000
-------------------------------------------------------------- ------------
Total 63,117,000
-------------------------------------------------------------- ------------
FINANCE--EQUIPMENT--1.2%
--------------------------------------------------------------
5,000,000 Comdisco, Inc., 144A Notes, 5.600%, 2/26/1997 5,000,000
--------------------------------------------------------------
INSURANCE--4.9%
--------------------------------------------------------------
21,000,000 General American Life Insurance Co., 5.638%, 2/21/1997 21,000,000
-------------------------------------------------------------- ------------
TOTAL NOTES--VARIABLE 89,117,000
-------------------------------------------------------------- ------------
SHORT-TERM MUNICIPAL--0.2%
- ----------------------------------------------------------------------------------
1,000,000 Colorado Health Facilities Authority, Series B, (Bank One,
Colorado LOC), 5.580%, 2/1/1997 1,000,000
-------------------------------------------------------------- ------------
(D) REPURCHASE AGREEMENTS--11.7%
- ----------------------------------------------------------------------------------
10,000,000 Bear, Stearns and Co., 5.580%, dated 1/31/1997, due 2/3/1997 10,000,000
--------------------------------------------------------------
4,800,000 Daiwa Securities America, Inc., 5.580%, dated 1/31/1997, due
2/3/1997 4,800,000
--------------------------------------------------------------
</TABLE>
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<C> <C> <S> <C>
(D) REPURCHASE AGREEMENTS--CONTINUED
- ----------------------------------------------------------------------------------
$10,000,000 Fuji Government Securities, Inc., 5.590%, dated 1/31/1997, due
2/3/1997 $ 10,000,000
--------------------------------------------------------------
10,000,000 PaineWebber Group, Inc., 5.570%, dated 1/31/1997, due 2/3/1997 10,000,000
--------------------------------------------------------------
15,000,000 UBS Securities, Inc., 5.530%, dated 1/31/1997, due 2/3/1997 15,000,000
-------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS 49,800,000
-------------------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(E) $426,082,627
-------------------------------------------------------------- ------------
</TABLE>
(a) Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At January 31, 1997, these securities
amounted to $7,000,000 which represents 1.6% of net assets.
(c) Current rate and next reset date shown.
(d) 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.
(e) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($426,415,272) at January 31, 1997.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
IDA -- Industrial Development Authority
IDB -- Industrial Development Bond
LOC -- Letter of Credit
LLC -- Limited Liability Corporation
LP -- Limited Partnership
PLC -- Public Limited Company
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME VALUE OBLIGATIONS FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in repurchase agreements $ 49,800,000
- -----------------------------------------------------------------
Investments in securities 376,282,627
- ----------------------------------------------------------------- ------------
Total investments in securities, at amortized cost and value $426,082,627
- --------------------------------------------------------------------------------
Cash 17,538,737
- --------------------------------------------------------------------------------
Income receivable 957,254
- --------------------------------------------------------------------------------
Receivable for shares sold 11,940,174
- -------------------------------------------------------------------------------- ------------
Total assets 456,518,792
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for shares redeemed 29,491,686
- -----------------------------------------------------------------
Income distribution payable 556,694
- -----------------------------------------------------------------
Accrued expenses 55,140
- ----------------------------------------------------------------- ------------
Total liabilities 30,103,520
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 426,415,272 shares outstanding $426,415,272
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
$387,994,460 / 387,994,460 shares outstanding $1.00
- -------------------------------------------------------------------------------- ------------
INSTITUTIONAL SERVICE SHARES:
$18,414,808 / 18,414,808 shares outstanding $1.00
- -------------------------------------------------------------------------------- ------------
INSTITUTIONAL CAPITAL SHARES:
$20,006,004 / 20,006,004 shares outstanding $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME VALUE OBLIGATIONS FUND
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------
Interest $59,108,397
- ----------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------
Investment advisory fee $ 2,168,544
- -------------------------------------------------------------------------
Administrative personnel and services fee 836,561
- -------------------------------------------------------------------------
Custodian fees 122,910
- -------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 170,442
- -------------------------------------------------------------------------
Directors'/Trustees' fees 23,877
- -------------------------------------------------------------------------
Auditing fees 12,574
- -------------------------------------------------------------------------
Legal fees 12,320
- -------------------------------------------------------------------------
Portfolio accounting fees 33,950
- -------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 40,369
- -------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 13,283
- -------------------------------------------------------------------------
Shareholder services fee--Institutional Capital Shares 137
- -------------------------------------------------------------------------
Printing and postage 9,030
- -------------------------------------------------------------------------
Miscellaneous 45,315
- ------------------------------------------------------------------------- -----------
Total expenses 3,489,312
- -------------------------------------------------------------------------
Waivers and reimbursements--
- -------------------------------------------------------------------------
Waiver of investment advisory fee $(899,781)
- -------------------------------------------------------------
Waiver of administrative personnel and services fee (684,170)
- -------------------------------------------------------------
Waiver of custodian fees (95,495)
- -------------------------------------------------------------
Waiver of shareholder services fee--Institutional Capital
Shares (82)
- ------------------------------------------------------------- ---------
Total waivers (1,679,528)
- ------------------------------------------------------------------------- -----------
Net expenses 1,809,784
- ---------------------------------------------------------------------------------------- -----------
Net investment income 57,298,613
- ---------------------------------------------------------------------------------------- -----------
Net realized loss on investments (1,090,952)
- ---------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $56,207,661
- ---------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME VALUE OBLIGATIONS FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------
Net investment income $ 57,298,613 $ 171,047,983
- ----------------------------------------------------------
Net realized gain (loss) on investments (1,090,952) 85,517
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from operations 56,207,661 171,133,500
- ---------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------
Distributions from net investment income:
- ----------------------------------------------------------
Institutional Shares (56,210,350) (169,378,776)
- ----------------------------------------------------------
Institutional Service Shares (1,082,127) (1,669,207)
- ----------------------------------------------------------
Institutional Capital Shares (6,136) --
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from distributions to
shareholders (57,298,613) (171,047,983)
- ---------------------------------------------------------- ---------------- ----------------
CAPITAL CONTRIBUTION 1,330,378 --
- ---------------------------------------------------------- ---------------- ----------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------
Proceeds from sale of shares 19,361,183,773 48,234,564,251
- ----------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 26,082,775 59,367,107
- ----------------------------------------------------------
Cost of shares redeemed (21,735,853,130) (47,011,310,081)
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from share
transactions (2,348,586,582) 1,282,621,277
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets (2,348,347,156) 1,282,706,794
- ----------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------
Beginning of period 2,774,762,428 1,492,055,634
- ---------------------------------------------------------- ---------------- ----------------
End of period $ 426,415,272 $ 2,774,762,428
- ---------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME VALUE OBLIGATIONS FUND
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Money Market Obligations Trust II (the "Trust"), (formerly Lehman Brothers
Institutional Funds Group 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 three portfolios. The financial statements included herein
are only those of Prime Value Obligations Fund (the "Fund"), (formerly Prime
Value Money Market 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 Fund offers three classes of shares: Institutional Shares (formerly, Class A
Shares), Institutional Service Shares (formerly, Class B Shares) and
Institutional Capital Shares (formerly, Class E Shares).
As of November 15, 1996, the Fund's Class C Shares were no longer operational.
The investment objective of the Fund is to provide a high level of 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"). 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.
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
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.
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 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 Investment Company Act of 1940.
Additional information on each restricted security held at January 31, 1997
is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
------------------------------------------------------------- ----------- -----------
<S> <C> <C>
SALTS III Cayman Island Corp 1/21/97 $2,000,000
Goldman Sachs Group, LP 1/27/97 $5,000,000
</TABLE>
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 ($0.001 par value) for each
class of shares.
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------
1997 1996
--------------- ---------------
INSTITUTIONAL SHARES
- ----------------------------------------------------------
<S> <C> <C>
Shares sold 19,036,179,355 47,981,427,671
- ----------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 26,074,950 59,366,207
- ----------------------------------------------------------
Shares redeemed (21,428,886,085) (46,756,804,775)
- ---------------------------------------------------------- --------------- ---------------
Net change resulting from Institutional Share
transactions (2,366,631,780) 1,283,989,103
- ---------------------------------------------------------- --------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------
1997 1996
--------------- ---------------
INSTITUTIONAL SERVICE SHARES
- ----------------------------------------------------------
<S> <C> <C>
Shares sold 305,004,232 253,136,580
- ----------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 2,107 900
- ----------------------------------------------------------
Shares redeemed (306,966,945) (254,505,306)
- ---------------------------------------------------------- --------------- ---------------
Net change resulting from Institutional Service Share
transactions (1,960,606) (1,367,826)
- ---------------------------------------------------------- --------------- ---------------
</TABLE>
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------
1997 1996
----------- ----------
INSTITUTIONAL CAPITAL SHARES
- ------------------------------------------------------------------
<S> <C> <C>
Shares sold 20,000,186 --
- ------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 5,718 --
- ------------------------------------------------------------------
Shares redeemed -- --
- ------------------------------------------------------------------ ----------- ----------
Net change resulting from Institutional Capital Shares
transactions 20,005,904 --
- ------------------------------------------------------------------ ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------
1997(A) 1996
-------------- -------------
CLASS C SHARES
- -------------------------------------------------------------
<S> <C> <C>
Shares sold -- --
- -------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared -- --
- -------------------------------------------------------------
Shares redeemed (100) --
- ------------------------------------------------------------- -------------- -------------
Net change resulting from Class C Share transactions (100) --
- ------------------------------------------------------------- -------------- -------------
Net change resulting from Fund share transactions (2,348,586,582) 1,282,621,277
- ------------------------------------------------------------- -------------- -------------
</TABLE>
(a) As of November 15, 1996, the Fund's Class C Shares were no longer
operational.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.20% 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.
Federated Management became the Fund's investment adviser on November 15, 1996.
Prior to November 15, 1996, Lehman Brothers Global Asset Management (the "former
Adviser") served as the Fund's investment adviser.
For the period ended January 31, 1997 the advisers earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
ADVISERS FEE EARNED FEE WAIVED
- ---------------------------- ----------- -----------
<S> <C> <C>
Federated Management $ 202,835 $ 166,441
Lehman Brothers Global Asset
Management $1,965,709 $ 733,340
</TABLE>
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
CAPITAL CONTRIBUTION--The former Adviser made a capital contribution to the
Fund, during the period ended November 15, 1996, of an amount equal to the
accumulated net realized loss on investments balance carried by the Fund.
These transactions resulted in a permanent book and tax difference. As such, the
paid-in-capital and accumulated net realized gain/loss accounts have been
adjusted accordingly. This adjustment did not affect net investment income, net
realized gains/losses, or 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. FServ became the Fund's
administrator on November 15, 1996. Prior to November 15, 1996, First Data
Investors Services Group ("FDISG") served as the Fund's administrator. For the
period ended January 31, 1997 the administrators earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF FEE AMOUNT OF FEE
ADMINISTRATORS EARNED WAIVED
- ---------------- -------------- --------------
<S> <C> <C>
FServ $ 78,894 $ 0
FDISG $757,667 $684,170
</TABLE>
DISTRIBUTION SERVICES FEE--Pursuant to Rule 12b-1 under the Act, as amended, the
Fund, had adopted Distribution Agreements (the "Plans") to compensate certain
institutional investors who provided services to the Fund's shareholders. All
such Plans were terminated effective November 15, 1996. Prior to November 15,
1996, Lehman Brothers Inc., acted as the Fund's distributor.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund shares for the period. There is no
present intention of paying or accruing the Shareholder Services Fee for the
Institutional Shares. The fee paid to FSS is used to finance certain services
for shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion. FSS became the Fund's
shareholder servicing agent on November 15, 1996.
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. FSSC
became the Fund's transfer and dividend disbursing agent on November 15, 1996.
Prior to November 15, 1996, FDISG served as the Fund's transfer and dividend
disbursing agent.
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
For the period ended January 31, 1997 the transfer and dividend disbursing
agents earned fees as follows:
<TABLE>
<CAPTION>
TRANSFER AND DIVIDEND
DISBURSING AGENTS AMOUNT OF FEE EARNED
- ------------------------ ---------------------
<S> <C>
FSSC $ 7,436
FDISG $ 163,006
</TABLE>
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. FServ became the
Fund's portfolio accountant on November 15, 1996.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of
PRIME VALUE OBLIGATIONS FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prime Value Obligations Fund, formerly Prime
Value Money Market Fund (a portfolio of Money Market Obligations Trust II,
formerly a Portfolio of Lehman Brothers Institutional Funds Group Trust) as of
January 31, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Prime
Value Obligations Fund at January 31, 1997, and the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 14, 1997
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Prime Value Obligations Fund
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRIME VALUE OBLIGATIONS
FUND
(FORMERLY, PRIME VALUE MONEY MARKET
FUND)
INSTITUTIONAL SHARES
(FORMERLY, CLASS A SHARES)
PROSPECTUS
A Portfolio of Money Market
Obligations Trust II (formerly,
Lehman Brothers
Institutional Funds Group Trust), an
Open-End
Management Investment Company
Prospectus dated March 31, 1997
LOGO
CUSIP 608912705
G01881-03-IS (3/97)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRIME VALUE OBLIGATIONS FUND
(A PORTFOLIO OF MONEY MARKET OBLIGATIONS TRUST II)
(FORMERLY, PRIME VALUE MONEY MARKET FUND, A PORTFOLIO OF
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST)
INSTITUTIONAL SERVICE SHARES (FORMERLY, CLASS B SHARES)
PROSPECTUS
The Institutional Service Shares (formerly, Class B Shares) of Prime Value
Obligations Fund (formerly, Prime Value Money Market Fund) (the "Fund") offered
by this prospectus represent interests in a portfolio of Money Market
Obligations Trust II (formerly, Lehman Brothers Institutional Funds Group Trust)
(the "Trust"), an open-end management investment company (a mutual fund). The
Fund invests in short-term money market securities to achieve 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 March 31,
1997, 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 the Fund at
the address listed in the back of this prospectus. 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated March 31, 1997
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL
SERVICE SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Institutional Service Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
ACCOUNT AND SHARE INFORMATION 11
- ------------------------------------------------------
TAX INFORMATION 12
- ------------------------------------------------------
Federal Income Tax 12
State and Local Taxes 12
OTHER CLASSES OF SHARES 12
- ------------------------------------------------------
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
LAST MEETING OF SHAREHOLDERS 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 15
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL CAPITAL SHARES 16
- ------------------------------------------------------
FINANCIAL STATEMENTS 17
- ------------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 31
- ------------------------------------------------------
ADDRESSES 32
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<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
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)..................................................... 0.05%
12b-1 Fee............................................................................ None
Total Other Expenses................................................................. 0.38%
Shareholder Services Fee................................................... 0.25%
Total Operating Expenses(2).......................................................... 0.43%
</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 0.20%.
(2) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending January 31, 1998. The total Institutional
Service Shares operating expenses were 0.41% for fiscal year ended January 31,
1997 and would have been 0.57% 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 Institutional Service Shares of
the Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Fund 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............. $4 $14 $24 $ 54
</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.
PRIME VALUE OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 31.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------------
1997 1996 1995 1994(a)
------ ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------
Net investment income 0.05 0.06 0.04 0.01
- --------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------
Distributions from net investment income (0.05) (0.06) (0.04) (0.01)
- -------------------------------------------------- ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------- ------ ------ ------ -------
TOTAL RETURN (B) 5.15% 5.84% 4.26% 1.26%
- --------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------
Expenses 0.41% 0.42% 0.34% 0.32% *
- --------------------------------------------------
Net investment income 5.05% 5.68% 3.95% 2.98% *
- --------------------------------------------------
Expense waiver/reimbursement (c) 0.16% 0.08% 0.16% 0.29% *
- --------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------
Net assets, end of period (000 omitted) $18,415 $20,372 $21,739 $17,504
- --------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 1, 1993 (date of initial
public offering) to January 31, 1994.
(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 16, 1992. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established three classes of shares known as Institutional Shares,
Institutional Service Shares and Institutional Capital Shares. This prospectus
relates only to Institutional Service Shares of the Fund, which are designed
primarily for financial institutions, financial intermediaries and institutional
investors as a convenient means of accumulating an interest in a professionally
managed portfolio investing in short-term money market securities. A minimum
initial investment of $1,000,000 over a one-year period 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 current income consistent with stability
of principal and liquidity. This investment objective may be changed by the
Board of Trustees 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 money
market 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 without shareholder approval. Shareholders will
be notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are either rated in one of the two highest short-term rating
category by one or more nationally recognized statistical rating organizations
("NRSROs") or are of comparable quality to securities having such ratings.
Examples of these instruments include, but are not limited to:
- domestic issues of corporate debt obligations, including variable rate
demand notes;
- commercial paper (including Canadian Commercial Paper and Europaper);
- certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");
- short-term credit facilities;
- asset-backed securities;
- obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities;
- other money market instruments; and
- obligations issued by state and local government agencies.
The Fund invests only in instruments denominated and payable in U.S. dollars.
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.
BANK INSTRUMENTS. The Fund only invests in Bank Instruments either issued
by an institution having capital, surplus and undivided profits over $100
million, or insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"). Bank Instruments may include
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). The Fund will treat
securities credit enhanced with a bank's letter of credit as Bank
Instruments.
