Municipal Obligations Fund
(A Portfolio of Money Market Obligations Trust II)
Institutional Shares
PROSPECTUS
The Institutional Shares of Municipal Obligations Fund (the "Fund") offered
by this prospectus represent interests in a portfolio of Money Market
Obligations Trust II (the "Trust"), an open-end management investment
company (a mutual fund). The Fund invests in short-term municipal securities
to provide current income exempt from federal regular income tax consistent
with stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO
SO.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated March
31, 1998, 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, 1998
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
Municipal Securities 5
Investment Risks 5
Investment Limitations 6
Fund Information 6
Management of the Fund 6
Distribution of Institutional Shares 7
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares by Wire 8
Purchasing Shares by Check 8
Invest-by-Phone 8
How to Redeem Shares 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 8
Account and Share Information 9
Dividends 9
Capital Gains 9
Account Activity 9
Accounts with Low Balances 9
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 10
Other Classes of Shares 10
Performance Information 10
Financial Highlights--Institutional Capital Shares 11
Financial Highlights--Institutional Service Shares 12
Financial Statements 13
Report of Ernst & Young LLP, Independent Auditors 26
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
Shareholder Transaction Expenses
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested (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 original purchase price or redemption None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
<S> <C>
Management Fee (after waiver)(1) 0.00%
12b-1 Fee None
Total Other Expenses (after expense reimbursement) 0.18%
Shareholder Services Fee (after waiver)(2) 0.00%
Total Operating Expenses(3) 0.18%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver 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 in January 31, 1999.
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 Institutional Shares operating expenses would have been 0.41%
absent the voluntary waiver of the management fee and the voluntary
reimbursement of certain other operating expenses.
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.
EXAMPLE
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.
1 Year $ 2
3 Years $ 6
5 Years $10
10 Years $23
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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 26.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994(a)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.04 0.04 0.04 0.03 0.02
LESS DISTRIBUTIONS
Distributions from net investment income (0.04) (0.04) (0.04) (0.03) (0.02)
Distributions from net realized gains -- -- (0.00)** -- --
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.68% 3.56% 4.03% 3.04% 2.46%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.18% 0.18% 0.18% 0.15% 0.13%*
Net investment income 3.57% 3.48% 3.95% 2.86% 2.53%*
Expense waiver/reimbursement(c) 0.23% 0.20% 0.12% 0.16% 0.38%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $217,838 $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 (the "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 municipal securities. The Fund may not be a suitable
investment for retirement plans because it invests in 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 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 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 work-ing 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 creditenhanced 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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies
as an efficient means of carrying out its investment policies. It should be
noted that investment companies incur certain expenses, such as management
fees, and, therefore, any investment by the Fund in shares of other
investment companies may be subject to such duplicate expenses.
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 $120 billion invested across
more than 300 funds under management and/or administration by its
subsidiaries, as of December 31, 1997, 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
approximately 4,000 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.
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.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
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, Martin
Luther King, Jr. 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.
ACCOUNT ACTIVITY
Shareholders will receive periodic statements reporting all account
activity, including dividends paid. The Fund will not issue share
certificates.
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 2, 1998, Compass Bank, Birmingham, Alabama owned 36.31% 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
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 and
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,
tax-equivalent 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. The tax-equivalent yield is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that
would have to be earned to equal the Fund's tax-exempt yield, assuming a
specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the 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.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL CAPITAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1998 1997(a)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.04 0.03
LESS DISTRIBUTIONS
Distributions from net investment income (0.04) (0.03)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
TOTAL RETURN(B) 3.56% 3.42%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.30% 0.30%
Net investment income 3.53% 2.90%
Expense waiver/reimbursement(c) 0.38% 0.35%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $17,701 $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)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1998 1997(a)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
TOTAL RETURN(B) 3.43% 3.31%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.43% 0.43%
Net investment income 3.48% 3.08%
Expense waiver/reimbursement(c) 0.23% 0.21%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $41,216 $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)
PORTFOLIO OF INVESTMENTS
MUNICIPAL OBLIGATIONS FUND
JANUARY 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--96.7%
ALABAMA--3.3%
$ 3,500,000 Alabama State IDA, Revenue Bonds Weekly VRDNs (Southern Bag $ 3,500,000
Corporation, Ltd.)/ (SouthTrust Bank of Alabama, Birmingham
LOC)
5,500,000 Phoenix City, AL IDB, Environmental Improvement Revenue Bonds 5,500,000
(Series 1990A) Daily VRDNs (Mead Coated Board)/(Sumitomo Bank
Ltd., Osaka LOC)
TOTAL 9,000,000
ARIZONA--1.6%
4,495,000 Pima County, AZ IDA, Single Family Mortgage (PA-159) Weekly 4,495,000
VRDNs (GNMA COL)/(Merrill Lynch Capital Services, Inc. LIQ)
ARKANSAS--1.3%
1,000,000 Arkadelphia, AR, Industrial Development Revenue Bonds (Series 1,000,000
1996) Weekly VRDNs (Siplast, Inc.)/(Den Danske Bank A/S LOC)
2,700,000 Arkansas Development Finance Authority, Single Family 2,700,000
Mortgage Revenue Bonds (1997 Series D), 4.05% TOBs, Mandatory
Tender 7/1/1998
TOTAL 3,700,000
COLORADO--2.5%
7,000,000 Denver (City & County), CO, Airport System Subordinate 7,000,000
Revenue Bonds (Series 1997A), 3.60% CP (Bayerische Landesbank
Girozentrale LOC), Mandatory Tender 5/20/1998
CONNECTICUT--1.5%
4,115,000 Connecticut State HFA, (PT-81) Weekly VRDNs (Rabobank 4,115,000
Nederland, Utrecht LIQ)
DISTRICT OF COLUMBIA--0.9%
2,500,000 District of Columbia Housing Finance Agency, (Series 1997C), 2,500,000
4.05% TOBs (AIG Funding, Inc. INV), Mandatory Tender 9/1/1998
GEORGIA--10.9%
1,300,000 Bowdon, GA Development Authority Weekly VRDNs (Trintex 1,300,000
Corp.)/(First Union National Bank, Charlotte, NC LOC)
2,215,000 Burke County, GA Development Authority, (Series 1996), 3.90% 2,215,000
TOBs (Oglethorpe Power Corp. Vogtle Project), Optional Tender
4/30/1998
4,305,000 Burke County, GA Development Authority, (Series 1997C), 3.90% 4,305,000
TOBs (Oglethorpe Power Corp. Vogtle Project), Optional Tender
5/28/1998
8,000,000 Clayton County, GA Development Authority, (Series 1994) 8,000,000