ASSET-BACKED SECURITIES. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans or
accounts receivable. The securities may take the form of beneficial
interests in special purpose trusts, limited partnership interests, or
commercial paper or other debt securities issued by a special purpose
corporation. Although the securities often have some form of credit or
liquidity enhancement, payments on the securities depend predominantly upon
collections of the loans and receivables held by the issuer.
SHORT-TERM CREDIT FACILITIES. The Fund may enter into, or acquire
participations in, short-term borrowing arrangements with corporations,
consisting of either a short-term revolving credit facility or a master
note agreement payable upon demand. Under these arrangements, the borrower
may reborrow funds during the term of the facility. The Fund treats any
commitments to provide such advances as a standby commitment to purchase
the borrower's notes.
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.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and agrees that
on a stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an agreed
upon rate. The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but does not ensure this result. However, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the securities to be
purchased, are: segregated on the Fund's records at the trade date; marked to
market daily; and maintained until the transaction is settled.
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,
including non-negotiable time deposits and repurchase agreements providing for
settlement in more than seven days after notice to 10% of its net assets.
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.
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.
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.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or long-term basis, or
both, to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/ dealers, banks, or
other institutions which the adviser has determined are creditworthy under
guidelines established by the Trustees and will receive collateral at all times
equal to at least 100% of the value of the securities loaned. There is the risk
that when lending portfolio securities, the securities may not be available to
the Fund on a timely basis and the Fund may, therefore, lose the opportunity to
sell the securities at a desirable price. In addition, in the event that a
borrower of securities would file for bankruptcy or become insolvent,
disposition of the securities may be delayed pending court action.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, Canadian Commercial Paper, and Europaper are subject to
different risks than domestic obligations of domestic banks or corporations.
Examples of these risks include international economic and political
developments, foreign governmental restrictions that may adversely affect the
payment of principal or interest, foreign withholding or other taxes on interest
income, difficulties in obtaining or enforcing a judgment against the issuing
entity, and the possible impact of interruptions in the flow of international
currency transactions. Risks may also exist for ECDs, ETDs, and Yankee CDs
because the banks issuing these instruments, or their domestic or foreign
branches, are not necessarily subject to the same regulatory requirements that
apply to domestic banks, such as reserve requirements, loan limitations,
examinations, accounting, auditing, recordkeeping, and the public availability
of information. These factors will be carefully considered by the Fund's adviser
in selecting investments for the Fund.
INVESTMENT LIMITATIONS
The Fund may not:
- borrow money, except that the Fund may (i) borrow money for temporary or
emergency purposes (not for leveraging or investment) from banks, or
subject to specific authorization by the SEC, from funds advised by the
adviser or an affiliate of the adviser, and (ii) engage in reverse
repurchase agreements; provided that (i) and (ii) in combination do not
exceed one-third of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings). The Fund may
not mortgage, pledge or hypothecate any assets except in connection with
such borrowings and reverse repurchase agreements and then only in
amounts not exceeding one-third of the value of the Fund's total assets
at the time of such borrowing; or
- purchase any securities which would cause 25% or more of the value of its
total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, except that the Fund intends to invest
25% or more of the value of its total assets in obligations of issuers in
the banking industry or in obligations, such as repurchase agreements,
secured by such obligations; provided that there is no limitation with
respect to investments in U.S. government securities or, in bank
instruments issued or enhanced by approved banks.
The above investment limitations cannot be changed without shareholder
approval.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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
Management, 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 0.20% of the Fund's average daily net assets. 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 Management, 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 Management 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 $110 billion invested across
over 300 funds under management and/or administration by its subsidiaries,
as of December 31, 1996, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 2,000
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,500
financial institutions nationwide.
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 INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service 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.
ADMINISTRATION OF THE FUND
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to 0.25% of the average
daily net asset value of its shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder accounts.
From time to time and for such periods as deemed appropriate, the amount stated
above may be reduced voluntarily. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares 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 Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their 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.
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 specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
- ------------ ------------------------------------
<S> <C>
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% 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 shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Service Shares from the value of Fund assets attributable to Institutional
Service Shares, and dividing the remainder by the number of Institutional
Service 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 on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Fund reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $1,000,000. However, an account may be opened with
a smaller amount as long as the minimum is reached within one year of opening
the account. Financial institutions may impose different minimum investment
requirements on their customers.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve 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) that 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: Prime Value Obligations
Fund--Institutional Service Shares; 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: Prime Value Obligations Fund--Institutional
Service Shares. 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.
INVEST-BY-PHONE. Once an account has been opened, a shareholder may use
invest-by-phone for investments if an authorization form has been filed with
Federated Shareholder Services Company, the transfer agent for shares of the
Fund. Approximately two weeks after sending the form to Federated Shareholder
Services Company, the shareholder may call Federated Shareholder Services
Company to purchase shares. Federated Shareholder Services Company will send a
request for monies to the shareholder's commercial bank, savings bank, or credit
union ("bank") via the Automated Clearing House. The shareholder's bank, which
must be an Automated Clearing House member, will then forward the monies to
Federated Shareholder Services Company. The purchase is normally entered the
next business day after the initial phone request. For further information and
an application, call the Fund.
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 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 3:00 p.m. (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. 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 and the class designation; 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.
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. Shares purchased by
wire before 3:00 p.m. (Eastern time) begin earning dividends that day. Shares
purchased by check begin earning dividends the day after the check is converted
into federal funds.
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 $1,000,000 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 all classes of each portfolio in the Trust
have equal voting rights, except that in matters affecting only a particular
portfolio or class, only shareholders of that portfolio or class 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.
As of March 10, 1997, Hare & Co., New York, organized in the state of New York
owned 56.48% and Benchmark Cable Acquis Fund VII, Palm Coast, organized in the
state of Florida owned 32.26% of the voting securities of the Fund, and,
therefore, may, for certain purposes, be deemed to control the Fund and be able
to affect the outcome of certain matters presented for a vote of shareholders.
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, Donnelly & Meck, 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.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers other classes. Institutional Shares are sold at net asset
value primarily to entities holding shares in an agency or fiduciary capacity,
financial institutions, financial intermediaries and institutional investors and
are subject to a minimum initial investment of $1,000,000. Institutional Capital
Shares are sold at net asset value primarily to financial institutions,
financial intermediaries and institutional investors and are subject to a
minimum initial investment of $1,000,000.
All classes are subject to certain of the same expenses.
Neither Institutional Shares nor Institutional Capital Shares are distributed
with a 12b-1 Plan but both are subject to shareholder services fees. Currently,
Institutional Shares are accruing no shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield and total
return. The performance figures will be calculated separately for each class of
shares.
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 shares 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.
LAST MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
A Special Meeting of Prime Value Money Market Fund, a portfolio of Lehman
Brothers Institutional Funds Group Trust was held on November 13, 1996. On
October 11, 1996, the record date for shareholders voting at the meeting, there
were 642,034,343 total outstanding shares. The following items were considered
by shareholders and the results of their voting were as follows:
<TABLE>
<CAPTION>
WITHHELD
AGENDA ITEM FOR AGAINST ABSTAIN AUTHORITY TO VOTE
- ------------------------------- --------------- -------------- --------- -----------------
<S> <C> <C> <C> <C>
1. Approval of the Investment
Advisory Agreement between
Federated Management and the
Trust with respect to the Fund 387,845,946 18,056,722 -0- -0-
2. Election of Trustees
John F. Donahue 402,628,122 -0- -0- 3,274,546
Thomas G. Bigley 402,628,122 -0- -0- 3,274,546
John T. Conroy, Jr. 402,628,122 -0- -0- 3,274,546
William J. Copeland 402,628,122 -0- -0- 3,274,546
J. Christopher Donahue 402,628,122 -0- -0- 3,274,546
James E. Dowd 402,628,122 -0- -0- 3,274,546
Lawrence D. Ellis, M.D. 402,628,122 -0- -0- 3,274,546
Edward L. Flaherty, Jr. 402,628,122 -0- -0- 3,274,546
Peter E. Madden 402,628,122 -0- -0- 3,274,546
Gregor F. Meyer 402,628,122 -0- -0- 3,274,546
John E. Murray, Jr. 402,628,122 -0- -0- 3,274,546
Wesley W. Posvar 402,628,122 -0- -0- 3,274,546
Marjorie P. Smuts 402,628,122 -0- -0- 3,274,546
3. Approval of a change to a
fundamental investment
limitation concerning
industry concentration of
investment 402,609,351 3,285,526 7,790 -0-
</TABLE>
PRIME VALUE OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------------------
1997 1996 1995 1994(a)
------ ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------
Net investment income 0.05 0.06 0.04 0.03
- -----------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------
Distributions from net investment income (0.05) (0.06) (0.04) (0.03)
- ----------------------------------------------- ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------- ------ ------ ------ -------
TOTAL RETURN (B) 5.41% 6.10% 4.51% 3.21%
- -----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------
Expenses 0.16% 0.17% 0.09% 0.07% *
- -----------------------------------------------
Net investment income 5.29% 5.93% 4.20% 3.23% *
- -----------------------------------------------
Expense waiver/reimbursement (c) 0.15% 0.08% 0.16% 0.29% *
- -----------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------
Net assets, end of period (000 omitted) $387,994 $2,754,390 $1,470,317 $3,981,184
- -----------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 8, 1993 (date of initial
public investment) to January 31, 1994.
(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)
PRIME VALUE OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL CAPITAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 31,
1997(a)
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- -------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------
Net investment income 0.05
- -------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------
Distributions from net investment income (0.05)
- ------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 1.00
- ------------------------------------------------------------------------- -------
TOTAL RETURN (B) 5.26%
- -------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------
Expenses 0.28%
- -------------------------------------------------------------------------
Net investment income 5.17%
- -------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.31%
- -------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------
Net assets, end of period (000 omitted) $20,006
- -------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from February 1, 1996 (date of initial
public offering) to January 31, 1997.
(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)
PRIME VALUE OBLIGATIONS FUND
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<C> <C> <S> <C>
ASSET-BACKED SECURITIES--0.5%
- ----------------------------------------------------------------------------------
FINANCE--AUTOMOTIVE--0.5%
--------------------------------------------------------------
$ 2,232,251 Nationsbank Auto Owner Trust 1996-A, 5.776%, 8/15/1997 $ 2,233,270
-------------------------------------------------------------- ------------
CERTIFICATES OF DEPOSIT--7.0%
- ----------------------------------------------------------------------------------
BANKING--7.0%
--------------------------------------------------------------
5,000,000 Bank of Scotland, Edinburgh, 5.480%, 6/13/1997 5,000,178
--------------------------------------------------------------
5,000,000 Svenska Handelsbanken, Inc., (Guaranteed by Svenska
Handelsbanken, Stockholm), 5.430%, 5/5/1997 5,000,222
--------------------------------------------------------------
20,000,000 Toronto-Dominion Bank, 5.467%, 3/27/1997 20,003,020
-------------------------------------------------------------- ------------
TOTAL CERTIFICATES OF DEPOSIT 30,003,420
-------------------------------------------------------------- ------------
CORPORATE NOTES--5.0%
- ----------------------------------------------------------------------------------
BANKING--0.4%
--------------------------------------------------------------
2,000,000 (b) SALTS III Cayman Island Corp., (Bankers Trust International,
PLC Swap Agreement), 5.788%, 7/23/1997 2,000,000
-------------------------------------------------------------- ------------
BROKERAGE--1.2%
--------------------------------------------------------------
5,000,000 (b) Goldman Sachs Group, LP, 5.563%, 4/28/1997 5,000,000
-------------------------------------------------------------- ------------
FINANCE--AUTOMOTIVE--3.4%
--------------------------------------------------------------
10,000,000 Ford Credit Auto Lease Trust 1996-1, 5.451%, 11/15/1997 9,999,213
--------------------------------------------------------------
4,405,129 Olympic Automobile Receivables Trust 1996-D, 5.430%,
12/15/1997 4,405,129
-------------------------------------------------------------- ------------
Total 14,404,342
-------------------------------------------------------------- ------------
TOTAL CORPORATE NOTES 21,404,342
-------------------------------------------------------------- ------------
(A) COMMERCIAL PAPER--54.5%
- ----------------------------------------------------------------------------------
BANKING--11.0%
--------------------------------------------------------------
2,000,000 Bank of Nova Scotia, Toronto, 5.439%, 3/13/1997 1,988,089
--------------------------------------------------------------
5,000,000 Commonwealth Bank of Australia, Sydney, 5.520%-5.540%,
7/21/1997-7/24/1997 4,872,030
--------------------------------------------------------------
30,000,000 Den Danske Bank A/S, 5.398%, 2/11/1997 29,955,750
--------------------------------------------------------------
</TABLE>
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<C> <C> <S> <C>
(A) COMMERCIAL PAPER--CONTINUED
- ----------------------------------------------------------------------------------
BANKING--CONTINUED
--------------------------------------------------------------
$ 5,000,000 Deutsche Bank Financial, Inc., (Guaranteed by Deutsche Bank,
AG), 5.404%, 3/12/1997 $ 4,971,129
--------------------------------------------------------------
5,000,000 Toronto Dominion Holdings (USA), Inc., (Guaranteed by Toronto-
Dominion Bank), 5.457%, 6/13/1997 4,902,650
-------------------------------------------------------------- ------------
Total 46,689,648
-------------------------------------------------------------- ------------
BROKERAGE--1.2%
--------------------------------------------------------------
5,000,000 Merrill Lynch & Co., Inc., 5.382%, 3/5/1997 4,976,400
-------------------------------------------------------------- ------------
CHEMICALS--1.2%
--------------------------------------------------------------
5,000,000 Du Pont (E.I.) de Nemours & Co., 5.446%, 2/19/1997 4,986,625
-------------------------------------------------------------- ------------
ELECTRICAL EQUIPMENT--5.1%
--------------------------------------------------------------
5,000,000 Whirlpool Corp., 5.474%, 3/11/1997 4,971,500
--------------------------------------------------------------
17,000,000 Whirlpool Financial Corp., (Whirlpool Corp. Support
Agreement), 5.474%-5.476%, 2/18/1997-2/25/1997 16,946,900
-------------------------------------------------------------- ------------
Total 21,918,400
-------------------------------------------------------------- ------------
FINANCE--AUTOMOTIVE--8.8%
--------------------------------------------------------------
15,000,000 Ford Motor Credit Corp., 5.393%, 2/4/1997 14,993,363
--------------------------------------------------------------
23,000,000 General Motors Acceptance Corp., 5.453%-5.569%,
4/7/1997-5/23/1997 22,722,695
-------------------------------------------------------------- ------------
Total 37,716,058
-------------------------------------------------------------- ------------
FINANCE--COMMERCIAL--21.4%
--------------------------------------------------------------
23,000,000 Asset Securitization Cooperative Corp., 5.359%-5.418%,
2/14/1997-3/18/1997 22,904,037
--------------------------------------------------------------
12,000,000 Beta Finance, Inc., 5.373%-5.444%, 2/19/1997-5/19/1997 11,913,562
--------------------------------------------------------------
5,000,000 CIESCO, Inc., 5.575%, 4/1/1997 4,955,422
--------------------------------------------------------------
10,000,000 CIT Group Holdings, Inc., 5.381%, 3/4/1997 9,954,275
--------------------------------------------------------------
10,000,000 Falcon Asset Securitization Corp., 5.373%, 2/19/1997 9,973,500
--------------------------------------------------------------
10,000,000 General Electric Capital Corp., 5.432%-5.442%,
5/30/1997-6/6/1997 9,821,289
--------------------------------------------------------------
15,000,000 Greenwich Funding Corp., 5.378%-5.446%, 2/26/1997-6/12/1997 14,857,674
--------------------------------------------------------------
</TABLE>
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<C> <C> <S> <C>
(A) COMMERCIAL PAPER--CONTINUED
- ----------------------------------------------------------------------------------
FINANCE--COMMERCIAL--CONTINUED
--------------------------------------------------------------
$ 7,000,000 PREFCO-Preferred Receivables Funding Co., 5.390%-5.412%,
2/28/1997-4/17/1997 $ 6,950,665
-------------------------------------------------------------- ------------
Total 91,330,424
-------------------------------------------------------------- ------------
FINANCE--RETAIL--3.5%
--------------------------------------------------------------
5,000,000 Household Finance Corp., 5.412%, 3/11/1997 4,971,817
--------------------------------------------------------------
10,000,000 McKenna Triangle National Corp., 5.374%, 2/21/1997 9,970,556
-------------------------------------------------------------- ------------
Total 14,942,373
-------------------------------------------------------------- ------------
PHARMACEUTICALS AND HEALTH CARE--2.3%
--------------------------------------------------------------
10,000,000 Glaxo Wellcome PLC, 5.373%, 2/25/1997 9,964,667
-------------------------------------------------------------- ------------
TOTAL COMMERCIAL PAPER 232,524,595
-------------------------------------------------------------- ------------
(C) NOTES--VARIABLE--20.9%
- ----------------------------------------------------------------------------------
BANKING--14.8%
--------------------------------------------------------------
13,620,000 500 South Front St. L.P., Series A, (Huntington National Bank,
Columbus, OH LOC), 5.530%, 2/6/1997 13,620,000
--------------------------------------------------------------
1,780,000 Alabama State IDA, (Nichols Research Corp.), (SouthTrust Bank
of Alabama, Birmingham LOC), 5.580%, 2/28/1997 1,780,000
--------------------------------------------------------------
1,975,000 Athens-Clarke County, GA IDA, Barrett Project (Series 1995),
(Columbus Bank and Trust Co., GA LOC), 5.730%, 2/6/1997 1,975,000
--------------------------------------------------------------
3,400,000 Blackwell Investments, Inc., (Bank One, Louisiana, LOC),
5.580%, 2/6/1997 3,400,000
--------------------------------------------------------------
2,500,000 Carmel, IN, Telamon Corp Series A, (Huntington National Bank,
Columbus, OH LOC), 5.630%, 2/6/1997 2,500,000
--------------------------------------------------------------
1,100,000 Carmel, IN, Telamon Corp Series B, (Huntington National Bank,
Columbus, OH LOC), 5.630%, 2/6/1997 1,100,000
--------------------------------------------------------------
2,060,000 Congregate Care Corp., (Union Bank of California LOC), 5.688%,
2/5/1997 2,060,000
--------------------------------------------------------------
6,000,000 Dellridge Care Center Limited Partnership, Series 1997, (First
National Bank of Maryland, Baltimore LOC), 5.480%, 2/5/1997 6,000,000
--------------------------------------------------------------
</TABLE>
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<C> <C> <S> <C>
(C) NOTES--VARIABLE--CONTINUED
- ----------------------------------------------------------------------------------
BANKING--CONTINUED
--------------------------------------------------------------
$ 5,000,000 International Processing Corp, (Bank One, Kentucky, Louisville
LOC), 5.580%, 2/6/1997 $ 5,000,000
--------------------------------------------------------------
4,500,000 Melberger, Clifford K. and Ruth B., (PNC Bank, N.A. LOC),
5.492%, 2/3/1997 4,500,000
--------------------------------------------------------------
850,000 Pelham City, IDB, (Columbus Bank and Trust Co., GA LOC),
5.730%, 2/6/1997 850,000
--------------------------------------------------------------
1,315,000 Pelham City, IDB, (Columbus Bank and Trust Co., GA LOC),
5.730%, 2/6/1997 1,315,000
--------------------------------------------------------------
15,000,000 SMM Trust, Series 1996-U, (Morgan Guaranty Trust Co., New York
Swap Agreement), 5.425%, 2/20/1997 15,000,000
--------------------------------------------------------------
1,235,000 Southeast Regional Holdings, LLC, (Series 1995-A), (Columbus
Bank and Trust Co., GA LOC), 5.730%, 2/6/1997 1,235,000
--------------------------------------------------------------
1,650,000 Sylacuaga, AL IDB, Parker Fertilizer Project Series 1992,
(SouthTrust Bank of Alabama, Birmingham LOC), 5.580%, 2/4/1997 1,650,000
--------------------------------------------------------------
1,132,000 Westcourt, (Bank One, Texas N.A. LOC), 5.580%, 2/6/1997 1,132,000
-------------------------------------------------------------- ------------
Total 63,117,000
-------------------------------------------------------------- ------------
FINANCE--EQUIPMENT--1.2%
--------------------------------------------------------------
5,000,000 Comdisco, Inc., 144A Notes, 5.600%, 2/26/1997 5,000,000
--------------------------------------------------------------
INSURANCE--4.9%
--------------------------------------------------------------
21,000,000 General American Life Insurance Co., 5.638%, 2/21/1997 21,000,000
-------------------------------------------------------------- ------------
TOTAL NOTES--VARIABLE 89,117,000
-------------------------------------------------------------- ------------
SHORT-TERM MUNICIPAL--0.2%
- ----------------------------------------------------------------------------------
1,000,000 Colorado Health Facilities Authority, Series B, (Bank One,
Colorado LOC), 5.580%, 2/1/1997 1,000,000
-------------------------------------------------------------- ------------
(D) REPURCHASE AGREEMENTS--11.7%
- ----------------------------------------------------------------------------------
10,000,000 Bear, Stearns and Co., 5.580%, dated 1/31/1997, due 2/3/1997 10,000,000
--------------------------------------------------------------
4,800,000 Daiwa Securities America, Inc., 5.580%, dated 1/31/1997, due
2/3/1997 4,800,000
--------------------------------------------------------------
</TABLE>
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<C> <C> <S> <C>
(D) REPURCHASE AGREEMENTS--CONTINUED
- ----------------------------------------------------------------------------------
$10,000,000 Fuji Government Securities, Inc., 5.590%, dated 1/31/1997, due
2/3/1997 $ 10,000,000
--------------------------------------------------------------
10,000,000 PaineWebber Group, Inc., 5.570%, dated 1/31/1997, due 2/3/1997 10,000,000
--------------------------------------------------------------
15,000,000 UBS Securities, Inc., 5.530%, dated 1/31/1997, due 2/3/1997 15,000,000
-------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS 49,800,000
-------------------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(E) $426,082,627
-------------------------------------------------------------- ------------
</TABLE>
(a) Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At January 31, 1997, these securities
amounted to $7,000,000 which represents 1.6% of net assets.