Weekly VRDNs (Lear Seating Corp.)/ (Chase Manhattan Bank
N.A., New York LOC)
1,440,000 Franklin County, GA Industrial Building Authority, (Series 1,440,000
1995) Weekly VRDNs (Bosal Industries, Inc.)/(ABN AMRO Bank
N.V., Amsterdam LOC)
3,800,000 Gwinnett County, GA IDA Daily VRDNs (Volvo AB)/(Union Bank of 3,800,000
Switzerland, Zurich LOC)
</TABLE>
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
GEORGIA--CONTINUED
$ 2,000,000 Jackson County, GA IDA, (Series 1996) Weekly VRDNs (Buhler $ 2,000,000
Quality Yarns Corp. Project)/ (Union Bank of Switzerland,
Zurich LOC)
3,630,000 LaGrange, GA Housing Authority, Multifamily Refunding Revenue 3,630,000
Bonds (Series 1997) Weekly VRDNs (Greenwood Park)/(Columbus
Bank and Trust Co., GA LOC)
3,465,000 LaGrange, GA Housing Authority, Multifamily Refunding Revenue 3,465,000
Bonds (Series 1997) Weekly VRDNs (Meadow Terrace)/(Columbus
Bank and Trust Co., GA LOC)
TOTAL 30,155,000
ILLINOIS--9.0%
3,000,000 Chicago, IL, Chicago Midway Airport Special Facility Revenue 3,000,000
Bonds (Series 1998), 3.65% TOBs (Signature Flight Support
Corp.)/(Bayerische Landesbank Girozentrale LOC), Optional
Tender 6/1/1998
3,000,000 Chicago, IL, Gas Supply Revenue Bonds (1993 Series B), 3.90% 3,000,000
TOBs (Peoples Gas Light & Coke Company), Optional Tender
12/1/1998
1,800,000 Illinois Development Finance Authority, Industrial 1,800,000
Development Revenue Bonds (Series 1996) Weekly VRDNs (Bimba
Manufacturing Co.)/(Harris Trust & Savings Bank, Chicago LOC)
5,000,000 Illinois Development Finance Authority, PCR, (1997 Series A) 5,000,000
Weekly VRDNs (Illinois Power Co.)/(MBIA INS)/(First National
Bank of Chicago LIQ)
4,010,000 (b)Illinois Development Finance Authority, PT-131 (Series 4,010,000
1995A), 3.95% TOBs (Catholic Health Partners
Services)/(Connie Lee INS)/(Credit Suisse First Boston LIQ),
Mandatory Tender 10/1/1998
1,000,000 Illinois Development Finance Authority, Sewerage Facility 1,000,000
Revenue Bonds (Series 1993) Weekly VRDNs (The NutraSweet
Company)/(Monsanto Co. GTD)
4,000,000 Illinois Housing Development Authority, (1997 Subseries B-2), 4,000,000
4.15% TOBs, Mandatory Tender 7/7/1998
2,470,000 Rockford, IL, EDRB, 4.25% TOBs (Independence Village of 2,470,000
Rockford)/(Banque Paribas, Paris LOC), Optional Tender
12/1/1998
600,000 Southwestern Illinois Development Authority, (Series 1991) 600,000
Weekly VRDNs (Robinson Steel Co.)/(American National Bank,
Chicago LOC)
TOTAL 24,880,000
INDIANA--7.1%
3,800,000 Elkhart County, IN, (Series 1997) Weekly VRDNs (Hart Housing 3,800,000
Group, Inc.)/(KeyBank, N.A. LOC)
3,500,000 Gibson County, IN, Pollution Control Revenue Bonds (Series 3,500,000
1997) Weekly VRDNs (Toyota Motor Manufacturing, Indiana,
Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC)
6,500,000 Jeffersonville, IN, (Series 1997A) Weekly VRDNs (Wayne Steel, 6,500,000
Inc.)/(Bank One, Ohio, N.A. LOC)
1,785,000 Richmond, IN, Economic Development Revenue Bonds (Series 1,785,000
1996) Weekly VRDNs (Holland Colors Americas, Inc.
Project)/(Bank One, Indianapolis, N.A. LOC)
4,000,000 Rushville, IN, (Series 1996) Weekly VRDNs (Fujitsu Ten Corp. 4,000,000
of America)/(Bank of Tokyo- Mitsubishi Ltd. LOC)
TOTAL 19,585,000
</TABLE>
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
KENTUCKY--0.4%
$ 1,000,000 Graves County, KY, School Building Revenue Bonds (Series $ 1,000,000
1988) Weekly VRDNs (Seaboard Farms Project)/(Bank of New
York, New York LOC)
LOUISIANA--1.9%
5,385,000 Louisiana PFA, (Series 1998), 3.80% Bonds (University of New 5,385,000
Orleans Research & Technology Foundation)/(AMBAC INS),
1/1/1999
MAINE--1.4%
4,000,000 Jay, ME, Solid Waste Disposal Revenue Bonds, 4.20% TOBs 4,000,000
(International Paper Co.), Optional Tender 6/1/1998
MARYLAND--1.4%
2,600,000 Maryland State Community Development Administration, (Series 2,600,000
1990A) Weekly VRDNs (College Estates)/(First National Bank of
Maryland, Baltimore LOC)
1,400,000 Montgomery County, MD Weekly VRDNs (Information Systems and 1,400,000
Networks Corp.)/(PNC Bank, N.A. LOC)
TOTAL 4,000,000
MASSACHUSETTS--0.8%
2,250,000 Weymouth, MA, 4.25% BANs, 11/5/1998 2,253,774
MINNESOTA--1.3%
1,600,000 Blaine, MN, (Series 1997) Weekly VRDNs (Plastic Enterprises, 1,600,000
Inc.)/(Norwest Bank Minnesota, N.A. LOC)
2,000,000 White Bear Lake, MN City of, (Series 1997), 4.5475% TOBs 2,000,000
(Century Townhomes)/ (Westdeutsche Landesbank Girozentrale
INV), Mandatory Tender 6/1/1998
TOTAL 3,600,000
MISSISSIPPI--0.4%
1,168,000 Greenville, MS IDA Weekly VRDNs (Mebane Packaging 1,168,000
Corp.)/(First Union National Bank, Charlotte, NC LOC)
MISSOURI--0.4%
1,000,000 St. Louis, MO IDA, (Series 1997) Weekly VRDNs (Cee Kay 1,000,000
Supply)/(Commerce Bank, Kansas City, N.A. LOC)
NEBRASKA--1.0%
2,850,000 Nebraska Investment Finance Authority, (Series 1997) Weekly 2,850,000
VRDNs (Transcrypt International, Inc.)/(Norwest Bank
Minnesota, N.A. LOC)
NEVADA--2.9%
3,500,000 Nevada Housing Division, Multi-Unit Housing Revenue Bonds 3,500,000
(Series 1996A) Weekly VRDNs (Oakmont at Flamingo Road)/(ABN
AMRO Bank N.V., Amsterdam LOC)
3,800,000 Nevada Housing Division, Multi-Unit Housing Revenue Bonds 3,800,000
(Series 1996A) Weekly VRDNs (Oakmont at Fort Apache
Road)/(ABN AMRO Bank N.V., Amsterdam LOC)
</TABLE>
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
NEVADA--CONTINUED
$ 650,000 Nevada State Department of Community & Industrial Development $ 650,000
Weekly VRDNs (Kinplex Company Project)/(Credit Commercial De
France, Paris LOC)
TOTAL 7,950,000
NEW HAMPSHIRE--1.8%
5,100,000 New Hampshire Business Finance Authority, PCR Bonds (Series 5,100,000
A), 3.70% CP (New England Power Co.), Mandatory Tender
5/1/1998
NEW JERSEY--0.9%
2,515,374 Camden County, NJ, (Series 1997A), 4.00% BANs, 2/10/1998 2,515,493
NEW YORK--4.8%
4,215,000 New York City, NY, UT GO, 4.25% Bonds, 2/1/1998 4,215,000
6,000,000 Niagara County, NY IDA, Solid Waste Disposal Facility Revenue 6,000,000
bonds (Series 1996D) Weekly VRDNs (American Ref-Fuel
Co.)/(Wachovia Bank of NC, N.A., Winston-Salem LOC)
3,000,000 Sodus Central School District, NY, 4.00% BANs, 2/4/1998 3,000,047
TOTAL 13,215,047
NORTH CAROLINA--5.4%
6,000,000 Person County, NC Industrial Facilities & Pollution Control 6,000,000
Financing Authority Daily VRDNs (Carolina Power & Light
Co.)/(Fuji Bank, Ltd., Tokyo LOC)
6,630,000 Wake County, NC Industrial Facilities & PCFA, (Series 1990A), 6,630,000
4.00% CP (Carolina Power & Light Co.)/(Fuji Bank, Ltd., Tokyo
LOC), Mandatory Tender 2/17/1998
2,300,000 Wake County, NC Industrial Facilities & PCFA, (Series 1990A), 2,300,000
4.00% CP (Carolina Power & Light Co.)/(Fuji Bank, Ltd., Tokyo
LOC), Mandatory Tender 2/25/1998
TOTAL 14,930,000
OHIO--1.4%
4,000,000 Brookville, OH, (Series 1988) Weekly VRDNs (Green 4,000,000
Tokai)/(Bank of Tokyo-Mitsubishi Ltd. LOC)
OKLAHOMA--0.4%
1,145,000 Tulsa, OK International Airport, Variable Rate Certificates 1,145,000
(Series 1997 B-1) Weekly VRDNs (MBIA INS)/(Bank of America NT
and SA, San Francisco LIQ)
OREGON--0.6%
755,000 Oregon State, Economic Development Revenue Bonds (Series 755,000
1988C) Weekly VRDNs (Jepco Development, Inc.)/(Wells Fargo
Bank, N.A. LOC)
825,000 Oregon State, Economic Development Revenue Bonds 825,000
(Series1988B) Weekly VRDNs (Domaine Drouhin Oregon,
Inc.)/(Wells Fargo Bank, N.A. LOC)
TOTAL 1,580,000
</TABLE>
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
PENNSYLVANIA--1.3%
$ 3,000,000 Clinton County, PA IDA, Solid Waste Disposal Revenue Bonds $ 3,000,000
(Series 1992A), 3.95% TOBs (International Paper Co.),
Optional Tender 1/15/1999
500,000 Pennsylvania State Higher Education Assistance Agency, 500,000
Student Loan Adjustable Rate Revenue Bonds (Series 1997A)
Weekly VRDNs (Student Loan Marketing Association LOC)
TOTAL 3,500,000
SOUTH CAROLINA--4.3%
4,500,000 Dorchester County, SC, 4.25% TANs, 4/15/1998 4,503,063
550,000 South Carolina Job Development Authority, (Series 1987) 550,000
Weekly VRDNs (Jewish Community Center)/(Bank of
Tokyo-Mitsubishi Ltd. LOC)
250,000 South Carolina Job Development Authority, (Series 1988A) 250,000
Weekly VRDNs (Kent Manufacturing Co.)/(Credit Commercial De
France, Paris LOC)
350,000 South Carolina Job Development Authority, (Series 1988B) 350,000
Weekly VRDNs (Seacord Corporation)/(Credit Commercial De
France, Paris LOC)
550,000 South Carolina Job Development Authority, (Series 1990) 550,000
Weekly VRDNs (NMFO Associates)/ (Wachovia Bank & Trust Co.