(c) Current rate and next reset date shown.
(d) 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.
(e) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($426,415,272) at January 31, 1997.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
IDA -- Industrial Development Authority
IDB -- Industrial Development Bond
LOC -- Letter of Credit
LLC -- Limited Liability Corporation
LP -- Limited Partnership
PLC -- Public Limited Company
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME VALUE OBLIGATIONS FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in repurchase agreements $ 49,800,000
- -----------------------------------------------------------------
Investments in securities 376,282,627
- ----------------------------------------------------------------- ------------
Total investments in securities, at amortized cost and value $426,082,627
- --------------------------------------------------------------------------------
Cash 17,538,737
- --------------------------------------------------------------------------------
Income receivable 957,254
- --------------------------------------------------------------------------------
Receivable for shares sold 11,940,174
- -------------------------------------------------------------------------------- ------------
Total assets 456,518,792
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for shares redeemed 29,491,686
- -----------------------------------------------------------------
Income distribution payable 556,694
- -----------------------------------------------------------------
Accrued expenses 55,140
- ----------------------------------------------------------------- ------------
Total liabilities 30,103,520
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 426,415,272 shares outstanding $426,415,272
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
$387,994,460 / 387,994,460 shares outstanding $1.00
- -------------------------------------------------------------------------------- ------------
INSTITUTIONAL SERVICE SHARES:
$18,414,808 / 18,414,808 shares outstanding $1.00
- -------------------------------------------------------------------------------- ------------
INSTITUTIONAL CAPITAL SHARES:
$20,006,004 / 20,006,004 shares outstanding $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME VALUE OBLIGATIONS FUND
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------
Interest $59,108,397
- ----------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------
Investment advisory fee $ 2,168,544
- -------------------------------------------------------------------------
Administrative personnel and services fee 836,561
- -------------------------------------------------------------------------
Custodian fees 122,910
- -------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 170,442
- -------------------------------------------------------------------------
Directors'/Trustees' fees 23,877
- -------------------------------------------------------------------------
Auditing fees 12,574
- -------------------------------------------------------------------------
Legal fees 12,320
- -------------------------------------------------------------------------
Portfolio accounting fees 33,950
- -------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 40,369
- -------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 13,283
- -------------------------------------------------------------------------
Shareholder services fee--Institutional Capital Shares 137
- -------------------------------------------------------------------------
Printing and postage 9,030
- -------------------------------------------------------------------------
Miscellaneous 45,315
- ------------------------------------------------------------------------- -----------
Total expenses 3,489,312
- -------------------------------------------------------------------------
Waivers and reimbursements--
- -------------------------------------------------------------------------
Waiver of investment advisory fee $(899,781)
- -------------------------------------------------------------
Waiver of administrative personnel and services fee (684,170)
- -------------------------------------------------------------
Waiver of custodian fees (95,495)
- -------------------------------------------------------------
Waiver of shareholder services fee--Institutional Capital
Shares (82)
- ------------------------------------------------------------- ---------
Total waivers (1,679,528)
- ------------------------------------------------------------------------- -----------
Net expenses 1,809,784
- ---------------------------------------------------------------------------------------- -----------
Net investment income 57,298,613
- ---------------------------------------------------------------------------------------- -----------
Net realized loss on investments (1,090,952)
- ---------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $56,207,661
- ---------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME VALUE OBLIGATIONS FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------
Net investment income $ 57,298,613 $ 171,047,983
- ----------------------------------------------------------
Net realized gain (loss) on investments (1,090,952) 85,517
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from operations 56,207,661 171,133,500
- ---------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------
Distributions from net investment income:
- ----------------------------------------------------------
Institutional Shares (56,210,350) (169,378,776)
- ----------------------------------------------------------
Institutional Service Shares (1,082,127) (1,669,207)
- ----------------------------------------------------------
Institutional Capital Shares (6,136) --
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from distributions to
shareholders (57,298,613) (171,047,983)
- ---------------------------------------------------------- ---------------- ----------------
CAPITAL CONTRIBUTION 1,330,378 --
- ---------------------------------------------------------- ---------------- ----------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------
Proceeds from sale of shares 19,361,183,773 48,234,564,251
- ----------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 26,082,775 59,367,107
- ----------------------------------------------------------
Cost of shares redeemed (21,735,853,130) (47,011,310,081)
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from share
transactions (2,348,586,582) 1,282,621,277
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets (2,348,347,156) 1,282,706,794
- ----------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------
Beginning of period 2,774,762,428 1,492,055,634
- ---------------------------------------------------------- ---------------- ----------------
End of period $ 426,415,272 $ 2,774,762,428
- ---------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME VALUE OBLIGATIONS FUND
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Money Market Obligations Trust II (the "Trust"), (formerly Lehman Brothers
Institutional Funds Group 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 three portfolios. The financial statements included herein
are only those of Prime Value Obligations Fund (the "Fund"), (formerly Prime
Value Money Market 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 Fund offers three classes of shares: Institutional Shares (formerly, Class A
Shares), Institutional Service Shares (formerly, Class B Shares) and
Institutional Capital Shares (formerly, Class E Shares).
As of November 15, 1996, the Fund's Class C Shares were no longer operational.
The investment objective of the Fund is to provide a high level of 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"). 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.
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
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.
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 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 Investment Company Act of 1940.
Additional information on each restricted security held at January 31, 1997
is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
------------------------------------------------------------- ----------- -----------
<S> <C> <C>
SALTS III Cayman Island Corp. 1/21/97 $2,000,000
Goldman Sachs Group, LP 1/27/97 $5,000,000
</TABLE>
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 ($0.001 par value) for each
class of shares.
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------
1997 1996
--------------- ---------------
INSTITUTIONAL SHARES
- ----------------------------------------------------------
<S> <C> <C>
Shares sold 19,036,179,355 47,981,427,671
- ----------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 26,074,950 59,366,207
- ----------------------------------------------------------
Shares redeemed (21,428,886,085) (46,756,804,775)
- ---------------------------------------------------------- --------------- ---------------
Net change resulting from Institutional Share
transactions (2,366,631,780) 1,283,989,103
- ---------------------------------------------------------- --------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------
1997 1996
--------------- ---------------
INSTITUTIONAL SERVICE SHARES
- ----------------------------------------------------------
<S> <C> <C>
Shares sold 305,004,232 253,136,580
- ----------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 2,107 900
- ----------------------------------------------------------
Shares redeemed (306,966,945) (254,505,306)
- ---------------------------------------------------------- --------------- ---------------
Net change resulting from Institutional Service Share
transactions (1,960,606) (1,367,826)
- ---------------------------------------------------------- --------------- ---------------
</TABLE>
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------
1997 1996
----------- ----------
INSTITUTIONAL CAPITAL SHARES
- ------------------------------------------------------------------
<S> <C> <C>
Shares sold 20,000,186 --
- ------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 5,718 --
- ------------------------------------------------------------------
Shares redeemed -- --
- ------------------------------------------------------------------ ----------- ----------
Net change resulting from Institutional Capital Shares
transactions 20,005,904 --
- ------------------------------------------------------------------ ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------
1997(A) 1996
-------------- -------------
CLASS C SHARES
- -------------------------------------------------------------
<S> <C> <C>
Shares sold -- --
- -------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared -- --
- -------------------------------------------------------------
Shares redeemed (100) --
- ------------------------------------------------------------- -------------- -------------
Net change resulting from Class C Share transactions (100) --
- ------------------------------------------------------------- -------------- -------------
Net change resulting from Fund share transactions (2,348,586,582) 1,282,621,277
- ------------------------------------------------------------- -------------- -------------
</TABLE>
(a) As of November 15, 1996, the Fund's Class C Shares were no longer
operational.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.20% 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.
Federated Management became the Fund's investment adviser on November 15, 1996.
Prior to November 15, 1996, Lehman Brothers Global Asset Management (the "former
Adviser") served as the Fund's investment adviser.
For the period ended January 31, 1997 the advisers earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
ADVISERS FEE EARNED FEE WAIVED
- ---------------------------- ----------- -----------
<S> <C> <C>
Federated Management $ 202,835 $ 166,441
Lehman Brothers Global Asset
Management $1,965,709 $ 733,340
</TABLE>
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
CAPITAL CONTRIBUTION--The former Adviser made a capital contribution to the
Fund, during the period ended November 15, 1996, of an amount equal to the
accumulated net realized loss on investments balance carried by the Fund.
These transactions resulted in a permanent book and tax difference. As such, the
paid-in-capital and accumulated net realized gain/loss accounts have been
adjusted accordingly. This adjustment did not affect net investment income, net
realized gains/losses, or 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. FServ became the Fund's
administrator on November 15, 1996. Prior to November 15, 1996, First Data
Investors Services Group ("FDISG") served as the Fund's administrator. For the
period ended January 31, 1997 the administrators earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF FEE AMOUNT OF FEE
ADMINISTRATORS EARNED WAIVED
- ---------------- -------------- --------------
<S> <C> <C>
FServ $ 78,894 $ 0
FDISG $757,667 $684,170
</TABLE>
DISTRIBUTION SERVICES FEE--Pursuant to Rule 12b-1 under the Act, as amended, the
Fund, had adopted Distribution Agreements (the "Plans") to compensate certain
institutional investors who provided services to the Fund's shareholders. All
such Plans were terminated effective November 15, 1996. Prior to November 15,
1996, Lehman Brothers Inc., acted as the Fund's distributor.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund shares for the period. There is no
present intention of paying or accruing the Shareholder Services Fee for the
Institutional Shares. The fee paid to FSS is used to finance certain services
for shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion. FSS became the Fund's
shareholder servicing agent on November 15, 1996.
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. FSSC
became the Fund's transfer and dividend disbursing agent on November 15, 1996.
Prior to November 15, 1996, FDISG served as the Fund's transfer and dividend
disbursing agent.
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
For the period ended January 31, 1997 the transfer and dividend disbursing
agents earned fees as follows:
<TABLE>
<CAPTION>
TRANSFER AND DIVIDEND
DISBURSING AGENTS AMOUNT OF FEE EARNED
- ------------------------ ---------------------
<S> <C>
FSSC $ 7,436
FDISG $ 163,006
</TABLE>
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. FServ became the
Fund's portfolio accountant on November 15, 1996.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of
PRIME VALUE OBLIGATIONS FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prime Value Obligations Fund, formerly Prime
Value Money Market Fund (a portfolio of Money Market Obligations Trust II,
formerly a Portfolio of Lehman Brothers Institutional Funds Group Trust) as of
January 31, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Prime
Value Obligations Fund at January 31, 1997, and the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 14, 1997
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Prime Value Obligations Fund
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Advisor
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRIME VALUE OBLIGATIONS
FUND
(FORMERLY, PRIME VALUE MONEY MARKET
FUND)
INSTITUTIONAL SERVICE SHARES
(FORMERLY, CLASS B SHARES)
PROSPECTUS
A Portfolio of Money Market
Obligations Trust II (formerly,
Lehman Brothers
Institutional Funds Group Trust), an
Open-End
Management Investment Company
Prospectus dated March 31, 1997
LOGO
Cusip 608912804
G01881-04-SS (3/97)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRIME VALUE OBLIGATIONS FUND
(A PORTFOLIO OF MONEY MARKET OBLIGATIONS TRUST II)
(FORMERLY, PRIME VALUE MONEY MARKET FUND, A PORTFOLIO OF
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST)
INSTITUTIONAL CAPITAL SHARES (FORMERLY, CLASS E SHARES)
PROSPECTUS
The Institutional Capital Shares (formerly, Class E Shares) of Prime Value
Obligations Fund (formerly, Prime Value Money Market Fund) (the "Fund") offered
by this prospectus represent interests in a portfolio of Money Market
Obligations Trust II (formerly, Lehman Brothers Institutional Funds Group Trust)
(the "Trust"), an open-end management investment company (a mutual fund). The
Fund invests in short-term money market securities to achieve 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 March 31,
1997, 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 the Fund at
the address listed in the back of this prospectus. 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated March 31, 1997
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL CAPITAL SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Risks 6
Investment Limitations 6
FUND INFORMATION 7
- ------------------------------------------------------
Management of the Fund 7
Distribution of Institutional Capital Shares 8
Administration of the Fund 8
NET ASSET VALUE 9
- ------------------------------------------------------
HOW TO PURCHASE SHARES 9
- ------------------------------------------------------
HOW TO REDEEM SHARES 10
- ------------------------------------------------------
ACCOUNT AND SHARE INFORMATION 11
- ------------------------------------------------------
TAX INFORMATION 12
- ------------------------------------------------------
Federal Income Tax 12
State and Local Taxes 12
OTHER CLASSES OF SHARES 12
- ------------------------------------------------------
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
LAST MEETING OF SHAREHOLDERS 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 15
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 16
- ------------------------------------------------------
FINANCIAL STATEMENTS 17
- ------------------------------------------------------
REPORT OF ERNST & YOUNG, LLP,
INDEPENDENT AUDITORS 31
- ------------------------------------------------------
ADDRESSES 32
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
INSTITUTIONAL CAPITAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<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
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1).................................................... 0.05%
12b-1 Fee........................................................................... None
Total Other Expenses................................................................ 0.25%
Shareholder Services Fee (after waiver)(2)................................. 0.10%
Total Operating Expenses(3)......................................................... 0.30%
</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 0.20%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholders services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%
(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending January 31, 1998. The total Institutional
Capital Shares operating expenses were 0.28% for fiscal year ended January 31,
1997 and would have been 0.59% absent the voluntary waivers of portions of the
management fee and shareholder services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Institutional Capital
Shares of the Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Fund 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............. $3 $10 $17 $ 38
</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.