LOC)
1,050,000 South Carolina Job Development Authority, (Series 1990) 1,050,000
Weekly VRDNs (Old Claussen's Bakery)/(Wachovia Bank & Trust
Co. LOC)
600,000 South Carolina Job Development Authority, (Series 1990) 600,000
Weekly VRDNs (Rice Street Association)/(Wachovia Bank & Trust
Co. LOC)
1,005,000 South Carolina Job Development Authority, (Series B) Weekly 1,005,000
VRDNs (Osmose Wood Preserving)/(Credit Commercial De France,
Paris LOC)
3,150,000 York County, SC IDA, Industrial Development Revenue Bonds 3,150,000
(Series1989) Weekly VRDNs (Sediver Inc)/(Banque Nationale de
Paris LOC)
TOTAL 12,008,063
SOUTH DAKOTA--6.5%
3,000,000 South Dakota Housing Development Authority, (Series H), 3.95% 3,000,000
TOBs, Mandatory Tender 8/13/1998
14,890,000 South Dakota Housing Development Authority, Homeownership 14,890,000
Mortgage Bonds (1997 Series E) Weekly VRDNs
TOTAL 17,890,000
TENNESSEE--3.5%
1,500,000 Cheatham County, TN IDB, (Series 1997B) Weekly VRDNs (Triton 1,500,000
Boat Co.)/(First American National Bank, Nashville, TN LOC)
2,000,000 Hawkins County, TN IDB, (Series 1995) Weekly VRDNs (Sekisui 2,000,000
Ta Industries, Inc. Project)/ (Bank of Tokyo-Mitsubishi Ltd.
LOC)
200,000 Jackson, TN IDB, Solid Waste Facility Bonds (Series 1995) 200,000
Weekly VRDNs (Florida Steel Corp.)/(Nationsbank, N.A.,
Charlotte LOC)
</TABLE>
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
TENNESSEE--CONTINUED
$ 1,800,000 Knox County, TN IDB, (Series 1996) Weekly VRDNs (Health $ 1,800,000
Ventures, Inc. Project)/(SunTrust Bank, Nashville LOC)
3,200,000 Oak Ridge, TN IDB, Solid Waste Facility Bonds (Series 1996) 3,200,000
Weekly VRDNs (M4 Environmental L.P. Project)/(SunTrust Bank,
Atlanta LOC)
1,000,000 South Pittsburg, TN IDB, (Series 1996) Weekly VRDNs (Lodge 1,000,000
Manufacturing Co. Project)/ (SunTrust Bank, Nashville LOC)
TOTAL 9,700,000
TEXAS--3.3%
9,000,000 Tarrant County, TX IDC, (Series 1997) Weekly VRDNs (Lear 9,000,000
Operations Corp.)/(Chase Manhattan Bank N.A., New York LOC)
VIRGINIA--11.0%
4,700,000 Botetourt County, VA IDA, IDRB (Series 1995) Weekly VRDNs 4,700,000
(Emkay Holdings, L.L.C. Project)/ (State Street Bank and
Trust Co. LOC)
5,000,000 Campbell County, VA IDA, Solid Waste Disposal Facilities 5,000,000
Revenue ACES Weekly VRDNs (Georgia-Pacific Corp.)/(Industrial
Bank of Japan Ltd., Tokyo LOC)
2,770,000 Carroll County, VA IDA, IDRB (Series 1995) Weekly VRDNs 2,770,000
(Kentucky Derby Hosiery Co, Inc. Project)/(Bank One, Kentucky
LOC)
6,000,000 Richmond, VA Redevelopment & Housing Authority, (Series B-1) 6,000,000
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC)
6,000,000 Richmond, VA Redevelopment & Housing Authority, (Series B-2) 6,000,000
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC)
5,795,000 Richmond, VA Redevelopment & Housing Authority, Multifamily 5,795,000
Refunding Revenue Bonds (Series 1997) Weekly VRDNs (Newport
Manor)/(Columbus Bank and Trust Co., GA LOC)
TOTAL 30,265,000
WEST VIRGINIA--0.4%
1,100,000 Fayette County, WV, Solid Waste Disposal Facility Revenue 1,100,000
Bonds (Series 1995) Weekly VRDNs (Georgia-Pacific
Corp.)/(Industrial Bank of Japan Ltd., Tokyo LOC)
WISCONSIN--1.1%
2,000,000 Milwaukee, WI, (Series 1997), 3.90% TOBs (Signature Flight 2,000,000
Support Corp.)/(Bayerische Landesbank Girozentrale LOC),
Optional Tender 6/1/1998
1,000,000 New Berlin, WI, (Series 1997A) Weekly VRDNs (Sunraider 1,000,000
LLC/New Berlin Plastics, Inc.)/ (Bank One, Wisconsin, N.A.
LOC)
TOTAL 3,000,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 267,585,377
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 83.4% 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. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1,
or SP-2 by Standard & Poor's, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1, and F-2 by Fitch IBCA, Inc. are all considered
rated in one of the two highest short-term rating categories. Securities
rated in the highest short-term rating category (and unrated securities of
comparable quality) are identified as First Tier securities. Securities
rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether
a security is rated and whether a security rated by multiple NRSROs in
different rating categories should be identified as a First or Second Tier
security.
At January 31, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
96.26% 3.74%
(b) Denotes a restricted security which is subject to restrictions on resale
under federal securities laws. At January 31, 1998, the securities amounted
to $4,010,000, which represents 1.5% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($276,755,375) at January 31, 1998.