PRIME VALUE OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL CAPITAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 31.
<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 31,
1997(a)
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- -------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------
Net investment income 0.05
- -------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------
Distributions from net investment income (0.05)
- ------------------------------------------------------------------------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00
- ------------------------------------------------------------------------- ---------
TOTAL RETURN (B) 5.26%
- -------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------
Expenses 0.28%
- -------------------------------------------------------------------------
Net investment income 5.17%
- -------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.31%
- -------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------
Net assets, end of period (000 omitted) $20,006
- -------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from February 1, 1996 (date of initial
public offering) to January 31, 1997.
(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 16, 1992. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established three classes of shares known as Institutional Shares,
Institutional Service Shares and Institutional Capital Shares. This prospectus
relates only to Institutional Capital Shares of the Fund, which are designed
primarily for financial institutions, financial intermediaries and institutional
investors as a convenient means of accumulating an interest in a professionally
managed portfolio investing in short-term money market securities. A minimum
initial investment of $1,000,000 over a one-year period 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 current income consistent with stability
of principal and liquidity. This investment objective may be changed by the
Board of Trustees 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 money
market 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 without shareholder approval. Shareholders will
be notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are either rated in one of the two highest short-term rating
category by one or more nationally recognized statistical rating organizations
("NRSROs") or are of comparable quality to securities having such ratings.
Examples of these instruments include, but are not limited to:
- domestic issues of corporate debt obligations, including variable rate
demand notes;
- commercial paper (including Canadian Commercial Paper and Europaper);
- certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");
- short-term credit facilities;
- asset-backed securities;
- obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities;
- other money market instruments; and
- obligations issued by state and local government agencies.
The Fund invests only in instruments denominated and payable in U.S. dollars.
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.
BANK INSTRUMENTS. The Fund only invests in Bank Instruments either issued
by an institution having capital, surplus and undivided profits over $100
million, or insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"). Bank Instruments may include
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). The Fund will treat
securities credit enhanced with a bank's letter of credit as Bank
Instruments.
ASSET-BACKED SECURITIES. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans or
accounts receivable. The securities may take the form of beneficial
interests in special purpose trusts, limited partnership interests, or
commercial paper or other debt securities issued by a special purpose
corporation. Although the securities often have some form of credit or
liquidity enhancement, payments on the securities depend predominantly upon
collections of the loans and receivables held by the issuer.
SHORT-TERM CREDIT FACILITIES. The Fund may enter into, or acquire
participations in, short-term borrowing arrangements with corporations,
consisting of either a short-term revolving credit facility or a master
note agreement payable upon demand. Under these arrangements, the borrower
may reborrow funds during the term of the facility. The Fund treats any
commitments to provide such advances as a standby commitment to purchase
the borrower's notes.
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.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and agrees that
on a stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an agreed
upon rate. The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but does not ensure this result. However, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the securities to be
purchased, are: segregated on the Fund's records at the trade date; marked to
market daily; and maintained until the transaction is settled.
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,
including non-negotiable time deposits and repurchase agreements providing for
settlement in more than seven days after notice to 10% of its net assets.
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.
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.
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.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or long-term basis, or
both, to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/ dealers, banks, or
other institutions which the adviser has determined are creditworthy under
guidelines established by the Trustees and will receive collateral at all times
equal to at least 100% of the value of the securities loaned. There is the risk
that when lending portfolio securities, the securities may not be available to
the Fund on a timely basis and the Fund may, therefore, lose the opportunity to
sell the securities at a desirable price. In addition, in the event that a
borrower of securities would file for bankruptcy or become insolvent,
disposition of the securities may be delayed pending court action.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, Canadian Commercial Paper, and Europaper are subject to
different risks than domestic obligations of domestic banks or corporations.
Examples of these risks include international economic and political
developments, foreign governmental restrictions that may adversely affect the
payment of principal or interest, foreign withholding or other taxes on interest
income, difficulties in obtaining or enforcing a judgment against the issuing
entity, and the possible impact of interruptions in the flow of international
currency transactions. Risks may also exist for ECDs, ETDs, and Yankee CDs
because the banks issuing these instruments, or their domestic or foreign
branches, are not necessarily subject to the same regulatory requirements that
apply to domestic banks, such as reserve requirements, loan limitations,
examinations, accounting, auditing, recordkeeping, and the public availability
of information. These factors will be carefully considered by the Fund's adviser
in selecting investments for the Fund.
INVESTMENT LIMITATIONS
The Fund may not:
- borrow money, except that the Fund may (i) borrow money for temporary or
emergency purposes (not for leveraging or investment) from banks, or
subject to specific authorization by the SEC, from funds advised by the
adviser or an affiliate of the adviser, and (ii) engage in reverse
repurchase agreements; provided that (i) and (ii) in combination do not
exceed one-third of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings). The Fund may
not mortgage, pledge or hypothecate any assets except in connection with
such borrowings and reverse repurchase agreements and then only in
amounts not exceeding one-third of the value of the Fund's total assets
at the time of such borrowing; or
- purchase any securities which would cause 25% or more of the value of its
total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, except that the Fund intends to invest
25% or more of the value of its total assets in obligations of issuers in
the banking industry or in obligations, such as repurchase agreements,
secured by such obligations; provided that there is no limitation with
respect to investments in U.S. government securities or, in bank
instruments issued or enhanced by approved banks.
The above investment limitations cannot be changed without shareholder approval.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Fund 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
Management, 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 0.20% of the Fund's average daily net assets. 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 Management, 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 Management 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 $110 billion invested across
over 300 funds under management and/or administration by its subsidiaries,
as of December 31, 1996, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 2,000
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,500
financial institutions nationwide.
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 INSTITUTIONAL CAPITAL SHARES
Federated Securities Corp. is the principal distributor for Institutional
Capital 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.
ADMINISTRATION OF THE FUND
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement
with Federated Shareholder Services, a subsidiary of Federated Investors, under
which the Fund may make payments up to 0.25% of the average daily net asset
value of its shares, computed at an annual rate, to obtain certain personal
services for shareholders and to maintain shareholder accounts. From time to
time and for such periods as deemed appropriate, the amount stated above may be
reduced voluntarily. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares 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 Fund and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their 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.
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 specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
- ------------ ------------------------------------
<S> <C>
.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 shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting liabilities attributable to Institutional
Capital Shares from the value of Fund assets attributable to Institutional
Capital Shares, and dividing the remainder by the number of Institutional
Capital 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 on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Fund reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $1,000,000. However, an account may be opened with
a smaller amount as long as the minimum is reached within one year of opening
the account. Financial institutions may impose different minimum investment
requirements on their customers.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve 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) that 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: Prime Value Obligations
Fund-- Institutional Capital Shares; 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: Prime Value Obligations Fund--Institutional
Capital Shares. 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.
INVEST-BY-PHONE. Once an account has been opened, a shareholder may use
invest-by-phone for investments if an authorization form has been filed with
Federated Shareholder Services Company, the transfer agent for shares of the
Fund. Approximately two weeks after sending the form to Federated Shareholder
Services Company, the shareholder may call Federated Shareholder Services
Company to purchase shares. Federated Shareholder Services Company will send a
request for monies to the shareholder's commercial bank, savings bank, or credit
union ("bank") via the Automated Clearing House. The shareholder's bank, which
must be an Automated Clearing House member, will then forward the monies to
Federated Shareholder Services Company. The purchase is normally entered the
next business day after the initial phone request. For further information and
an application, call the Fund.
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 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 3:00 p.m. (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. 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 and the class designation; 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.
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. Shares purchased by
wire before 3:00 p.m. (Eastern time) begin earning dividends that day. Shares
purchased by check begin earning dividends the day after the check is converted
into federal funds.
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 $1,000,000 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 all classes of each portfolio in the Trust
have equal voting rights, except that in matters affecting only a particular
portfolio or class, only shareholders of that portfolio or class 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.
As of March 10, 1997, Federated Management, Pittsburgh, organized in the state
of Pennsylvania owned 33.47% and Federated Services Company, Boston, organized
in the state of Massachusetts owned 66.53% of the voting securities of the Fund,
and, therefore, may, for certain purposes, be deemed to control the Fund and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
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, Donnelly & Meck, 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.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers other classes. Institutional Shares are sold at net asset
value primarily to entities holding shares in an agency or fiduciary capacity,
financial institutions, financial intermediaries and institutional investors and
are subject to a minimum initial investment of $1,000,000. Institutional Service
Shares are sold at net asset value primarily to financial institutions,
financial intermediaries and institutional investors and are subject to a
minimum initial investment of $1,000,000.
All classes are subject to certain of the same expenses.
Neither Institutional Shares nor Institutional Service Shares are distributed
with a 12b-1 Plan but both are subject to shareholder services fees. Currently,
Institutional Shares are accruing no shareholder services fees.
Expense differences between classes may affect the performance of each class.
To obtain more information and a prospectus for any other class, investors may
call 1-800-341-7400.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield and total
return. The performance figures will be calculated separately for each class of
shares.
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 shares 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.
LAST MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
A Special Meeting of Prime Value Money Market Fund, a portfolio of Lehman
Brothers Institutional Funds Group Trust was held on November 13, 1996. On
October 11, 1996, the record date for shareholders voting at the meeting, there
were 642,034,343 total outstanding shares. The following items were considered
by shareholders and the results of their voting were as follows:
<TABLE>
<CAPTION>
WITHHELD
AGENDA ITEM FOR AGAINST ABSTAIN AUTHORITY TO VOTE
- ----------------------------------- ----------- ------------ ------- -----------------
<S> <C> <C> <C> <C>
1. Approval of the Investment
Advisory Agreement between
Federated Management and the Trust
with respect to the Fund 387,845,946 18,056,722 -0- -0-
2. Election of Trustees
John F. Donahue 402,628,122 -0- -0- 3,274,546
Thomas G. Bigley 402,628,122 -0- -0- 3,274,546
John T. Conroy, Jr. 402,628,122 -0- -0- 3,274,546
William J. Copeland 402,628,122 -0- -0- 3,274,546
J. Christopher Donahue 402,628,122 -0- -0- 3,274,546
James E. Dowd 402,628,122 -0- -0- 3,274,546
Lawrence D. Ellis, M.D. 402,628,122 -0- -0- 3,274,546
Edward L. Flaherty, Jr. 402,628,122 -0- -0- 3,274,546
Peter E. Madden 402,628,122 -0- -0- 3,274,546
Gregor F. Meyer 402,628,122 -0- -0- 3,274,546
John E. Murray, Jr. 402,628,122 -0- -0- 3,274,546
Wesley W. Posvar 402,628,122 -0- -0- 3,274,546
Marjorie P. Smuts 402,628,122 -0- -0- 3,274,546
3. Approval of a change to a
fundamental investment limitation
concerning industry concentration
of investment 402,609,351 3,285,526 7,790 -0-
</TABLE>
PRIME VALUE OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------------------
1997 1996 1995 1994(a)
------ ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------
Net investment income 0.05 0.06 0.04 0.03
- -----------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------
Distributions from net investment income (0.05) (0.06) (0.04) (0.03)
- ----------------------------------------------- ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------- ------ ------ ------ -------
TOTAL RETURN (B) 5.41% 6.10% 4.51% 3.21%
- -----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------
Expenses 0.16% 0.17% 0.09% 0.07% *
- -----------------------------------------------
Net investment income 5.29% 5.93% 4.20% 3.23% *
- -----------------------------------------------
Expense waiver/reimbursement (c) 0.15% 0.08% 0.16% 0.29% *
- -----------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------
Net assets, end of period (000 omitted) $387,994 $2,754,390 $1,470,317 $3,981,184
- -----------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 8, 1993 (date of initial
public investment) to January 31, 1994.
(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)
PRIME VALUE OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------------
1997 1996 1995 1994(a)
------ ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------
Net investment income 0.05 0.06 0.04 0.01
- --------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------
Distributions from net investment income (0.05) (0.06) (0.04) (0.01)
- -------------------------------------------------- ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------- ------ ------ ------ -------
TOTAL RETURN (B) 5.15% 5.84% 4.26% 1.26%
- --------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------
Expenses 0.41% 0.42% 0.34% 0.32% *
- --------------------------------------------------
Net investment income 5.05% 5.68% 3.95% 2.98% *
- --------------------------------------------------
Expense waiver/reimbursement (c) 0.16% 0.08% 0.16% 0.29% *
- --------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------
Net assets, end of period (000 omitted) $18,415 $20,372 $21,739 $17,504
- --------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 1, 1993 (date of initial
public offering) to January 31, 1994.