The following acronyms are used throughout this portfolio:
ACES --Adjustable Convertible Extendable Securities
AMBAC --American Municipal Bond Assurance Corporation
BANs --Bond Anticipation Notes
COL --Collateralized
CP --Commercial Paper
EDRB --Economic Development Revenue Bonds
GNMA --Government National Mortgage Association
GO --General Obligation
GTD --Guaranty
HFA --Housing Finance Authority
IDA --Industrial Development Authority
IDB --Industrial Development Bond
IDC --Industrial Development Corporation
IDRB --Industrial Development Revenue Bond
INS --Insured
INV --Investment Agreement
LIQ --Liquidity Agreement
LLC --Limited Liability Corporation
LOC --Letter of Credit
MBIA --Municipal Bond Investors Assurance
PCR --Pollution Control Revenue
PCFA --Pollution Control Finance Authority
PFA --Public Facility Authority
TANs --Tax Anticipation Notes
TOBs --Tender Option Bonds
UT --Unlimited Tax
VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
MUNICIPAL OBLIGATIONS FUND
JANUARY 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 267,585,377
Cash 7,415,239
Income receivable 1,380,946
Receivable for shares sold 1,000,000
Total assets 277,381,562
LIABILITIES:
Income distribution payable $ 565,439
Accrued expenses 60,748
Total liabilities 626,187
Net Assets for 276,732,046 shares outstanding $ 276,755,375
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$217,838,217 / 217,815,662 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$41,216,064 / 41,216,085 shares outstanding $1.00
INSTITUTIONAL CAPITAL SHARES:
$17,701,094 / 17,700,299 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
MUNICIPAL OBLIGATIONS FUND
YEAR ENDED JANUARY 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 8,444,196
EXPENSES:
Investment advisory fee $ 447,960
Administrative personnel and services fee 190,864
Custodian fees 2,159
Transfer and dividend disbursing agent fees and expenses 70,095
Directors'/Trustees' fees 4,542
Auditing fees 14,294
Legal fees 8,105
Portfolio accounting fees 82,007
Shareholder services feeInstitutional Service Shares 30,518
Shareholder services feeInstitutional Capital Shares 33,437
Share registration costs 72,073
Printing and postage 31,066
Insurance premiums 4,485
Taxes 688
Miscellaneous 890
Total expenses 993,183
Waivers and reimbursements
Waiver of investment advisory fee $ (447,960)
Waiver of shareholder services feeInstitutional Capital (20,105)
Shares
Reimbursement of other operating expenses (65,583)
Total waivers and reimbursements (533,648)
Net expenses 459,535
Net investment income $ 7,984,661
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 7,984,661 $ 6,313,403
Net realized gain (loss) on investments (32,313)
Change in net assets resulting from operations 7,984,661 6,281,090
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income
Institutional Shares (7,088,218) (6,272,384)
Institutional Service Shares (424,504) (4)
Institutional Capital Shares (472,939) (4,848)
Class C Shares -- (36,167)
Change in net assets resulting from distributions to (7,985,661) (6,313,403)
shareholders
CAPITAL CONTRIBUTION 32,313
SHARE TRANSACTIONS
Proceeds from sale of shares 4,261,655,577 3,319,509,601
Net asset value of shares issued to shareholders in payment 2,454,015 1,279,467
of distributions declared
Cost of shares redeemed (4,146,914,995) (3,298,316,597)
Change in net assets resulting from share transactions 117,194,597 22,472,471
Change in net assets 117,193,597 22,472,471
NET ASSETS:
Beginning of period 159,561,778 137,089,307
End of period $ 276,755,375 $ 159,561,778
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
MUNICIPAL OBLIGATIONS FUND
JANUARY 31, 1998
ORGANIZATION
Money Market Obligations Trust II (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of three portfolios. The
financial statements included herein are only those of Municipal Obligations
Fund (the "Fund"), a diversified portfolio. The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The investment objective of the Fund is to provide current
income exempt from federal regular income tax consistent with stability of
principal.
The Fund offers three classes of shares: Institutional Shares, Institutional
Service Shares, and Institutional Capital Shares.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act. Investments in other open-end
regulated investment companies are valued at net asset value.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount,
if applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code"). Distributions to shareholders are recorded on the
ex-dividend date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable
to regulated investment companies and to distribute to shareholders each
year substantially all of its income. Accordingly, no provisions for federal
tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The
Fund records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued
or delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon
registration under federal securities laws or in transactions exempt from
such registration. Many restricted securities may be resold in the secondary
market in transactions exempt from registration. In some cases, the
restricted securities may be resold without registration upon exercise of a
demand feature. Such restricted securities may be determined to be liquid
under criteria established by the Board of Trustees (the "Trustees"). The
Fund will not incur any registration costs upon such resales. Restricted
securities are valued at amortized cost in accordance with Rule 2a-7 under
the Act.
Additional information on each restricted security held at January 31, 1998,
is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Illinois Development Finance Authority 10/2/1997 $4,010,000
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of assets, liabilities, expenses, and
revenues reported in the financial statements. Actual results could differ
from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest ($0.0001 par value).
Transactions in shares were as follows:
<TABLE>
YEAR ENDED JANUARY 31,
INSTITUTIONAL SHARES 1998 1997
<S> <C> <C>
Shares sold 3,591,948,985 3,310,319,398
Shares issued to shareholders in payment of distributions 1,979,575 1,275,572
declared
Shares redeemed (3,535,649,749) (3,287,154,333)
Net change resulting from Institutional Share transactions 58,278,811 24,440,637
<CAPTION>
YEAR ENDED JANUARY 31,
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES 1998 1997
Shares sold 251,107,687 300
Shares issued to shareholders in payment of distributions declared 339,358 1
Shares redeemed (210,231,259) (102)
Net change resulting from Institutional Service Share transactions 41,215,786 199
<CAPTION>
YEAR ENDED JANUARY 31,
<S> <C> <C>
INSTITUTIONAL CAPITAL SHARES 1998 1997
Shares sold 418,598,905 5,039,630
Shares issued to shareholders in payment of distributions declared 135,082 3,892
Shares redeemed (401,033,987) (5,043,323)
Net change resulting from Institutional Capital Share transactions 17,700,000 199
<CAPTION>
YEAR ENDED JANUARY 31,
<S> <C> <C>
CLASS C SHARES 1998(A) 1997
Shares sold 4,150,273
Shares issued to shareholders in payment of distributions declared 2
Shares redeemed (6,118,839)
Net change resulting from Class C Share transactions (1,968,564)
Net change resulting from Share transactions 117,194,597 22,472,471
</TABLE>
(a) As of November 15, 1996, the Fund's Class C Shares were no longer
operational.
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.
CAPITAL CONTRIBUTION
Lehman Brothers Global Asset Management, the Fund's 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.
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.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the Fund. The
fee paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the 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.
INTERFUND TRANSACTIONS
During the period ended January 31, 1998, the Fund engaged in purchase and
sale transactions with funds that have a common investment adviser (or
affiliated investment advisers), common Directors/Trustees, and/or common
Officers. These purchase and sale transactions were made at current market
value pursuant to Rule 17a-7 under the Act amounting to $1,323,530,128 and
$1,580,624,500, respectively.
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, a
portfolio of Money Market Obligations Trust II, as of January 31, 1998, 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, 1998, by correspondence with the
custodian and brokers or other appropriate auditing procedures where replies
from brokers were not received. 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, 1998, 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 13, 1998
NOTES
NOTES
[Graphic]
Municipal Obligations Fund
(A Portfolio of Money Market Obligations Trust II)
Institutional Shares
PROSPECTUS
MARCH 31, 1998
A Portfolio of Money Market Obligations Trust II, an Open-End Management
Investment Company
MUNICIPAL OBLIGATIONS FUND
INSTITUTIONAL SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue
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
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 608912101
G01881-05-IS (3/98)
[Graphic]
Municipal Obligations Fund
(A Portfolio of Money Market Obligations Trust II)
Institutional Service Shares
PROSPECTUS
The Institutional Service Shares of Municipal Obligations Fund (the "Fund")
offered by this prospectus represent interests in a portfolio of Money
Market Obligations Trust II (the "Trust"), an open-end management investment
company (a mutual fund). The Fund invests in short-term municipal securities
to provide current income exempt from federal regular income tax consistent
with stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO
SO.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated March
31, 1998, 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, 1998
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 5
Investment Risks 5
Investment Limitations 6
Fund Information 6
Management of the Fund 6
Distribution of Institutional Service Shares 7
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 8
Purchasing Shares by Wire 8
Purchasing Shares by Check 8
Invest-by-Phone 8
How to Redeem Shares 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 9
Account and Share Information 9
Dividends 9
Capital Gains 9
Account Activity 9
Accounts with Low Balances 9
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 10
Other Classes of Shares 10
Performance Information 10
Financial Highlights--Institutional Capital Shares 11
Financial Highlights--Institutional Shares 12
Financial Statements 13
Report of Ernst & Young LLP, Independent Auditors 26
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<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
</TABLE>
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.00%
12b-1 Fee None
Total Other Expenses (after expense reimbursement) 0.43%
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
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 Institutional Service Shares operating expenses would have
been 0.66% absent the voluntary waivers of the management fee and the
voluntary reimbursement of certain other operating expenses.