(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)
PRIME VALUE OBLIGATIONS FUND
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<C> <C> <S> <C>
ASSET-BACKED SECURITIES--0.5%
- ----------------------------------------------------------------------------------
FINANCE--AUTOMOTIVE--0.5%
--------------------------------------------------------------
$ 2,232,251 Nationsbank Auto Owner Trust 1996-A, 5.776%, 8/15/1997 $ 2,233,270
-------------------------------------------------------------- ------------
CERTIFICATES OF DEPOSIT--7.0%
- ----------------------------------------------------------------------------------
BANKING--7.0%
--------------------------------------------------------------
5,000,000 Bank of Scotland, Edinburgh, 5.480%, 6/13/1997 5,000,178
--------------------------------------------------------------
5,000,000 Svenska Handelsbanken, Inc., (Guaranteed by Svenska
Handelsbanken, Stockholm), 5.430%, 5/5/1997 5,000,222
--------------------------------------------------------------
20,000,000 Toronto-Dominion Bank, 5.467%, 3/27/1997 20,003,020
-------------------------------------------------------------- ------------
TOTAL CERTIFICATES OF DEPOSIT 30,003,420
-------------------------------------------------------------- ------------
CORPORATE NOTES--5.0%
- ----------------------------------------------------------------------------------
BANKING--0.4%
--------------------------------------------------------------
2,000,000 (b) SALTS III Cayman Island Corp., (Bankers Trust International,
PLC Swap Agreement), 5.788%, 7/23/1997 2,000,000
-------------------------------------------------------------- ------------
BROKERAGE--1.2%
--------------------------------------------------------------
5,000,000 (b) Goldman Sachs Group, LP, 5.563%, 4/28/1997 5,000,000
-------------------------------------------------------------- ------------
FINANCE--AUTOMOTIVE--3.4%
--------------------------------------------------------------
10,000,000 Ford Credit Auto Lease Trust 1996-1, 5.451%, 11/15/1997 9,999,213
--------------------------------------------------------------
4,405,129 Olympic Automobile Receivables Trust 1996-D, 5.430%,
12/15/1997 4,405,129
-------------------------------------------------------------- ------------
Total 14,404,342
-------------------------------------------------------------- ------------
TOTAL CORPORATE NOTES 21,404,342
-------------------------------------------------------------- ------------
(A) COMMERCIAL PAPER--54.5%
- ----------------------------------------------------------------------------------
BANKING--11.0%
--------------------------------------------------------------
2,000,000 Bank of Nova Scotia, Toronto, 5.439%, 3/13/1997 1,988,089
--------------------------------------------------------------
5,000,000 Commonwealth Bank of Australia, Sydney, 5.520%-5.540%,
7/21/1997-7/24/1997 4,872,030
--------------------------------------------------------------
30,000,000 Den Danske Bank A/S, 5.398%, 2/11/1997 29,955,750
--------------------------------------------------------------
</TABLE>
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<C> <C> <S> <C>
(A) COMMERCIAL PAPER--CONTINUED
- ----------------------------------------------------------------------------------
BANKING--CONTINUED
--------------------------------------------------------------
$ 5,000,000 Deutsche Bank Financial, Inc., (Guaranteed by Deutsche Bank,
AG), 5.404%, 3/12/1997 $ 4,971,129
--------------------------------------------------------------
5,000,000 Toronto Dominion Holdings (USA), Inc., (Guaranteed by Toronto-
Dominion Bank), 5.457%, 6/13/1997 4,902,650
-------------------------------------------------------------- ------------
Total 46,689,648
-------------------------------------------------------------- ------------
BROKERAGE--1.2%
--------------------------------------------------------------
5,000,000 Merrill Lynch & Co., Inc., 5.382%, 3/5/1997 4,976,400
-------------------------------------------------------------- ------------
CHEMICALS--1.2%
--------------------------------------------------------------
5,000,000 Du Pont (E.I.) de Nemours & Co., 5.446%, 2/19/1997 4,986,625
-------------------------------------------------------------- ------------
ELECTRICAL EQUIPMENT--5.1%
--------------------------------------------------------------
5,000,000 Whirlpool Corp., 5.474%, 3/11/1997 4,971,500
--------------------------------------------------------------
17,000,000 Whirlpool Financial Corp., (Whirlpool Corp. Support
Agreement), 5.474%-5.476%, 2/18/1997-2/25/1997 16,946,900
-------------------------------------------------------------- ------------
Total 21,918,400
-------------------------------------------------------------- ------------
FINANCE--AUTOMOTIVE--8.8%
--------------------------------------------------------------
15,000,000 Ford Motor Credit Corp., 5.393%, 2/4/1997 14,993,363
--------------------------------------------------------------
23,000,000 General Motors Acceptance Corp., 5.453%-5.569%,
4/7/1997-5/23/1997 22,722,695
-------------------------------------------------------------- ------------
Total 37,716,058
-------------------------------------------------------------- ------------
FINANCE--COMMERCIAL--21.4%
--------------------------------------------------------------
23,000,000 Asset Securitization Cooperative Corp., 5.359%-5.418%,
2/14/1997-3/18/1997 22,904,037
--------------------------------------------------------------
12,000,000 Beta Finance, Inc., 5.373%-5.444%, 2/19/1997-5/19/1997 11,913,562
--------------------------------------------------------------
5,000,000 CIESCO, Inc., 5.575%, 4/1/1997 4,955,422
--------------------------------------------------------------
10,000,000 CIT Group Holdings, Inc., 5.381%, 3/4/1997 9,954,275
--------------------------------------------------------------
10,000,000 Falcon Asset Securitization Corp., 5.373%, 2/19/1997 9,973,500
--------------------------------------------------------------
10,000,000 General Electric Capital Corp., 5.432%-5.442%,
5/30/1997-6/6/1997 9,821,289
--------------------------------------------------------------
15,000,000 Greenwich Funding Corp., 5.378%-5.446%, 2/26/1997-6/12/1997 14,857,674
--------------------------------------------------------------
</TABLE>
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<C> <C> <S> <C>
(A) COMMERCIAL PAPER--CONTINUED
- ----------------------------------------------------------------------------------
FINANCE--COMMERCIAL--CONTINUED
--------------------------------------------------------------
$ 7,000,000 PREFCO-Preferred Receivables Funding Co., 5.390%-5.412%,
2/28/1997-4/17/1997 $ 6,950,665
-------------------------------------------------------------- ------------
Total 91,330,424
-------------------------------------------------------------- ------------
FINANCE--RETAIL--3.5%
--------------------------------------------------------------
5,000,000 Household Finance Corp., 5.412%, 3/11/1997 4,971,817
--------------------------------------------------------------
10,000,000 McKenna Triangle National Corp., 5.374%, 2/21/1997 9,970,556
-------------------------------------------------------------- ------------
Total 14,942,373
-------------------------------------------------------------- ------------
PHARMACEUTICALS AND HEALTH CARE--2.3%
--------------------------------------------------------------
10,000,000 Glaxo Wellcome PLC, 5.373%, 2/25/1997 9,964,667
-------------------------------------------------------------- ------------
TOTAL COMMERCIAL PAPER 232,524,595
-------------------------------------------------------------- ------------
(C) NOTES--VARIABLE--20.9%
- ----------------------------------------------------------------------------------
BANKING--14.8%
--------------------------------------------------------------
13,620,000 500 South Front St. L.P., Series A, (Huntington National Bank,
Columbus, OH LOC), 5.530%, 2/6/1997 13,620,000
--------------------------------------------------------------
1,780,000 Alabama State IDA, (Nichols Research Corp.), (SouthTrust Bank
of Alabama, Birmingham LOC), 5.580%, 2/28/1997 1,780,000
--------------------------------------------------------------
1,975,000 Athens-Clarke County, GA IDA, Barrett Project (Series 1995),
(Columbus Bank and Trust Co., GA LOC), 5.730%, 2/6/1997 1,975,000
--------------------------------------------------------------
3,400,000 Blackwell Investments, Inc., (Bank One, Louisiana, LOC),
5.580%, 2/6/1997 3,400,000
--------------------------------------------------------------
2,500,000 Carmel, IN, Telamon Corp Series A, (Huntington National Bank,
Columbus, OH LOC), 5.630%, 2/6/1997 2,500,000
--------------------------------------------------------------
1,100,000 Carmel, IN, Telamon Corp Series B, (Huntington National Bank,
Columbus, OH LOC), 5.630%, 2/6/1997 1,100,000
--------------------------------------------------------------
2,060,000 Congregate Care Corp., (Union Bank of California LOC), 5.688%,
2/5/1997 2,060,000
--------------------------------------------------------------
6,000,000 Dellridge Care Center Limited Partnership, Series 1997, (First
National Bank of Maryland, Baltimore LOC), 5.480%, 2/5/1997 6,000,000
--------------------------------------------------------------
</TABLE>
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<C> <C> <S> <C>
(C) NOTES--VARIABLE--CONTINUED
- ----------------------------------------------------------------------------------
BANKING--CONTINUED
--------------------------------------------------------------
$ 5,000,000 International Processing Corp, (Bank One, Kentucky, Louisville
LOC), 5.580%, 2/6/1997 $ 5,000,000
--------------------------------------------------------------
4,500,000 Melberger, Clifford K. and Ruth B., (PNC Bank, N.A. LOC),
5.492%, 2/3/1997 4,500,000
--------------------------------------------------------------
850,000 Pelham City, IDB, (Columbus Bank and Trust Co., GA LOC),
5.730%, 2/6/1997 850,000
--------------------------------------------------------------
1,315,000 Pelham City, IDB, (Columbus Bank and Trust Co., GA LOC),
5.730%, 2/6/1997 1,315,000
--------------------------------------------------------------
15,000,000 SMM Trust, Series 1996-U, (Morgan Guaranty Trust Co., New York
Swap Agreement), 5.425%, 2/20/1997 15,000,000
--------------------------------------------------------------
1,235,000 Southeast Regional Holdings, LLC, (Series 1995-A), (Columbus
Bank and Trust Co., GA LOC), 5.730%, 2/6/1997 1,235,000
--------------------------------------------------------------
1,650,000 Sylacuaga, AL IDB, Parker Fertilizer Project Series 1992,
(SouthTrust Bank of Alabama, Birmingham LOC), 5.580%, 2/4/1997 1,650,000
--------------------------------------------------------------
1,132,000 Westcourt, (Bank One, Texas N.A. LOC), 5.580%, 2/6/1997 1,132,000
-------------------------------------------------------------- ------------
Total 63,117,000
-------------------------------------------------------------- ------------
FINANCE--EQUIPMENT--1.2%
--------------------------------------------------------------
5,000,000 Comdisco, Inc., 144A Notes, 5.600%, 2/26/1997 5,000,000
--------------------------------------------------------------
INSURANCE--4.9%
--------------------------------------------------------------
21,000,000 General American Life Insurance Co., 5.638%, 2/21/1997 21,000,000
-------------------------------------------------------------- ------------
TOTAL NOTES--VARIABLE 89,117,000
-------------------------------------------------------------- ------------
SHORT-TERM MUNICIPAL--0.2%
- ----------------------------------------------------------------------------------
1,000,000 Colorado Health Facilities Authority, Series B, (Bank One,
Colorado LOC), 5.580%, 2/1/1997 1,000,000
-------------------------------------------------------------- ------------
(D) REPURCHASE AGREEMENTS--11.7%
- ----------------------------------------------------------------------------------
10,000,000 Bear, Stearns and Co., 5.580%, dated 1/31/1997, due 2/3/1997 10,000,000
--------------------------------------------------------------
4,800,000 Daiwa Securities America, Inc., 5.580%, dated 1/31/1997, due
2/3/1997 4,800,000
--------------------------------------------------------------
</TABLE>
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<C> <C> <S> <C>
(D) REPURCHASE AGREEMENTS--CONTINUED
- ----------------------------------------------------------------------------------
$10,000,000 Fuji Government Securities, Inc., 5.590%, dated 1/31/1997, due
2/3/1997 $ 10,000,000
--------------------------------------------------------------
10,000,000 PaineWebber Group, Inc., 5.570%, dated 1/31/1997, due 2/3/1997 10,000,000
--------------------------------------------------------------
15,000,000 UBS Securities, Inc., 5.530%, dated 1/31/1997, due 2/3/1997 15,000,000
-------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS 49,800,000
-------------------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(E) $426,082,627
-------------------------------------------------------------- ------------
</TABLE>
(a) Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At January 31, 1997, these securities
amounted to $7,000,000 which represents 1.6% of net assets.
(c) Current rate and next reset date shown.
(d) 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.
(e) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($426,415,272) at January 31, 1997.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
IDA -- Industrial Development Authority
IDB -- Industrial Development Bond
LOC -- Letter of Credit
LLC -- Limited Liability Corporation
LP -- Limited Partnership
PLC -- Public Limited Company
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME VALUE OBLIGATIONS FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in repurchase agreements $ 49,800,000
- -----------------------------------------------------------------
Investments in securities 376,282,627
- ----------------------------------------------------------------- ------------
Total investments in securities, at amortized cost and value $426,082,627
- --------------------------------------------------------------------------------
Cash 17,538,737
- --------------------------------------------------------------------------------
Income receivable 957,254
- --------------------------------------------------------------------------------
Receivable for shares sold 11,940,174
- -------------------------------------------------------------------------------- ------------
Total assets 456,518,792
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for shares redeemed 29,491,686
- -----------------------------------------------------------------
Income distribution payable 556,694
- -----------------------------------------------------------------
Accrued expenses 55,140
- ----------------------------------------------------------------- ------------
Total liabilities 30,103,520
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 426,415,272 shares outstanding $426,415,272
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
$387,994,460 / 387,994,460 shares outstanding $1.00
- -------------------------------------------------------------------------------- ------------
INSTITUTIONAL SERVICE SHARES:
$18,414,808 / 18,414,808 shares outstanding $1.00
- -------------------------------------------------------------------------------- ------------
INSTITUTIONAL CAPITAL SHARES:
$20,006,004 / 20,006,004 shares outstanding $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME VALUE OBLIGATIONS FUND
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------
Interest $59,108,397
- ----------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------
Investment advisory fee $ 2,168,544
- -------------------------------------------------------------------------
Administrative personnel and services fee 836,561
- -------------------------------------------------------------------------
Custodian fees 122,910
- -------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 170,442
- -------------------------------------------------------------------------
Directors'/Trustees' fees 23,877
- -------------------------------------------------------------------------
Auditing fees 12,574
- -------------------------------------------------------------------------
Legal fees 12,320
- -------------------------------------------------------------------------
Portfolio accounting fees 33,950
- -------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 40,369
- -------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 13,283
- -------------------------------------------------------------------------
Shareholder services fee--Institutional Capital Shares 137
- -------------------------------------------------------------------------
Printing and postage 9,030
- -------------------------------------------------------------------------
Miscellaneous 45,315
- ------------------------------------------------------------------------- -----------
Total expenses 3,489,312
- -------------------------------------------------------------------------
Waivers and reimbursements--
- -------------------------------------------------------------------------
Waiver of investment advisory fee $(899,781)
- -------------------------------------------------------------
Waiver of administrative personnel and services fee (684,170)
- -------------------------------------------------------------
Waiver of custodian fees (95,495)
- -------------------------------------------------------------
Waiver of shareholder services fee--Institutional Capital
Shares (82)
- ------------------------------------------------------------- ---------
Total waivers (1,679,528)
- ------------------------------------------------------------------------- -----------
Net expenses 1,809,784
- ---------------------------------------------------------------------------------------- -----------
Net investment income 57,298,613
- ---------------------------------------------------------------------------------------- -----------
Net realized loss on investments (1,090,952)
- ---------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $56,207,661
- ---------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME VALUE OBLIGATIONS FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------
Net investment income $ 57,298,613 $ 171,047,983
- ----------------------------------------------------------
Net realized gain (loss) on investments (1,090,952) 85,517
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from operations 56,207,661 171,133,500
- ---------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------
Distributions from net investment income:
- ----------------------------------------------------------
Institutional Shares (56,210,350) (169,378,776)
- ----------------------------------------------------------
Institutional Service Shares (1,082,127) (1,669,207)
- ----------------------------------------------------------
Institutional Capital Shares (6,136) --
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from distributions to
shareholders (57,298,613) (171,047,983)
- ---------------------------------------------------------- ---------------- ----------------
CAPITAL CONTRIBUTION 1,330,378 --
- ---------------------------------------------------------- ---------------- ----------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------
Proceeds from sale of shares 19,361,183,773 48,234,564,251
- ----------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 26,082,775 59,367,107
- ----------------------------------------------------------
Cost of shares redeemed (21,735,853,130) (47,011,310,081)
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from share
transactions (2,348,586,582) 1,282,621,277
- ---------------------------------------------------------- ---------------- ----------------
Change in net assets (2,348,347,156) 1,282,706,794
- ----------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------
Beginning of period 2,774,762,428 1,492,055,634
- ---------------------------------------------------------- ---------------- ----------------
End of period $ 426,415,272 $ 2,774,762,428
- ---------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME VALUE OBLIGATIONS FUND
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Money Market Obligations Trust II (the "Trust"), (formerly Lehman Brothers
Institutional Funds Group 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 three portfolios. The financial statements included herein
are only those of Prime Value Obligations Fund (the "Fund"), (formerly Prime
Value Money Market 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 Fund offers three classes of shares: Institutional Shares (formerly, Class A
Shares), Institutional Service Shares (formerly, Class B Shares) and
Institutional Capital Shares (formerly, Class E Shares).
As of November 15, 1996, the Fund's Class C Shares were no longer operational.
The investment objective of the Fund is to provide a high level of 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"). 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.
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
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.
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 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 Investment Company Act of 1940.
Additional information on each restricted security held at January 31, 1997
is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
------------------------------------------------------------- ----------- -----------
<S> <C> <C>
SALTS III Cayman Island Corp 1/21/97 $2,000,000
Goldman Sachs Group, LP 1/27/97 $5,000,000
</TABLE>
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 ($0.001 par value) for each
class of shares.
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------
1997 1996
--------------- ---------------
INSTITUTIONAL SHARES
- ----------------------------------------------------------
<S> <C> <C>
Shares sold 19,036,179,355 47,981,427,671
- ----------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 26,074,950 59,366,207
- ----------------------------------------------------------
Shares redeemed (21,428,886,085) (46,756,804,775)
- ---------------------------------------------------------- --------------- ---------------
Net change resulting from Institutional Share
transactions (2,366,631,780) 1,283,989,103
- ---------------------------------------------------------- --------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------
1997 1996
--------------- ---------------
INSTITUTIONAL SERVICE SHARES
- ----------------------------------------------------------
<S> <C> <C>
Shares sold 305,004,232 253,136,580
- ----------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 2,107 900
- ----------------------------------------------------------
Shares redeemed (306,966,945) (254,505,306)
- ---------------------------------------------------------- --------------- ---------------
Net change resulting from Institutional Service Share
transactions (1,960,606) (1,367,826)
- ---------------------------------------------------------- --------------- ---------------
</TABLE>
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------
1997 1996
----------- ----------
INSTITUTIONAL CAPITAL SHARES
- ------------------------------------------------------------------
<S> <C> <C>
Shares sold 20,000,186 --
- ------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 5,718 --
- ------------------------------------------------------------------
Shares redeemed -- --
- ------------------------------------------------------------------ ----------- ----------
Net change resulting from Institutional Capital Shares
transactions 20,005,904 --
- ------------------------------------------------------------------ ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------
1997(A) 1996
-------------- -------------
CLASS C SHARES
- -------------------------------------------------------------
<S> <C> <C>
Shares sold -- --
- -------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared -- --
- -------------------------------------------------------------
Shares redeemed (100) --
- ------------------------------------------------------------- -------------- -------------
Net change resulting from Class C Share transactions (100) --
- ------------------------------------------------------------- -------------- -------------
Net change resulting from Fund share transactions (2,348,586,582) 1,282,621,277
- ------------------------------------------------------------- -------------- -------------
</TABLE>
(a) As of November 15, 1996, the Fund's Class C Shares were no longer
operational.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.20% 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.
Federated Management became the Fund's investment adviser on November 15, 1996.
Prior to November 15, 1996, Lehman Brothers Global Asset Management (the "former
Adviser") served as the Fund's investment adviser.
For the period ended January 31, 1997 the advisers earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
ADVISERS FEE EARNED FEE WAIVED
- ---------------------------- ----------- -----------
<S> <C> <C>
Federated Management $ 202,835 $ 166,441
Lehman Brothers Global Asset
Management $1,965,709 $ 733,340
</TABLE>
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
CAPITAL CONTRIBUTION--The former Adviser made a capital contribution to the
Fund, during the period ended November 15, 1996, of an amount equal to the
accumulated net realized loss on investments balance carried by the Fund.
These transactions resulted in a permanent book and tax difference. As such, the
paid-in-capital and accumulated net realized gain/loss accounts have been
adjusted accordingly. This adjustment did not affect net investment income, net
realized gains/losses, or 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. FServ became the Fund's
administrator on November 15, 1996. Prior to November 15, 1996, First Data
Investors Services Group ("FDISG") served as the Fund's administrator. For the
period ended January 31, 1997 the administrators earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF FEE AMOUNT OF FEE
ADMINISTRATORS EARNED WAIVED
- ---------------- -------------- --------------
<S> <C> <C>
FServ $ 78,894 $ 0
FDISG $757,667 $684,170
</TABLE>
DISTRIBUTION SERVICES FEE--Pursuant to Rule 12b-1 under the Act, as amended, the
Fund, had adopted Distribution Agreements (the "Plans") to compensate certain
institutional investors who provided services to the Fund's shareholders. All
such Plans were terminated effective November 15, 1996. Prior to November 15,
1996, Lehman Brothers Inc., acted as the Fund's distributor.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund shares for the period. There is no
present intention of paying or accruing the Shareholder Services Fee for the
Institutional Shares. The fee paid to FSS is used to finance certain services
for shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion. FSS became the Fund's
shareholder servicing agent on November 15, 1996.
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. FSSC
became the Fund's transfer and dividend disbursing agent on November 15, 1996.
Prior to November 15, 1996, FDISG served as the Fund's transfer and dividend
disbursing agent.
PRIME VALUE OBLIGATIONS FUND
- --------------------------------------------------------------------------------
For the period ended January 31, 1997 the transfer and dividend disbursing
agents earned fees as follows:
<TABLE>
<CAPTION>
TRANSFER AND DIVIDEND
DISBURSING AGENTS AMOUNT OF FEE EARNED
- ------------------------ ---------------------
<S> <C>
FSSC $ 7,436
FDISG $ 163,006
</TABLE>
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. FServ became the
Fund's portfolio accountant on November 15, 1996.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of
PRIME VALUE OBLIGATIONS FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prime Value Obligations Fund, formerly Prime
Value Money Market Fund (a portfolio of Money Market Obligations Trust II,
formerly a Portfolio of Lehman Brothers Institutional Funds Group Trust) as of
January 31, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Prime
Value Obligations Fund at January 31, 1997, and the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 14, 1997
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Prime Value Obligations Fund
Institutional Capital Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRIME VALUE OBLIGATIONS
FUND
(FORMERLY, PRIME VALUE MONEY MARKET
FUND)
INSTITUTIONAL CAPITAL SHARES
(FORMERLY,
CLASS E SHARES)
PROSPECTUS
A Portfolio of Money Market
Obligations Trust II (formerly,
Lehman Brothers
Institutional Funds Group Trust), an
Open-End
Management Investment Company
Prospectus dated March 31, 1997
LOGO
Cusip 608912887
G01881-08-(3/97)
PRIME VALUE OBLIGATIONS FUND
(A PORTFOLIO OF MONEY MARKET OBLIGATIONS TRUST II)
(FORMERLY, PRIME VALUE MONEY MARKET FUND, A PORTFOLIO OF LEHMAN
BROTHERS
INSTITUTIONAL FUNDS GROUP TRUST)
INSTITUTIONAL SHARES (FORMERLY, CLASS A SHARES)
INSTITUTIONAL SERVICE SHARES (FORMERLY, CLASS B SHARES)
INSTITUTIONAL CAPITAL SHARES (FORMERLY, CLASS E SHARES)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus(es) of Prime Value Obligations Fund (formerly, Prime Value
Money Market Fund) (the ``Fund'), a portfolio of Money Market
Obligations Trust II (formerly, Lehman Brothers Institutional Funds
Group Trust) (the ``Trust') dated March 31, 1997. This Statement is
not a prospectus. You may request a copy of a prospectus or a paper
copy of this Statement, if you have received it electronically, free of
charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated March 31, 1997
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 608912408
Cusip 608912507
Cusip 608912606
G01881-10 (3/97)
FUND HISTORY 1
INVESTMENT POLICIES 1
Acceptable Investments 1
U.S. Government Securities 1
Bank Instruments 1
Ratings 1
Municipal Securities 2
When-Issued and Delayed Delivery Transactions 2
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Restricted and Illiquid Securities 2
Credit Enhancement 2
Lending of Portfolio Securities 3
INVESTMENT LIMITATIONS 3
Regulatory Compliance 4
MONEY MARKET OBLIGATIONS TRUST II MANAGEMENT 4
Share Ownership 8
Trustee Compensation 9
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
Investment Adviser 10
Advisory Fees 10
BROKERAGE TRANSACTIONS 11
OTHER SERVICES 11
Fund Administration 11
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Auditors 11
DETERMINING NET ASSET VALUE 12
Shareholder Services 12
REDEMPTION IN KIND 12
MASSACHUSETTS PARTNERSHIP LAW 13
THE FUND'S TAX STATUS 13
PERFORMANCE INFORMATION 13
Yield 13
Effective Yield 13
Total Return 13
Performance Comparisons 14
Economic and Market Information 14
ABOUT FEDERATED INVESTORS 14
Mutual Fund Market 15
Institutional Clients 15
Bank Marketing 15
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 15
APPENDIX 16
FUND HISTORY
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated November 16, 1992. On November 15, 1996, the
Board of Trustees (`Trustees'') changed the name of the Trust from
`Lehman Brothers Institutional Funds Group Trust'' to ``Money Market
Obligations Trust II''and the name of the Fund from ``Prime Value Money
Market Fund''to ``Prime Value Obligations Fund.''
Shares of the Fund are offered in three classes, known as Institutional
Shares, Institutional Service Shares and Institutional Capital Shares
(individually and collectively referred to as `Shares,'' as the context
may require). This Statement of Additional Information relates to the
above-referenced Shares of the Fund.
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by
the Board of Trustees without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or
any guarantor of either the security or any demand feature.
U.S. GOVERNMENT SECURITIES
The types of U.S. government securities in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are backed
by:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
othe credit of the agency or instrumentality issuing the obligations.
BANK INSTRUMENTS
The instruments of banks and savings associations whose deposits are
insured by the Bank Insurance Fund (`BIF'') or the Savings Association
Insurance Fund (`SAIF''), such as certificates of deposit, demand and time
deposits, savings shares, and bankers' acceptances, are not necessarily
guaranteed by those organizations. In addition to domestic bank
instruments, the Fund may invest in: Eurodollar Certificates of Deposit
issued by foreign branches of U.S. or foreign banks; Eurodollar Time
Deposits, which are U.S. dollar-denominated deposits in foreign branches of
U.S. or foreign banks; Canadian Time Deposits, which are U.S. dollar-
denominated deposits issued by branches of major Canadian banks located in
the United States; and Yankee Certificates of Deposit, which are U.S.
dollar-denominated certificates of deposit issued by U.S. branches of
foreign banks and held in the United States.
RATINGS
The securities in which the Fund invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
statistical rating organizations (`NRSROs'') or be of comparable quality
to securities having such ratings. An NRSRO's two highest rating
categories are determined without regard for sub-categories and gradations.
For example, securities rated A-1, A-1+, or A-2 by Standard & Poor's
Ratings Group (`S&P''),Prime-1 or Prime-2 by Moody's Investors Service,
Inc. (`Moody's''), or F-1 +, F-1, or F-2 by Fitch Investors Service, Inc.
(`Fitch'') are all considered rated in one of the two highest short-term
rating categories. The Fund will follow applicable regulations in
determining whether a security rated by more than one NRSRO can be treated
as being in one of the two highest short-term rating categories; currently,
such securities must be rated by two NRSROs in one of their two highest
rating categories. See `Regulatory Compliance.''
MUNICIPAL SECURITIES
As stated in the Fund's Prospectus, the Fund may invest in obligations
issued by state and local government entities. Municipal securities are
issued by various public entities to obtain funds for various public
purposes, including the construction of a wide range of public facilities,
the refunding of outstanding obligations, the payment of general operating
expenses and the extension of loans to public institutions and facilities.
Private activity bonds that are issued by or on behalf of public
authorities to finance various privately operated facilities are considered
to be municipal securities and may be purchased by the Fund. Dividends
paid by the Fund that are derived from interest on such municipal
securities would be taxable to the Fund's investors for federal income tax
purposes.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is settled. The Fund
does not intend to engage in when-issued and delayed delivery transactions
to an extent that would cause the segregation of more than 20% of the total
value of its assets.
REPURCHASE AGREEMENTS
The Fund believes that under the regular procedures normally in effect for
custody of the Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the
Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the
Fund's adviser to be creditworthy pursuant to guidelines established by the
Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and agrees
that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but does not ensure this result. However,
liquid assets of the Fund, in a dollar amount sufficient to make payment
for the securities to be purchased, are: segregated on the Fund's records
at the trade date; marked to market daily; and maintained until the
transaction is settled.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law, and is generally sold to institutional investors, such as
the Fund, who agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like the Fund through
or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity. The Fund
believes that Section 4(2) commercial paper and possibly certain other
restricted securities which meet the criteria for liquidity established by
the Trustees are quite liquid. The Fund intends, therefore, to treat the
restricted securities which meet the criteria for liquidity established by
the Trustees, including Section 4(2) commercial paper, as determined by the
Fund's investment adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-
enhanced securities based upon the financial condition and ratings of the
party providing the credit enhancement (the `credit enhancer''), rather
than the issuer. Generally, the Fund will not treat credit-enhanced
securities as being issued by the credit enhancer for diversification
purposes. However, under certain circumstances applicable regulations may
require the Fund to treat securities as having been issued by both the
issuer and the credit enhancer.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker.
INVESTMENT LIMITATIONS
DIVERSIFICATION OF INVESTMENTS
The Fund may not purchase securities of any one issuer if as a result more
than 5% of the value of the Fund's assets would be invested in the
securities of such issuer, except that up to 25% of the value of the Fund's
total assets may be invested without regard to such 5% limitation and
provided that there is no limitation with respect to investments in U.S.
government securities.
ISSUING SENIOR SECURITIES, BORROWING MONEY AND PLEDGING ASSETS
The Fund may not borrow money, except that the Fund may (i) borrow money
for temporary or emergency purposes (not for leveraging or investment) from
banks or, subject to specific authorization by the SEC, from funds advised
by the adviser or an affiliate of the adviser, and (ii) engage in reverse
repurchase agreements; provided that (i) and (ii) in combination do not
exceed one-third of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings). The Fund may
not mortgage, pledge, or hypothecate its assets except in connection with
such borrowings and reverse repurchase agreements and then only in amounts
not exceeding one-third of the value of the Fund's total assets.
Additional investments will not be made when borrowings exceed 5% of the
Fund's assets.
CONCENTRATION OF INVESTMENTS
The Fund may not purchase any securities which would cause 25% or more of
the value of its total assets at the time of such purchase to be invested
in the securities of one or more issuers conducting their principal
business activivites in the same industry, except that the Fund intends to
invest 25% or more of the value of its total assets in obligations of
issuers in the banking industry or in obligations, such as repurchase
agreements, secured by such obligations; provided that there is no
limitation with respect to investments in U.S. government securities or, in
bank instruments issued or enhanced by approved banks.
LENDING CASH OR SECURITIES
The Fund may not make loans, except that the Fund may (i) purchase or hold
debt obligations in accordance with its investment objective and policies,
(ii) enter into repurchase agreements for securities, (iii) lend portfolio
securities as described in the prospectus, and (iv) subject to specific
authorization by the SEC, lend money to other funds advised by the adviser
or an affiliate of the adviser.
UNDERWRITING
The Fund may not act as an underwriter of securities, except insofar as the
Fund may be deemed an underwriter under applicable securities laws in
selling portfolio securities.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate or real estate limited
partnerships, provided that the Fund may purchase securities of issuers
which invest in real estate or interests therein.
INVESTING IN COMMODITIES AND MINERALS
The Fund may not purchase or sell commodities contracts, or invest in oil,
gas or mineral exploration or development programs or in mineral leases.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including repurchase agreements providing for
settlement in more than seven days after notice.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for
clearance of transactions.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not acquire more than 3% of the total outstanding securities
of other investment companies, except as part of a merger, consolidation,
or other acquisition.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 15% of the value of its total assets in
securities of companies (including predecessors) with less than three years
of continuous operation.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of
and regulations under the Investment Company Act of 1940. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. For example, with limited exceptions,
Rule 2a-7 prohibits the investment of more than 5% of the Fund's total
assets in the securities of any one issuer, although the Fund's investment
limitation only requires such 5% diversification with respect to 75% of its
assets. The Fund will invest more than 5% of its assets in any one issuer
only under the circumstances permitted by Rule 2a-7. The Fund will also
determine the effective maturity of its investments , as well as its
ability to consider a security as having received the requisite short-term
ratings by NRSROs, according to Rule 2a-7. The Fund may change these
operational policies to reflect changes in the laws and regulations without
the approval of its shareholders.
MONEY MARKET OBLIGATIONS TRUST II MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Money Market Obligations Trust II, and principal
occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, President and
Trustee of the Trust.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director,
Member of Executive Committee, University of Pittsburgh; Director or
Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
President and Trustee
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Boca Grande Club
Boca Grande, FL
Birthdate: October 6, 1926
Trustee
Attorney, Retired Member of Miller, Ament, Henny & Kochuba; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or
Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies:
111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate
U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund,
Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA
Trust; Federated Government Income Securities, Inc.; Federated Government
Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series; Federated
Investment Portfolios; Federated Investment Trust; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated
Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 2-5 Years; Federated U.S. Government Securities
Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed
Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds;
RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
Shares.
As of March 10, 1997, the following shareholder(s) of record owned 5% or
more of the outstanding Institutional Shares of the Prime Value Obligations
Fund: Norwest Bank of Minnesota, NA, Minneapolis, MN, owned approximately
55,000,000 shares (9.75%); and Capital Growth Mortgage Investment Fund LP,
Boston, MA, owned approximately 30,597,481 shares (5.42%).
As of March 10, 1997, the following shareholder(s) of record owned 5% or
more of the outstanding Institutional Service Shares of the Prime Value
Obligations Fund: Hare & Co., New York, NY owned approximately 29,768,610
shares (56.48%); Lauder Gasper Ventures LLC, New York, NY, owned
apporximately 5,692,716 shares (10.80%); and Benchmark Cable Acquis Fund
VII, Palm Coast, FL, owned approximately 17,002,331 shares (32.26%).
As of March 10, 1997, the following shareholder(s) of record owned 5% or
more of the outstanding Institutional Capital Shares of the Prime Value
Obligations Fund: Fedrated Services Company, Boston, MA, owned
approximately 198 shares (66.53%); and Federated Management, Pittsburgh, PA
owned approximately 100 shares (33.47%).
TRUSTEE COMPENSATION
BOARD OF TRUSTEES - LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST FROM FUND COMPLEX *
James A. Carbone, $0 $0 for the Trust and
Co-Chairman and Trustee Fund Complex(2)
Andrew Gordon, $0 $0 for the Trust and
Co-Chariman, Trustee and President Fund Complex(2)
Charles Barber, $25,000 $25,000 for the Trust and
Trustee Fund Complex(1)
Burt N. Dorsett, $25,000 $52,500 for the Trust and
Trustee Fund Complex(2)
Edward J. Kaier, $25,000 $25,000 for the Trust and
Trustee Fund Complex(1)
S. Donald Wiley, $25,000 $25,000 for the Trust and
Trustee Fund Complex(1)
* Represents the total compensation paid to such persons by all investment
companies (including the Trust) from which such person received
compensation during the fiscal year ended January 31, 1997 that are
considered part of the same `fund complex'' as the Trust because they have
common or affiliated investment advisers. The parenthetical number
represents the number of such investment companies, including the Trust.
BOARD OF TRUSTEES - MONEY MARKET OBLIGATIONS TRUST II
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST** TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the
Fund Complex
Thomas G. Bigley $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John T. Conroy, Jr. $0 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
William J. Copeland $0 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
J. Christopher Donahue$0 $0 for the Trust and
President and Trustee 18 other investment companies in the
Fund Complex
James E. Dowd $0 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $0 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Peter E. Madden $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Gregor F. Meyer $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John E. Murray, Jr., $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Wesley W. Posvar $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Marjorie P. Smuts $0 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
* Information is furnished for the fiscal year ended January 31, 1997.
**New Board of Trustees as of November 15, 1996, per shareholder approval.
# The aggregate compensation is provided for the Trust which is comprised
of three portfolios.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Fund's investment adviser is Federated Management. It is a subsidiary
of Federated Investors. All the voting securities of Federated Investors
are owned by a trust, the trustees of which are John F. Donahue, his wife
and his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust, the Fund, or any shareholder
of the Fund for any losses that may be sustained in the purchase, holding,
or sale of any security or for anything done or omitted by it, except acts
or omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Trust.
Prior to November 15, 1996, Lehman Brothers Global Asset Management, New
York, NY, was the investment adviser for the Fund.
ADVISORY FEES
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectus. Prior to November
15, 1996, Lehman Brothers Global Asset Management (the `former adviser'')
served as the Fund's adviser. For the period from November 15, 1996, to
January 31, 1997, Federated Management earned $202,835 of which $166,441
was waived. For the period from February 1, 1996, to November 14, 1996,
and the fiscal years ended January 31, 1996, and 1995, the former adviser
earned $1,965,709, $2,885,657, and $1,858,719, respectively, of which
$733,340 and $0;, $0 and $0; and $1,388,554 and $0; respectively, were
waived of advisory fees and reimbursement of expenses to maintain the
Fund's operating expense ratios at certain levels.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal year(s) ended January 31, 1997, 1996,
and 1995, the Fund paid no brokerage commissions.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. FDISG (the `former administrator''), a subsidiary of First
Data Corporation, Boston, MA, served as the Fund's administrator prior to
November 15, 1996. For the period from November 15, 1996, to January 31,
1997, Federated Services Company earned $78,894 of which $0 was waived.