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.
EXAMPLE
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.
1 Year $ 4
3 Years $14
5 Years $24
10 Years $54
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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 26.
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1998 1997(a)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
TOTAL RETURN(B) 3.43% 3.31%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.43% 0.43%
Net investment income 3.48% 3.08%
Expense waiver/reimbursement(c) 0.23% 0.21%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $41,216 $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 (the "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 municipal securities. The Fund may
not be a suitable investment for retirement plans because it invests in
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 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 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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies
as an efficient means of carrying out its investment policies. It should be
noted that investment companies incur certain expenses, such as management
fees, and, therefore, any investment by the Fund in shares of other
investment companies may be subject to such duplicate expenses.
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 $120 billion invested across
more than 300 funds under management and/or administration by its
subsidiaries, as of December 31, 1997, 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
approximately 4,000 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.
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.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
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, Martin
Luther King, Jr. 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.
ACCOUNT ACTIVITY
Shareholders will receive periodic statements reporting all account
activity, including dividends paid. The Fund will not issue share
certificates.
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.
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
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,
tax-equivalent 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. The tax-equivalent yield is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that
would have to be earned to equal the Fund's tax-exempt yield, assuming a
specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the 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.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL CAPITAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1998 1997(a)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.04 0.03
LESS DISTRIBUTIONS
Distributions from net investment income (0.04) (0.03)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
TOTAL RETURN(B) 3.56% 3.42%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.30% 0.30%
Net investment income 3.53% 2.90%
Expense waiver/reimbursement(c) 0.38% 0.35%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $17,701 $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)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994(a)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.04 0.04 0.04 0.03 0.02
LESS DISTRIBUTIONS
Distributions from net investment income (0.04) (0.04) (0.04) (0.03) (0.02)
Distributions from net realized gains -- -- (0.00)** -- --
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.68% 3.56% 4.03% 3.04% 2.46%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.18% 0.18% 0.18% 0.15% 0.13%*
Net investment income 3.57% 3.48% 3.95% 2.86% 2.53%*
Expense waiver/reimbursement(c) 0.23% 0.20% 0.12% 0.16% 0.38%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $217,838 $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)
PORTFOLIO OF INVESTMENTS
MUNICIPAL OBLIGATIONS FUND
JANUARY 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--96.7%
ALABAMA--3.3%
$ 3,500,000 Alabama State IDA, Revenue Bonds Weekly VRDNs (Southern Bag $ 3,500,000
Corporation, Ltd.)/ (SouthTrust Bank of Alabama, Birmingham
LOC)
5,500,000 Phoenix City, AL IDB, Environmental Improvement Revenue Bonds 5,500,000
(Series 1990A) Daily VRDNs (Mead Coated Board)/(Sumitomo Bank
Ltd., Osaka LOC)
TOTAL 9,000,000
ARIZONA--1.6%
4,495,000 Pima County, AZ IDA, Single Family Mortgage (PA-159) Weekly 4,495,000
VRDNs (GNMA COL)/(Merrill Lynch Capital Services, Inc. LIQ)
ARKANSAS--1.3%
1,000,000 Arkadelphia, AR, Industrial Development Revenue Bonds (Series 1,000,000
1996) Weekly VRDNs (Siplast, Inc.)/(Den Danske Bank A/S LOC)
2,700,000 Arkansas Development Finance Authority, Single Family 2,700,000
Mortgage Revenue Bonds (1997 Series D), 4.05% TOBs, Mandatory
Tender 7/1/1998
TOTAL 3,700,000
COLORADO--2.5%
7,000,000 Denver (City & County), CO, Airport System Subordinate 7,000,000
Revenue Bonds (Series 1997A), 3.60% CP (Bayerische Landesbank
Girozentrale LOC), Mandatory Tender 5/20/1998
CONNECTICUT--1.5%
4,115,000 Connecticut State HFA, (PT-81) Weekly VRDNs (Rabobank 4,115,000
Nederland, Utrecht LIQ)
DISTRICT OF COLUMBIA--0.9%
2,500,000 District of Columbia Housing Finance Agency, (Series 1997C), 2,500,000
4.05% TOBs (AIG Funding, Inc. INV), Mandatory Tender 9/1/1998
GEORGIA--10.9%
1,300,000 Bowdon, GA Development Authority Weekly VRDNs (Trintex 1,300,000
Corp.)/(First Union National Bank, Charlotte, NC LOC)
2,215,000 Burke County, GA Development Authority, (Series 1996), 3.90% 2,215,000
TOBs (Oglethorpe Power Corp. Vogtle Project), Optional Tender
4/30/1998
4,305,000 Burke County, GA Development Authority, (Series 1997C), 3.90% 4,305,000
TOBs (Oglethorpe Power Corp. Vogtle Project), Optional Tender
5/28/1998
8,000,000 Clayton County, GA Development Authority, (Series 1994) 8,000,000
Weekly VRDNs (Lear Seating Corp.)/ (Chase Manhattan Bank
N.A., New York LOC)
1,440,000 Franklin County, GA Industrial Building Authority, (Series 1,440,000
1995) Weekly VRDNs (Bosal Industries, Inc.)/(ABN AMRO Bank
N.V., Amsterdam LOC)
3,800,000 Gwinnett County, GA IDA Daily VRDNs (Volvo AB)/(Union Bank of 3,800,000
Switzerland, Zurich LOC)
</TABLE>
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
GEORGIA--CONTINUED
$ 2,000,000 Jackson County, GA IDA, (Series 1996) Weekly VRDNs (Buhler $ 2,000,000
Quality Yarns Corp. Project)/ (Union Bank of Switzerland,
Zurich LOC)
3,630,000 LaGrange, GA Housing Authority, Multifamily Refunding Revenue 3,630,000
Bonds (Series 1997) Weekly VRDNs (Greenwood Park)/(Columbus
Bank and Trust Co., GA LOC)
3,465,000 LaGrange, GA Housing Authority, Multifamily Refunding Revenue 3,465,000
Bonds (Series 1997) Weekly VRDNs (Meadow Terrace)/(Columbus
Bank and Trust Co., GA LOC)
TOTAL 30,155,000
ILLINOIS--9.0%
3,000,000 Chicago, IL, Chicago Midway Airport Special Facility Revenue 3,000,000
Bonds (Series 1998), 3.65% TOBs (Signature Flight Support
Corp.)/(Bayerische Landesbank Girozentrale LOC), Optional
Tender 6/1/1998
3,000,000 Chicago, IL, Gas Supply Revenue Bonds (1993 Series B), 3.90% 3,000,000
TOBs (Peoples Gas Light & Coke Company), Optional Tender
12/1/1998
1,800,000 Illinois Development Finance Authority, Industrial 1,800,000
Development Revenue Bonds (Series 1996) Weekly VRDNs (Bimba
Manufacturing Co.)/(Harris Trust & Savings Bank, Chicago LOC)
5,000,000 Illinois Development Finance Authority, PCR, (1997 Series A) 5,000,000
Weekly VRDNs (Illinois Power Co.)/(MBIA INS)/(First National
Bank of Chicago LIQ)
4,010,000 (b)Illinois Development Finance Authority, PT-131 (Series 4,010,000
1995A), 3.95% TOBs (Catholic Health Partners
Services)/(Connie Lee INS)/(Credit Suisse First Boston LIQ),
Mandatory Tender 10/1/1998
1,000,000 Illinois Development Finance Authority, Sewerage Facility 1,000,000
Revenue Bonds (Series 1993) Weekly VRDNs (The NutraSweet
Company)/(Monsanto Co. GTD)
4,000,000 Illinois Housing Development Authority, (1997 Subseries B-2), 4,000,000
4.15% TOBs, Mandatory Tender 7/7/1998
2,470,000 Rockford, IL, EDRB, 4.25% TOBs (Independence Village of 2,470,000
Rockford)/(Banque Paribas, Paris LOC), Optional Tender
12/1/1998
600,000 Southwestern Illinois Development Authority, (Series 1991) 600,000
Weekly VRDNs (Robinson Steel Co.)/(American National Bank,
Chicago LOC)
TOTAL 24,880,000
INDIANA--7.1%
3,800,000 Elkhart County, IN, (Series 1997) Weekly VRDNs (Hart Housing 3,800,000
Group, Inc.)/(KeyBank, N.A. LOC)
3,500,000 Gibson County, IN, Pollution Control Revenue Bonds (Series 3,500,000
1997) Weekly VRDNs (Toyota Motor Manufacturing, Indiana,
Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC)
6,500,000 Jeffersonville, IN, (Series 1997A) Weekly VRDNs (Wayne Steel, 6,500,000
Inc.)/(Bank One, Ohio, N.A. LOC)
1,785,000 Richmond, IN, Economic Development Revenue Bonds (Series 1,785,000
1996) Weekly VRDNs (Holland Colors Americas, Inc.
Project)/(Bank One, Indianapolis, N.A. LOC)
4,000,000 Rushville, IN, (Series 1996) Weekly VRDNs (Fujitsu Ten Corp. 4,000,000
of America)/(Bank of Tokyo- Mitsubishi Ltd. LOC)
TOTAL 19,585,000
</TABLE>
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
KENTUCKY--0.4%
$ 1,000,000 Graves County, KY, School Building Revenue Bonds (Series $ 1,000,000
1988) Weekly VRDNs (Seaboard Farms Project)/(Bank of New
York, New York LOC)
LOUISIANA--1.9%
5,385,000 Louisiana PFA, (Series 1998), 3.80% Bonds (University of New 5,385,000
Orleans Research & Technology Foundation)/(AMBAC INS),
1/1/1999
MAINE--1.4%
4,000,000 Jay, ME, Solid Waste Disposal Revenue Bonds, 4.20% TOBs 4,000,000
(International Paper Co.), Optional Tender 6/1/1998
MARYLAND--1.4%
2,600,000 Maryland State Community Development Administration, (Series 2,600,000
1990A) Weekly VRDNs (College Estates)/(First National Bank of
Maryland, Baltimore LOC)
1,400,000 Montgomery County, MD Weekly VRDNs (Information Systems and 1,400,000
Networks Corp.)/(PNC Bank, N.A. LOC)
TOTAL 4,000,000
MASSACHUSETTS--0.8%
2,250,000 Weymouth, MA, 4.25% BANs, 11/5/1998 2,253,774
MINNESOTA--1.3%
1,600,000 Blaine, MN, (Series 1997) Weekly VRDNs (Plastic Enterprises, 1,600,000
Inc.)/(Norwest Bank Minnesota, N.A. LOC)
2,000,000 White Bear Lake, MN City of, (Series 1997), 4.5475% TOBs 2,000,000
(Century Townhomes)/ (Westdeutsche Landesbank Girozentrale
INV), Mandatory Tender 6/1/1998
TOTAL 3,600,000
MISSISSIPPI--0.4%
1,168,000 Greenville, MS IDA Weekly VRDNs (Mebane Packaging 1,168,000
Corp.)/(First Union National Bank, Charlotte, NC LOC)
MISSOURI--0.4%
1,000,000 St. Louis, MO IDA, (Series 1997) Weekly VRDNs (Cee Kay 1,000,000
Supply)/(Commerce Bank, Kansas City, N.A. LOC)
NEBRASKA--1.0%
2,850,000 Nebraska Investment Finance Authority, (Series 1997) Weekly 2,850,000
VRDNs (Transcrypt International, Inc.)/(Norwest Bank
Minnesota, N.A. LOC)
NEVADA--2.9%
3,500,000 Nevada Housing Division, Multi-Unit Housing Revenue Bonds 3,500,000
(Series 1996A) Weekly VRDNs (Oakmont at Flamingo Road)/(ABN
AMRO Bank N.V., Amsterdam LOC)
3,800,000 Nevada Housing Division, Multi-Unit Housing Revenue Bonds 3,800,000
(Series 1996A) Weekly VRDNs (Oakmont at Fort Apache
Road)/(ABN AMRO Bank N.V., Amsterdam LOC)
</TABLE>
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
NEVADA--CONTINUED
$ 650,000 Nevada State Department of Community & Industrial Development $ 650,000
Weekly VRDNs (Kinplex Company Project)/(Credit Commercial De
France, Paris LOC)
TOTAL 7,950,000
NEW HAMPSHIRE--1.8%
5,100,000 New Hampshire Business Finance Authority, PCR Bonds (Series 5,100,000
A), 3.70% CP (New England Power Co.), Mandatory Tender
5/1/1998
NEW JERSEY--0.9%
2,515,374 Camden County, NJ, (Series 1997A), 4.00% BANs, 2/10/1998 2,515,493
NEW YORK--4.8%
4,215,000 New York City, NY, UT GO, 4.25% Bonds, 2/1/1998 4,215,000
6,000,000 Niagara County, NY IDA, Solid Waste Disposal Facility Revenue 6,000,000
bonds (Series 1996D) Weekly VRDNs (American Ref-Fuel
Co.)/(Wachovia Bank of NC, N.A., Winston-Salem LOC)
3,000,000 Sodus Central School District, NY, 4.00% BANs, 2/4/1998 3,000,047
TOTAL 13,215,047
NORTH CAROLINA--5.4%
6,000,000 Person County, NC Industrial Facilities & Pollution Control 6,000,000
Financing Authority Daily VRDNs (Carolina Power & Light
Co.)/(Fuji Bank, Ltd., Tokyo LOC)
6,630,000 Wake County, NC Industrial Facilities & PCFA, (Series 1990A), 6,630,000
4.00% CP (Carolina Power & Light Co.)/(Fuji Bank, Ltd., Tokyo
LOC), Mandatory Tender 2/17/1998
2,300,000 Wake County, NC Industrial Facilities & PCFA, (Series 1990A), 2,300,000
4.00% CP (Carolina Power & Light Co.)/(Fuji Bank, Ltd., Tokyo
LOC), Mandatory Tender 2/25/1998
TOTAL 14,930,000
OHIO--1.4%
4,000,000 Brookville, OH, (Series 1988) Weekly VRDNs (Green 4,000,000
Tokai)/(Bank of Tokyo-Mitsubishi Ltd. LOC)
OKLAHOMA--0.4%
1,145,000 Tulsa, OK International Airport, Variable Rate Certificates 1,145,000
(Series 1997 B-1) Weekly VRDNs (MBIA INS)/(Bank of America NT
and SA, San Francisco LIQ)
OREGON--0.6%
755,000 Oregon State, Economic Development Revenue Bonds (Series 755,000
1988C) Weekly VRDNs (Jepco Development, Inc.)/(Wells Fargo
Bank, N.A. LOC)
825,000 Oregon State, Economic Development Revenue Bonds 825,000
(Series1988B) Weekly VRDNs (Domaine Drouhin Oregon,
Inc.)/(Wells Fargo Bank, N.A. LOC)
TOTAL 1,580,000
</TABLE>
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
PENNSYLVANIA--1.3%
$ 3,000,000 Clinton County, PA IDA, Solid Waste Disposal Revenue Bonds $ 3,000,000
(Series 1992A), 3.95% TOBs (International Paper Co.),
Optional Tender 1/15/1999
500,000 Pennsylvania State Higher Education Assistance Agency, 500,000
Student Loan Adjustable Rate Revenue Bonds (Series 1997A)
Weekly VRDNs (Student Loan Marketing Association LOC)
TOTAL 3,500,000
SOUTH CAROLINA--4.3%
4,500,000 Dorchester County, SC, 4.25% TANs, 4/15/1998 4,503,063
550,000 South Carolina Job Development Authority, (Series 1987) 550,000
Weekly VRDNs (Jewish Community Center)/(Bank of
Tokyo-Mitsubishi Ltd. LOC)
250,000 South Carolina Job Development Authority, (Series 1988A) 250,000
Weekly VRDNs (Kent Manufacturing Co.)/(Credit Commercial De
France, Paris LOC)
350,000 South Carolina Job Development Authority, (Series 1988B) 350,000
Weekly VRDNs (Seacord Corporation)/(Credit Commercial De
France, Paris LOC)
550,000 South Carolina Job Development Authority, (Series 1990) 550,000
Weekly VRDNs (NMFO Associates)/ (Wachovia Bank & Trust Co.