For the period from February 1, 1996, to November 14, 1996, and the fiscal
years ended January 31, 1996, and 1995, the former administrator earned
$757,667, $2,885,657 and $1,858,719, respectively. Waivers by the former
administrator of administration fees and reimbursement of expenses to
maintain the Fund's operating expense ratios at certain levels for the
period from February 1, 1996, to November 14, 1996, and the fiscal years
ended January 31, 1996, and 1995, amounted to $684,170 and $0; $2,127,361
and $0; and $1,414,970 and $0, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses. Prior to November 15, 1996, Boston Safe, Boston, MA, a
wholly-owned subsidiary of Mellon Bank Corporation, served as the custodian
for the Fund.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on the
size, type and number of accounts and transactions made by shareholders.
Prior to November 15, 1996, FDISG served as the Fund's transfer agent.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
PA. Prior to November 15, 1996, Ernst & Young LLP, Boston, MA, were the
independent auditors for the Fund.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization
of premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares
of the Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above may tend to be higher
than a similar computation made by using a method of valuation based upon
market prices and estimates. In periods of rising interest rates, the
opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions in Rule 2a-7
(the `Rule'') promulgated by the Securities and Exchange Commission under
the Investment Company Act of 1940. Under the Rule, the Trustees must
establish procedures reasonably designed to stabilize the net asset value
per share, as computed for purposes of distribution and redemption, at
$1.00 per share, taking into account current market conditions and the
Fund's investment objective. The procedures include monitoring the
relationship between the amortized cost value per share and the net asset
value per share based upon available indications of market value. The
Trustees will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences between the two
methods of determining net asset value.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder
Services to cause services to be provided which are necessary for the
maintenance of shareholder accounts and to encourage personal services to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include but are not limited to providing office space, equipment, telephone
facilities, and various clerical, supervisory, computer, and other
personnel as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine
client inquiries; and assisting clients in changing dividend options,
account designations, and addresses.
By adopting the Shareholder Services Agreement, the Trustees expect that
the Fund will benefit by: (1) providing personal services to
shareholders; (2) investing shareholder assets with a minimum of delay and
administrative detail; (3) enhancing shareholder recordkeeping systems; and
(4) responding promptly to shareholders' requests and inquiries concerning
their accounts.
For the period from November 15, 1996, to January 31, 1997, Federated
Shareholder Services earned $13,283, and $137, for the Fund's Institutional
Service Shares, and Institutional Capital Shares, respectively, of which $0
and $82 was waived, respectively.
Prior to November 15, 1996, the Fund entered into agreements with Service
Organizations (Rule 12b-1 Plan) whose customers are the beneficial owners
of what were formerly called Class B Shares and Class E Shares. For the
period from February 1, 1996, to November 14, 1996, the following service
fees were paid by the Fund: Institutional Service Shares, $40,369. For the
fiscal year ended January 31, 1996, the following service fees were paid by
the Fund: Class B Shares, $72,893; and Class E Shares, $0. For the fiscal
year ended January 31, 1995, the following service fees were paid by the
Fund: Class B Shares, $40,486; and no service fees were paid with respect
to Class E Shares.
REDEMPTION IN KIND
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1%
of the Fund's net asset value, whichever is less, for any one shareholder
within a 90-day period. Any redemption beyond this amount will also be in
cash unless the Trustees determine that further payments should be in kind.
In such cases, the Fund will pay all or a portion of the remainder of the
redemption in portfolio instruments valued in the same way as the Fund
determines net asset value. The portfolio instruments will be selected in a
manner that the Trustees deem fair and equitable. Redemption in kind is
not as liquid as a cash redemption. If redemption is made in kind,
shareholders who sell these securities could receive less than the
redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect
its shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for acts or
obligations of the Trust. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required by the Declaration of Trust to
use its property to protect or compensate the shareholder. On request, the
Trust will defend any claim made and pay any judgment against a shareholder
for any act or obligation of the Trust. Therefore, financial loss resulting
from liability as a shareholder will occur only if the Trust itself cannot
meet its obligations to indemnify shareholders and pay judgments against
them.
THE FUND'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Fund must, among other requirements: derive at least 90%
of its gross income from dividends, interest, and gains from the sale of
securities; derive less than 30% of its gross income from the sale of
securities held less than three months; invest in securities within certain
statutory limits; and distribute to its shareholders at least 90% of its
net income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average
portfolio maturity; type of instruments in which the portfolio is invested;
changes in interest rates; changes in expenses; and the relative amount of
cash flow. To the extent that financial institutions and broker/dealers
charge fees in connection with services provided in conjunction with an
investment in shares of the Fund, the performance will be reduced for those
shareholders paying those fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the `base period.'' This yield is computed by:
determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
shares purchased with dividends earned from the original one share and all
dividends declared on the original and any purchased shares; dividing the
net change in the account's value by the value of the account at the
beginning of the base period to determine the base period return; and
multiplying the base period return by 365/7.
For the seven-day period ended January 31, 1997, the yield for
Institutional Shares was 5.31%.
For the seven-day period ended January 31, 1997, the yield for
Institutional Service Shares was 5.06%.
For the seven-day period ended January 31, 1997, the yield for
Institutional Capital Shares was 5.19%.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base
period return by: adding 1 to the base period return; raising the sum to
the 365/7th power; and subtracting 1 from the result.
For the seven-day period ended January 31, 1997, the effective yield for
Institutional Shares was 5.45%.
For the seven-day period ended January 31, 1997, the effective yield for
Institutional Service Shares was 5.19%.
For the seven-day period ended January 31, 1997, the effective yield for
Institutional Capital Shares was 5.32%.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a
given period that would equate a $1,000 initial investment to the ending
redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period
by the net asset value per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares
purchased at the beginning of the period with $1,000, adjusted over the
period by any additional shares, assuming the monthly reinvestment of all
dividends and distributions.
For the one-year period ended January 31, 1997, and for the period from
February 8, 1993 (date of initial public investment) through January 31,
1997, the average annual total returns were 5.41% and 4.82%, respectively,
for Institutional Shares. For the one-year period ended January 31, 1997,
and for the period from September 2, 1993 (date of initial public offering)
through January 31, 1997, the average annual total returns were 5.15% and
4.82%, respectively, for Institutional Service Shares. For the one-year
period ended January 31, 1997, and for the period from October 6, 1994
(date of initial public offering) through January 31, 1997, the average
annual total returns were 5.26% and 4.67%, respectively, for Institutional
Capital Shares.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories based on total return, which assumes the reinvestment of
all income dividends and capital gains distributions, if any.
oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of
money market funds weekly. Donoghue's Money Market Insight
publication reports monthly and 12-month-to-date investment results
for the same money funds.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
O BANK RATE MONITOR(C) NATIONAL INDEX, Miami Beach, Florida,
published weekly, is an average of the interest rates of personal
money market deposit accounts at ten of the largest banks and
thrifts in each of the five largest Standard Metropolitan
Statistical Areas. If more than one rate is offered, the lowest rate
is used. Account minimums and compounding methods may vary.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Fund portfolio mangers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1996, Federated managed more than
$50.3 billion in assets across 50 money market funds, including 18
government, 11 prime and 21 municipal with assets approximating $28.0
billion, $12.8 billion and $9.5 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international and global portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3.5 trillion to the more than 6,000
funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with more than
1,600 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--we have 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any
other mutual fund distributor. Federated's service to financial
professionals and institutions has earned it high ratings in several
surveys performed by DALBAR, Inc. DALBAR is recognized as the industry
benchmark for service quality measurement. The marketing effort to these
firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
APPENDIX
STANDARD AND POOR'S RATINGS GROUP LONG-TERM DEBT RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
PLUS (+) or MINUS (-)The rating of "AA" may be modified by the addition of
a plus or minus sign to show relative standing within this rating category.
MOODY'S INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment some time in the
future.
BAA--Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.
Con. (---) - Municipal Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience,
(c) rentals which begin when facilities are completed, or (d) payments to
which some other limiting condition attaches. Parenthetical rating denotes
probable credit stature upon completion of construction or elimination of
basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in generic classification of
"Aa" in its corporate bond rating system. The modifier 1 indicates that
the company ranks in the higher end of its generic rating category, the
modifier 2 indicates a mid-range ranking, and the modifier 3 indicates that
the company ranks at the lower end of its generic rating category.
Those municipal bonds in the `Aa'' to ``B'' groups which Moody's believes
possess the strongest investment attributes are designated by the symbols
`Aa1,'' ``A1,'' `Baa1,'' ``Ba1,'' and `B1.''
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated F-
1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
PLUS (+) OR MINUS (-): Plus or minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the AAA category.
To provide more detailed indications of credit quality, the Fitch ratings
from and including "AA" or "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
DUFF & PHELPS CREDIT RATING CO. LONG-TERM DEBT RATINGS
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- --High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.
A+, A, A- --Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- --Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
THOMSON BANKWATCH LONG-TERM DEBT RATINGS
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long-term debt and
preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The
following summarizes the two highest rating categories used by Thomson
BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high
"AA" - This designation indicates a superior ability to repay principal
and interest on a timely basis with limited incremental risk versus issues
rated in the highest category.
"A" - This designation indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher
ratings.
PLUS (+) OR MINUS (-) -The ratings may include a plus or minus sign
designation which indicates where within the respective category the issue
is placed.
IBCA, INC. LONG-TERM DEBT RATINGS
IBCA assesses the investment quality of unsecured debt with an original
maturity of more than one year which is issued by bank holding companies
and their principal bank subsidiaries. The following summarizes the two
highest categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest
is substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest
is substantial. Adverse changes in business, economic or financial
conditions may increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business economic or financial conditions may
lead to increased investment risk.
IBCA may append a rating of plus (+) or minus (-) to a rating to denote
relative status within these rating categories.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
o Well established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2--Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded
as having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issues.
Fitch may also use the symbol "LOC" with its short-term ratings to indicate
that the rating is based upon a letter of credit issued by a commercial
bank.
DUFF & PHELPS CREDIT RATING CO. COMMERCIAL PAPER RATING DEFINITIONS
The two highest rating categories of Duff & Phelps for investment grade
commercial paper are `D-1'' and ``D-2.'' Duff & Phelps employs three
designations, `D-1+,'' ``D-1'' and `D-1-,'' within the highest rating
category. The following summarizes the two highest rating categories used
by Duff & Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental
protection factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors.
Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs
may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
THOMSON BANKWATCH COMMERCIAL PAPER RATING DEFINITIONS
Thomson BankWatch short-term ratings assess the likelihood of an untimely
payment of principal or interest of debt having a maturity of one year or
less. The following summarizes the two highest ratings used by Thomson
BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.
`TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high a for issues rated "TBW-1."
IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies
and their principal bank subsidiaries. The highest rating category or IBCA
for short-term debt is "A." IBCA employs two designations, "A1+" and "A1,"
within the highest rating category. The following summarizes the two
highest rating categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit feature, a
rating of "A1+" is assigned.
"A2" - Obligations are supported by a good capacity for timely repayment.
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL NOTE RATINGS
A Standard & Poor's rating reflects the liquidity factors and market access
risks unique to notes due in the three years or less. The following
summarizes the two highest rating categories used by Standard & Poor's
Corporation for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit strong capacity
to pay principal and interest. Those issues determined to possess a very
strong capacity to pay are given a plus (+) designation.
`SP-2'' - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade ("MIG"). Such ratings recognize
the differences between short-term credit risk and long-term risk. A
short-term rating may also be assigned on an issue having a demand feature.
Such ratings will be designated as "VMIG." The following summarizes the
two highest ratings used by Moody's Investors Service, Inc. for short-term
notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
Duff & Phelps and Fitch use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements. (Filed in Part A)
(b) Exhibits:
(1) (a)Copy of Declaration of Trust of the Registrant dated
November 16, 1992, as previously filed in the
Registration Statement is incorporated by reference to
Exhibit (1)(a) of Post-Effective Amendment No. 9;
(b)Amendment No. 1 to Declaration of Trust of
Registrant is incorporated by reference to Exhibit
(1)(b) of Post-Effective Amendment No. 9;
(c)Designation and establishment of Series is
incorporated by reference to Exhibit (1)(c) of Post-
Effective Amendment No. 9;
(iii)Form of Certificate pertaining to Classification
of Shares dated February 18, 1994, is incorporated by
reference to Exhibit (1)(d) of Post-Effective Amendment
No. 4;
(2) Amended and Restated By-Laws dated November 2, 1994,
are incorporated by reference to Exhibit (2)(a) of
Post-Effective Amendment No. 9;
(3) Not applicable;
(4) Specimen Share Certificate is incorporated by reference
to Exhibit (4) of Post-Effective Amendment No. 9;
(5) (a) Form of Investment Advisory Agreement dated
February 1, 1996, between Registrant and Lehman
Brothers Global Asset Management Inc. (`LBGAM''),
relating to each investment portfolio (collectively,
the `Funds'') of Registrant (10);
(b) Investment Advisory Agreement between Registrant
and Lehman Brothers Global Asset Management Inc.
(`LBGAM''), the Funds of Registrant is incorporated by
reference to Exhibit (5)(a) of Post-Effective Amendment
No. 9;
(c) Conformed copy of Investment Advisory Contract,
including Exhibit A, between Registrant and Federated
Management dated November 15, 1996 (11);
(6) (a)Distribution Agreement between Registrant and Lehman
Brother, a division of Shearson Lehman Brothers Inc.,
is incorporated by reference to Exhibit (6)(a) of Post-
Effective Amendment No. 9;
(b)Copy of Distributor's Contract of the Registrant
(11);
(c) The Registrant incorporates the conformed
copy of the specimen Mutual Funds Sales
and Service Agreement; Mutual Funds
Service Agreement; and Plan Trustee/
Mutual Funds Service Agreement from Item
24(b)(6) of the Cash Trust Series II
Registration Statement filed with the
Commission on July 24, 1995. (File Number
33-38550 and 811-2669);
(7) Not applicable;
(8) (a) Custody Agreement between Registrant and Boston
Safe Deposit and Trust Company is incorporated by
reference to Exhibit (8)(a) of Post-Effective Amendment
No. 9;
(b) Form of Amendment No. 1 to the custody Agreement
dated November 10, 1993, between Registrant and Boston
Safe Deposit and Trust Company is incorporated by
reference to Exhibit (8)(b) of Post-Effective Amendment
No. 6;
(c) Form of Amendment No. 2 to the custody Agreement
dated January 27, 1994, between Registrant and Boston
Safe Deposit and Trust Company is incorporated by
reference to Exhibit (8)(c) of Post-Effective Amendment
No. 6;
(9) ................(a) Administration Agreement between
Registrant and The Boston Advisors, Inc. is
incorporated by reference to Exhibit (9)(a) of Post-
Effective Amendment No. 9;
(b) Assignment of Administration Agreement dated April
21, 1994, between Registrant and The Boston Advisors,
Inc. to The Shareholder Services Group, Inc. is
incorporated by reference to Exhibit (9)(b) of Post-
Effective Amendment No. 5;
(c) Transfer Agency Agreement and Registrar Agreement
dated February 1, 1993, between Registrant and The
Shareholder Services Group, Inc. is incorporated by
reference to Exhibit (9)(a) of Post-Effective Amendment
No. 9;
(d) Amendment No. 1 to the Transfer Agency Agreement
dated November 10, 1993, between Registrant and The
Shareholder Services Group, Inc. is incorporated by
reference to Exhibit (9)(d) of Post-Effective Amendment
No. 6;
(e) Amendment No. 2 to the Transfer Agency Agreement
dated January 27, 1994, between Registrant and The
Shareholder Services Group, Inc. is incorporated by
reference to Exhibit (9)(e) of Post-Effective Amendment
No. 6;
(10) Not Applicable;
(11) (a) Power of Attorney for James A. Carbone (10);
(b)Powers of Attorney for Charles F. Barber, Burt N.
Dorsett, Edward J. Kaier, and S. Donald Wiley are
incorporated by reference to Exhibit 11(a) to Post-
Effective Amendment No. 10;
(c)Conformed copy of Consent of the Independent
Auditors; +
(d) Consent of Counsel (10);
(12) Not applicable;
(13) Purchase Agreement between Registrant and Shearson
Lehman Brothers Inc. is incorporated by reference to
Exhibit (13)(a) of Post-Effective Amendment No. 9;
(14) Not applicable;
(15) (a) Shareholder Services Plan pursuant to Rule 12b-1 is
incorporated by reference to Exhibit (15)(a) of Post-
Effective Amendment No. 9;
(b) Form of Shareholder Servicing Agreement for Class E
Shares (10);
(c) Form of Shareholder Servicing Agreement for Class B
Shares is incorporated by reference to Exhibit (15)(c)
of Post-Effective Amendment No. 9;
(d) Form of Shareholder Servicing Agreement for Class C
Shares is incorporated by reference to Exhibit (15)(d)
of Post-Effective Amendment No. 9;
(16) Performance Data is incorporated by reference to
Exhibit 916) of Post-Effective Amendment No. 10;
(17) Financial Data Schedules;+
(18) (a) Amended and Restated Multi-Class Plan dated
November 1, 1995 (10);
(b) Multi-Class Plan dated May 11, 1995, is
incorporated by reference to Exhibit (15)(k) of Post-
Effective Amendment No. 10;
(c) The Registrant hereby incorporates the conformed
copy of the specimen Multiple Class Plan from Item
24(b)(18)of the World Investment Series, Inc.