LOC)
1,050,000 South Carolina Job Development Authority, (Series 1990) 1,050,000
Weekly VRDNs (Old Claussen's Bakery)/(Wachovia Bank & Trust
Co. LOC)
600,000 South Carolina Job Development Authority, (Series 1990) 600,000
Weekly VRDNs (Rice Street Association)/(Wachovia Bank & Trust
Co. LOC)
1,005,000 South Carolina Job Development Authority, (Series B) Weekly 1,005,000
VRDNs (Osmose Wood Preserving)/(Credit Commercial De France,
Paris LOC)
3,150,000 York County, SC IDA, Industrial Development Revenue Bonds 3,150,000
(Series1989) Weekly VRDNs (Sediver Inc)/(Banque Nationale de
Paris LOC)
TOTAL 12,008,063
SOUTH DAKOTA--6.5%
3,000,000 South Dakota Housing Development Authority, (Series H), 3.95% 3,000,000
TOBs, Mandatory Tender 8/13/1998
14,890,000 South Dakota Housing Development Authority, Homeownership 14,890,000
Mortgage Bonds (1997 Series E) Weekly VRDNs
TOTAL 17,890,000
TENNESSEE--3.5%
1,500,000 Cheatham County, TN IDB, (Series 1997B) Weekly VRDNs (Triton 1,500,000
Boat Co.)/(First American National Bank, Nashville, TN LOC)
2,000,000 Hawkins County, TN IDB, (Series 1995) Weekly VRDNs (Sekisui 2,000,000
Ta Industries, Inc. Project)/ (Bank of Tokyo-Mitsubishi Ltd.
LOC)
200,000 Jackson, TN IDB, Solid Waste Facility Bonds (Series 1995) 200,000
Weekly VRDNs (Florida Steel Corp.)/(Nationsbank, N.A.,
Charlotte LOC)
</TABLE>
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
TENNESSEE--CONTINUED
$ 1,800,000 Knox County, TN IDB, (Series 1996) Weekly VRDNs (Health $ 1,800,000
Ventures, Inc. Project)/(SunTrust Bank, Nashville LOC)
3,200,000 Oak Ridge, TN IDB, Solid Waste Facility Bonds (Series 1996) 3,200,000
Weekly VRDNs (M4 Environmental L.P. Project)/(SunTrust Bank,
Atlanta LOC)
1,000,000 South Pittsburg, TN IDB, (Series 1996) Weekly VRDNs (Lodge 1,000,000
Manufacturing Co. Project)/ (SunTrust Bank, Nashville LOC)
TOTAL 9,700,000
TEXAS--3.3%
9,000,000 Tarrant County, TX IDC, (Series 1997) Weekly VRDNs (Lear 9,000,000
Operations Corp.)/(Chase Manhattan Bank N.A., New York LOC)
VIRGINIA--11.0%
4,700,000 Botetourt County, VA IDA, IDRB (Series 1995) Weekly VRDNs 4,700,000
(Emkay Holdings, L.L.C. Project)/ (State Street Bank and
Trust Co. LOC)
5,000,000 Campbell County, VA IDA, Solid Waste Disposal Facilities 5,000,000
Revenue ACES Weekly VRDNs (Georgia-Pacific Corp.)/(Industrial
Bank of Japan Ltd., Tokyo LOC)
2,770,000 Carroll County, VA IDA, IDRB (Series 1995) Weekly VRDNs 2,770,000
(Kentucky Derby Hosiery Co, Inc. Project)/(Bank One, Kentucky
LOC)
6,000,000 Richmond, VA Redevelopment & Housing Authority, (Series B-1) 6,000,000
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC)
6,000,000 Richmond, VA Redevelopment & Housing Authority, (Series B-2) 6,000,000
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC)
5,795,000 Richmond, VA Redevelopment & Housing Authority, Multifamily 5,795,000
Refunding Revenue Bonds (Series 1997) Weekly VRDNs (Newport
Manor)/(Columbus Bank and Trust Co., GA LOC)
TOTAL 30,265,000
WEST VIRGINIA--0.4%
1,100,000 Fayette County, WV, Solid Waste Disposal Facility Revenue 1,100,000
Bonds (Series 1995) Weekly VRDNs (Georgia-Pacific
Corp.)/(Industrial Bank of Japan Ltd., Tokyo LOC)
WISCONSIN--1.1%
2,000,000 Milwaukee, WI, (Series 1997), 3.90% TOBs (Signature Flight 2,000,000
Support Corp.)/(Bayerische Landesbank Girozentrale LOC),
Optional Tender 6/1/1998
1,000,000 New Berlin, WI, (Series 1997A) Weekly VRDNs (Sunraider 1,000,000
LLC/New Berlin Plastics, Inc.)/ (Bank One, Wisconsin, N.A.
LOC)
TOTAL 3,000,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 267,585,377
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 83.4% 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. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1,
or SP-2 by Standard & Poor's, MIG-1, or MIG-2 by Moody's Investors
Service, Inc., F-1+, F-1, and F-2 by Fitch IBCA, Inc. are all considered
rated in one of the two highest short-term rating categories. Securities
rated in the highest short-term rating category (and unrated securities of
comparable quality) are identified as First Tier securities. Securities
rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier
securities. The Fund follows applicable regulations in determining whether
a security is rated and whether a security rated by multiple NRSROs in
different rating categories should be identified as a First or Second Tier
security.
At January 31, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
96.26% 3.74%
(b) Denotes a restricted security which is subject to restrictions on resale
under federal securities laws. At January 31, 1998, the securities
amounted to $4,010,000, which represents 1.5% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($276,755,375) at January 31, 1998.