Registration Statement on Form N-1A, filed with the
Commission on January 26, 1996. (File Nos. 33-52149 and
811-07141);
(19) Power of Attorney (11).
+ All exhibits have been filed electronically.
10. Response is incorporated by reference to Registrant's Registration
Statement on Form N-1A filed March 29, 1996. (File No. 33-55034).
11. Response is incorporated by reference to Registrant's Registration
Statement on Form N-1A filed January 27, 1997. (File No. 33-55034).
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of March 10, 1997
Shares of Beneficial Interest
Prime Cash Obligations Fund
Institutional Shares 877
Institutional Service Shares 28
Institutional Capital Shares 12
Prime Value Obligations Fund
Institutional Shares 667
Institutional Service Shares 11
Institutional Capital Shares 7
Municipal Obligations Fund
Institutional Shares 101
Institutional Service Shares 7
Institutional Capital Shares 9
Item 27. Indemnification: (10)
Item 28. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment adviser,
see the section entitled "FUND ADMINISTRATION''in Part A. The
affiliations with the Registrant of four of the Trustees and one of
the Officers of the investment adviser are included in Part B of
this Registration Statement under "INVESTMENT ADVISORY SERVICES."
The remaining Trustee of the investment adviser, his position with
the investment adviser, and, in parentheses, his principal
occupation is: Mark D. Olson (Partner, Wilson, Halbrook & Bayard),
107 W. Market Street, Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are: William D.
Dawson,III, Henry A. Frantzen, J. Thomas Madden, and Mark L.
Mallon, Executive Vice Presidents; Peter R. Anderson, Drew J.
Collins, Jonathan C. Conley, Deborah A. Cunningham, Mark E.
Durbiano, J. Alan Minteer, and Mary Jo Ochson, Senior Vice
Presidents; J. Scott Albrecht, Joseph M. Balestrino, Randall S.
Bauer, David F. Belton, Christine A. Bosio, David A. Briggs,
Kenneth J. Cody, Alexandre de Bethmann, Linda A. Duessel, Michael
J. Donnelly, Michael P. Donnelly, Kathleen M. Foody-Malus, Thomas
M. Franks; Edward C. Gonzales, James E. Grefenstette, Susan R.
Hill, Stephen A. Keen, Robert M. Kowit, Mark S. Kopinski, Jeff A.
Kozemchak, Marian R. Marinack, Sandra L. McInerney, Susan M. Nason,
Robert J. Ostrowski, Charles A. Ritter, Frank Semack, Aash M. Shah,
Scott B. Schermerhorn, William F. Stotz, Tracy P.Stouffer, Edward
J. Tiedge, Paige M. Wilhelm, Jolanta M. Wysocka, Vice Presidents;
Todd A. Abraham, Stafanie L. Bachhuber, Michael W. Casey, William
R. Jamison, Constantine Kartsonsas, Robert M. March, Joseph M.
Natoli, Keith J. Sabol, and Michael W. Sirianni, Assistant Vice
Presidents; Stephen A. Keen, Secretary; Thomas R. Donahue,
Treasurer and Assistant Secretary; Richard B. Fisher, Assistant
Secretary and Assistant Treasurer; Christine I. McGonigle,
Assistant Secretary. The business address of each of the Officers
of the investment adviser is Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. These individuals are also officers of a
majority of the investment advisers to the Funds listed in Part B
of this Registration Statement.
Item 29. Principal Underwriters:
(a) 111 Corcoran Funds; Arrow Funds; Automated Government Money Trust;
BayFunds; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones &
Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government
Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund;
Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund
for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated Government Trust; Federated
High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Insurance Series; Federated Investment
Portfolios; Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund,
Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Independence One Mutual Funds;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty U.S. Government Money Market
Trust; Liquid Cash Trust; Managed Series Trust; Marshall Funds, Inc.; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds;
RIMCO Monument Funds; SouthTrust Vulcan Funds; Star Funds; Targeted
Duration Trust; Tax-Free Instruments Trust; The Biltmore Funds; The
Biltmore Municipal Funds; The Monitor Funds; The Planters Funds; The
Starburst Funds; The Starburst Funds II; The Virtus Funds; Tower Mutual
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Vision Group of Funds, Inc.; Wesmark Funds; and World
Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive ViceExecutive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.
Thomas R. Donahue Director, Assistant Secretary,
Federated Investors Tower Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dale R. Browne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard Suder Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of
the following locations:
Registrant...............Federated Investors Tower
.........................Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
Transfer Agent, Dividend.Pittsburgh, PA 15222-3779
Disbursing Agent and
Portfolio Recordkeeper
Federated Management.....Federated Investors Tower
Investment Adviser.......Pittsburgh, PA 15222-3779
State Street Bank and....P.O. Box 8600
Trust Company............Boston, Massachusetts 02266
Custodian
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to removal of Trustees
and the calling of special shareholder meetings by shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, MONEY MARKET OBLIGATIONS
TRUST II, certifies that it meets all the requirements for effectiveness of
this Registration Statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on
the 25th day of March, 1997.
MONEY MARKET OBLIGATIONS TRUST II
BY: /s/ J. Crilley Kelly
J. Crilley Kelly, Assistant Secretary
Attorney in Fact for John F. Donahue
March 25, 1997
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By:/s/ J. Crilley Kelly
J. Crilley Kelly Attorney In Fact March 25, 1997
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
J. Christopher Donahue* President and Trustee
John W. McGonigle* Treasurer and Executive Vice
President
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
Gregor F. Meyer* Trustee
John E. Murray, Jr.* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
Exhibit (11) under N-1A
Exhibit 23 under Item 601/Reg SK
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions `Financial
Highlights''and "Independent Auditors" and to the use of our report dated
March 14, 1997, in Post-Effective Amendment Number 14 to the Registration
Statement (Form N-1A Number 33-55034) and the related Prospectuses of MONEY
MARKET OBLIGATIONS TRUST II, formerly a Portfolio of Lehman Brothers
Institutional Funds Group Trust (comprising respectively, Prime Value
Obligations Fund, Prime Cash Obligations Fund, and Municipal Obligations
Fund, formerly Prime Value Money Market Fund, Prime Money Market Fund and
Municipal Money Market Fund, respectively) dated March 31, 1997.
By:/s/ERNST & YOUNG LLP
Ernst & Young LLP
Pittsburgh, Pennsylvania
March 24, 1997
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<S> <C>
<ARTICLE> 6
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<NUMBER> 081
<NAME> Money Market Obligations Trust II
Municipal Obligations Fund
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<FISCAL-YEAR-END> Jan-31-1997
<PERIOD-END> Jan-31-1997
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<EXPENSES-NET> 332,250
<NET-INVESTMENT-INCOME> 6,313,403
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<NET-CHANGE-FROM-OPS> 6,281,090
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,272,384
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 3,310,319,398
<NUMBER-OF-SHARES-REDEEMED> 3,287,154,333
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 363,554
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 729,817
<AVERAGE-NET-ASSETS> 181,776,869
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.040
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
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<NUMBER> 082
<NAME> Money Market Obligations Trust II
Municipal Obligations Fund
Institutional Service Shares
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Jan-31-1997
<PERIOD-END> Jan-31-1997
<INVESTMENTS-AT-COST> 161,405,316
<INVESTMENTS-AT-VALUE> 161,405,316
<RECEIVABLES> 12,107,829
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 179,216,744
<PAYABLE-FOR-SECURITIES> 3,005,760
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,649,206
<TOTAL-LIABILITIES> 19,654,966
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 159,569,762
<SHARES-COMMON-STOCK> 299
<SHARES-COMMON-PRIOR> 100
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 299
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,645,653
<OTHER-INCOME> 0
<EXPENSES-NET> 332,250
<NET-INVESTMENT-INCOME> 6,313,403
<REALIZED-GAINS-CURRENT> (32,313)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,281,090
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 300
<NUMBER-OF-SHARES-REDEEMED> 102
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 22,472,471
<ACCUMULATED-NII-PRIOR> 24,329
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 363,554
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 729,817
<AVERAGE-NET-ASSETS> 181,776,869
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> 0.000
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<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 083
<NAME> Money Market Obligations Trust II
Municipal Obligations Fund
Institutional Capital Shares
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Jan-31-1997
<PERIOD-END> Jan-31-1997
<INVESTMENTS-AT-COST> 161,405,316
<INVESTMENTS-AT-VALUE> 161,405,316
<RECEIVABLES> 12,107,829
<ASSETS-OTHER> 5,703,599
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 179,216,744
<PAYABLE-FOR-SECURITIES> 3,005,760
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,649,206
<TOTAL-LIABILITIES> 19,654,966
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 159,569,762
<SHARES-COMMON-STOCK> 299
<SHARES-COMMON-PRIOR> 100
<ACCUMULATED-NII-CURRENT> 24,329
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (32,313)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 299
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,645,653
<OTHER-INCOME> 0
<EXPENSES-NET> 332,250
<NET-INVESTMENT-INCOME> 6,313,403
<REALIZED-GAINS-CURRENT> (32,313)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,281,090
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,848
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,039,630
<NUMBER-OF-SHARES-REDEEMED> 5,043,323
<SHARES-REINVESTED> 3,892
<NET-CHANGE-IN-ASSETS> 22,472,471
<ACCUMULATED-NII-PRIOR> 24,329
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 729,817
<AVERAGE-NET-ASSETS> 181,776,869
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
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<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> Money Market Obligations Trust II
Prime Cash Obligations Fund
Institutional Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jan-31-1997
<PERIOD-END> Jan-31-1997
<INVESTMENTS-AT-COST> 2,032,075,314
<INVESTMENTS-AT-VALUE> 2,032,075,314
<RECEIVABLES> 7,779,306
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,039,854,620
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,270,844
<TOTAL-LIABILITIES> 5,270,844
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,035,691,749
<SHARES-COMMON-STOCK> 1,572,912,362
<SHARES-COMMON-PRIOR> 3,919,329,687
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,107,973)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,572,912,362
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 155,374,916
<OTHER-INCOME> 0
<EXPENSES-NET> 6,011,033
<NET-INVESTMENT-INCOME> 149,363,883
<REALIZED-GAINS-CURRENT> (930,171)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 148,433,712
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 131,246,169
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 40,032,957,975
<NUMBER-OF-SHARES-REDEEMED> 42,448,889,011
<SHARES-REINVESTED> 69,513,711
<NET-CHANGE-IN-ASSETS> (2,234,142,688)
<ACCUMULATED-NII-PRIOR> 19,757
<ACCUMULATED-GAINS-PRIOR> (177,802)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,725,774
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,069,508
<AVERAGE-NET-ASSETS> 2,851,035,837
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
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<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> Money Market Obligations Trust II
Prime Cash Obligations Fund
Institutional Service Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jan-31-1997
<PERIOD-END> Jan-31-1997
<INVESTMENTS-AT-COST> 2,032,075,314
<INVESTMENTS-AT-VALUE> 2,032,075,314
<RECEIVABLES> 7,779,306
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,039,854,620
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,270,844
<TOTAL-LIABILITIES> 5,270,844
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,035,691,749
<SHARES-COMMON-STOCK> 412,761,858
<SHARES-COMMON-PRIOR> 324,474,411
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,107,973)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 412,761,858
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 155,374,916
<OTHER-INCOME> 0
<EXPENSES-NET> 6,011,033
<NET-INVESTMENT-INCOME> 149,363,883
<REALIZED-GAINS-CURRENT> (930,171)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 148,433,712
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 16,786,956
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 3,521,627,120
<NUMBER-OF-SHARES-REDEEMED> 3,433,416,889
<SHARES-REINVESTED> 64,147
<NET-CHANGE-IN-ASSETS> (2,234,142,688)
<ACCUMULATED-NII-PRIOR> 19,757
<ACCUMULATED-GAINS-PRIOR> (177,802)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,725,774
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,069,508
<AVERAGE-NET-ASSETS> 2,851,035,837
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
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<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> Money Market Obligations Trust II
Prime Cash Obligations Fund
Institutional Capital Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jan-31-1997
<PERIOD-END> Jan-31-1997
<INVESTMENTS-AT-COST> 2,032,075,314
<INVESTMENTS-AT-VALUE> 2,032,075,314
<RECEIVABLES> 7,779,306
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,039,854,620
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,270,844
<TOTAL-LIABILITIES> 5,270,844
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,035,691,749
<SHARES-COMMON-STOCK> 48,909,556
<SHARES-COMMON-PRIOR> 11,811,421
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,107,973)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 48,909,556
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 155,374,916
<OTHER-INCOME> 0
<EXPENSES-NET> 6,011,033
<NET-INVESTMENT-INCOME> 149,363,883
<REALIZED-GAINS-CURRENT> (930,171)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 148,433,712
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 861,359
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 730,852,128
<NUMBER-OF-SHARES-REDEEMED> 694,511,244
<SHARES-REINVESTED> 756,768
<NET-CHANGE-IN-ASSETS> (2,234,142,688)
<ACCUMULATED-NII-PRIOR> 19,757
<ACCUMULATED-GAINS-PRIOR> (177,802)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,725,774
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,069,508
<AVERAGE-NET-ASSETS> 2,851,035,837
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> Prime Value Obligations Fund
Institutional Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jan-31-1997
<PERIOD-END> Jan-31-1997
<INVESTMENTS-AT-COST> 426,082,627
<INVESTMENTS-AT-VALUE> 426,082,627
<RECEIVABLES> 12,897,428
<ASSETS-OTHER> 17,538,737
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 456,518,792
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,103,520
<TOTAL-LIABILITIES> 30,103,520
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 427,745,650
<SHARES-COMMON-STOCK> 387,994,460
<SHARES-COMMON-PRIOR> 2,754,626,240
<ACCUMULATED-NII-CURRENT> 1,576
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,331,954)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 387,994,460
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 59,108,397
<OTHER-INCOME> 0
<EXPENSES-NET> 1,809,784
<NET-INVESTMENT-INCOME> 57,298,613
<REALIZED-GAINS-CURRENT> (1,090,952)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 56,207,661
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 56,210,350
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,036,179,355
<NUMBER-OF-SHARES-REDEEMED> 21,428,886,085
<SHARES-REINVESTED> 26,074,950
<NET-CHANGE-IN-ASSETS> (2,348,347,156)
<ACCUMULATED-NII-PRIOR> 1,576
<ACCUMULATED-GAINS-PRIOR> (241,002)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,168,544
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,489,312
<AVERAGE-NET-ASSETS> 1,084,271,004
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
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<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> Prime Value Obligations Fund
Institutional Service Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jan-31-1997
<PERIOD-END> Jan-31-1997
<INVESTMENTS-AT-COST> 426,082,627
<INVESTMENTS-AT-VALUE> 426,082,627
<RECEIVABLES> 12,897,428
<ASSETS-OTHER> 17,538,737
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 456,518,792
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,103,520
<TOTAL-LIABILITIES> 30,103,520
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 427,745,650
<SHARES-COMMON-STOCK> 18,414,808
<SHARES-COMMON-PRIOR> 20,372,215
<ACCUMULATED-NII-CURRENT> 1,576
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,331,954)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 18,414,808
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 59,108,397
<OTHER-INCOME> 0
<EXPENSES-NET> 1,809,784
<NET-INVESTMENT-INCOME> 57,298,613
<REALIZED-GAINS-CURRENT> (1,090,952)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 56,207,661
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,082,127
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 305,004,232
<NUMBER-OF-SHARES-REDEEMED> 306,966,945
<SHARES-REINVESTED> 2,107
<NET-CHANGE-IN-ASSETS> (2,348,347,156)
<ACCUMULATED-NII-PRIOR> 1,576
<ACCUMULATED-GAINS-PRIOR> (241,002)
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 2,168,544
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,489,312
<AVERAGE-NET-ASSETS> 1,084,271,004
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
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<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.41
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> Prime Value Obligations Fund
Institutional Capital Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jan-31-1997
<PERIOD-END> Jan-31-1997
<INVESTMENTS-AT-COST> 426,082,627
<INVESTMENTS-AT-VALUE> 426,082,627
<RECEIVABLES> 12,897,428
<ASSETS-OTHER> 17,538,737
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<TOTAL-ASSETS> 456,518,792
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<OTHER-ITEMS-LIABILITIES> 30,103,520
<TOTAL-LIABILITIES> 30,103,520
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 427,745,650
<SHARES-COMMON-STOCK> 20,006,004
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,576
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,331,954)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 20,006,004
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 59,108,397
<OTHER-INCOME> 0
<EXPENSES-NET> 1,809,784
<NET-INVESTMENT-INCOME> 57,298,613
<REALIZED-GAINS-CURRENT> (1,090,952)
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<NET-CHANGE-FROM-OPS> 56,207,661
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,000,186
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<SHARES-REINVESTED> 5,718
<NET-CHANGE-IN-ASSETS> (2,348,347,156)
<ACCUMULATED-NII-PRIOR> 1,576
<ACCUMULATED-GAINS-PRIOR> (241,002)
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<INTEREST-EXPENSE> 0
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<EXPENSE-RATIO> 0.28
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<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