The following acronyms are used throughout this portfolio:
ACES --Adjustable Convertible Extendable Securities
AMBAC --American Municipal Bond Assurance Corporation
BANs --Bond Anticipation Notes
COL --Collateralized
CP --Commercial Paper
EDRB --Economic Development Revenue Bonds
GNMA --Government National Mortgage Association
GO --General Obligation
GTD --Guaranty
HFA --Housing Finance Authority
IDA --Industrial Development Authority
IDB --Industrial Development Bond
IDC --Industrial Development Corporation
IDRB --Industrial Development Revenue Bond
INS --Insured
INV --Investment Agreement
LIQ --Liquidity Agreement
LLC --Limited Liability Corporation
LOC --Letter of Credit
MBIA --Municipal Bond Investors Assurance
PCR --Pollution Control Revenue
PCFA --Pollution Control Finance Authority
PFA --Public Facility Authority
TANs --Tax Anticipation Notes
TOBs --Tender Option Bonds
UT --Unlimited Tax
VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
MUNICIPAL OBLIGATIONS FUND
JANUARY 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 267,585,377
Cash 7,415,239
Income receivable 1,380,946
Receivable for shares sold 1,000,000
Total assets 277,381,562
LIABILITIES:
Income distribution payable $ 565,439
Accrued expenses 60,748
Total liabilities 626,187
Net Assets for 276,732,046 shares outstanding $ 276,755,375
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$217,838,217 / 217,815,662 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$41,216,064 / 41,216,085 shares outstanding $1.00
INSTITUTIONAL CAPITAL SHARES:
$17,701,094 / 17,700,299 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
MUNICIPAL OBLIGATIONS FUND
YEAR ENDED JANUARY 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 8,444,196
EXPENSES:
Investment advisory fee $ 447,960
Administrative personnel and services fee 190,864
Custodian fees 2,159
Transfer and dividend disbursing agent fees and expenses 70,095
Directors'/Trustees' fees 4,542
Auditing fees 14,294
Legal fees 8,105
Portfolio accounting fees 82,007
Shareholder services feeInstitutional Service Shares 30,518
Shareholder services feeInstitutional Capital Shares 33,437
Share registration costs 72,073
Printing and postage 31,066
Insurance premiums 4,485
Taxes 688
Miscellaneous 890
Total expenses 993,183
Waivers and reimbursements
Waiver of investment advisory fee $ (447,960)
Waiver of shareholder services feeInstitutional Capital (20,105)
Shares
Reimbursement of other operating expenses (65,583)
Total waivers and reimbursements (533,648)
Net expenses 459,535
Net investment income $ 7,984,661
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 7,984,661 $ 6,313,403
Net realized gain (loss) on investments (32,313)
Change in net assets resulting from operations 7,984,661 6,281,090
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income
Institutional Shares (7,088,218) (6,272,384)
Institutional Service Shares (424,504) (4)
Institutional Capital Shares (472,939) (4,848)
Class C Shares -- (36,167)
Change in net assets resulting from distributions to (7,985,661) (6,313,403)
shareholders
CAPITAL CONTRIBUTION 32,313
SHARE TRANSACTIONS
Proceeds from sale of shares 4,261,655,577 3,319,509,601
Net asset value of shares issued to shareholders in payment 2,454,015 1,279,467
of distributions declared
Cost of shares redeemed (4,146,914,995) (3,298,316,597)
Change in net assets resulting from share transactions 117,194,597 22,472,471
Change in net assets 117,193,597 22,472,471
NET ASSETS:
Beginning of period 159,561,778 137,089,307
End of period $ 276,755,375 $ 159,561,778
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
MUNICIPAL OBLIGATIONS FUND
JANUARY 31, 1998
ORGANIZATION
Money Market Obligations Trust II (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of three portfolios. The
financial statements included herein are only those of Municipal Obligations
Fund (the "Fund"), a diversified portfolio. The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The investment objective of the Fund is to provide current
income exempt from federal regular income tax consistent with stability of
principal.
The Fund offers three classes of shares: Institutional Shares, Institutional
Service Shares, and Institutional Capital Shares.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act. Investments in other open-end
regulated investment companies are valued at net asset value.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount,
if applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code"). Distributions to shareholders are recorded on the
ex-dividend date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable
to regulated investment companies and to distribute to shareholders each
year substantially all of its income. Accordingly, no provisions for federal
tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The
Fund records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued
or delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon
registration under federal securities laws or in transactions exempt from
such registration. Many restricted securities may be resold in the secondary
market in transactions exempt from registration. In some cases, the
restricted securities may be resold without registration upon exercise of a
demand feature. Such restricted securities may be determined to be liquid
under criteria established by the Board of Trustees (the "Trustees"). The
Fund will not incur any registration costs upon such resales. Restricted
securities are valued at amortized cost in accordance with Rule 2a-7 under
the Act.
Additional information on each restricted security held at January 31, 1998,
is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Illinois Development Finance Authority 10/2/1997 $4,010,000
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of assets, liabilities, expenses, and
revenues reported in the financial statements. Actual results could differ
from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest ($0.0001 par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL SHARES 1998 1997
<S> <C> <C>
Shares sold 3,591,948,985 3,310,319,398
Shares issued to shareholders in payment of distributions 1,979,575 1,275,572
declared
Shares redeemed (3,535,649,749) (3,287,154,333)
Net change resulting from Institutional Share transactions 58,278,811 24,440,637
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL SERVICE SHARES
1998 1997
<S> <C> <C>
Shares sold 251,107,687 300
Shares issued to shareholders in payment of distributions declared 339,358 1
Shares redeemed (210,231,259) (102)
Net change resulting from Institutional Service Share transactions 41,215,786 199
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL CAPITAL SHARES 1998 1997
<S> <C> <C>
Shares sold 418,598,905 5,039,630
Shares issued to shareholders in payment of distributions declared 135,082 3,892
Shares redeemed (401,033,987) (5,043,323)
Net change resulting from Institutional Capital Share transactions 17,700,000 199
<CAPTION>
YEAR ENDED JANUARY 31,
CLASS C SHARES 1998(A) 1997
<S> <C> <C>
Shares sold -- 4,150,273
Shares issued to shareholders in payment of distributions declared -- 2
Shares redeemed -- (6,118,839)
Net change resulting from Class C Share transactions -- (1,968,564)
Net change resulting from Share transactions 117,194,597 22,472,471
</TABLE>
(a) As of November 15, 1996, the Fund's Class C Shares were no longer
operational.
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.
CAPITAL CONTRIBUTION
Lehman Brothers Global Asset Management, the Fund's 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.
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.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the Fund. The
fee paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the 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.
INTERFUND TRANSACTIONS
During the period ended January 31, 1998, the Fund engaged in purchase and
sale transactions with funds that have a common investment adviser (or
affiliated investment advisers), common Directors/Trustees, and/or common
Officers. These purchase and sale transactions were made at current market
value pursuant to Rule 17a-7 under the Act amounting to $1,323,530,128 and
$1,580,624,500, respectively.
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, a
portfolio of Money Market Obligations Trust II, as of January 31, 1998, 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, 1998, by correspondence with the
custodian and brokers or other appropriate auditing procedures where replies
from brokers were not received. 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, 1998, 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 13, 1998
NOTES
NOTES
[Graphic]
Municipal Obligations Fund
(A Portfolio of Money Market Obligations Trust II)
Institutional Service Shares
PROSPECTUS
MARCH 31, 1998
A Portfolio of Money Market Obligations Trust II, an Open-End Management
Investment Company
MUNICIPAL OBLIGATIONS FUND
INSTITUTIONAL SERVICE SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue
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
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 608912200
G01881-06-SS (3/98)
[Graphic]
Municipal Obligations Fund
(A Portfolio of Money Market Obligations Trust II)
Institutional Capital Shares
PROSPECTUS
The Institutional Capital Shares of Municipal Obligations Fund (the "Fund")
offered by this prospectus represent interests in a portfolio of Money
Market Obligations Trust II (the "Trust"), an open-end management investment
company (a mutual fund). The Fund invests in short-term municipal securities
to provide current income exempt from federal regular income tax consistent
with stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO
SO.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated March
31, 1998, 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, 1998
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 5
Investment Risks 5
Investment Limitations 6
Fund Information 6
Management of the Fund 6
Distribution of Institutional Capital Shares 7
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares by Wire 8
Purchasing Shares by Check 8
Invest-by-Phone 8
How to Redeem Shares 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 9
Account and Share Information 9
Dividends 9
Capital Gains 9
Account Activity 9
Accounts with Low Balances 9
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 10
Other Classes of Shares 10
Performance Information 10
Financial Highlights--Institutional Service Shares 11
Financial Highlights--Institutional Shares 12
Financial Statements 13
Report of Ernst & Young LLP, Independent Auditors 26
SUMMARY OF FUND EXPENSES
Exchange Fee
<TABLE>
<CAPTION>
INSTITUTIONAL CAPITAL SHARES
<S> <C>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering
price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C>
Management Fee (after waiver)(1) 0.00%
12b-1 Fee None
Total Other Expenses (after expense reimbursement) 0.30%
<S> <C>
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
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 shareholder 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 Institutional Capital Shares operating expenses would have
been 0.68% absent the voluntary waivers of the management fee and a portion
of the shareholder services fee and the voluntary reimbursement of certain
other operating expenses.
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
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.
<S> <C>
1 Year $ 3
3 Years $10
5 Years $17
10 Years $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.
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 26.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
<S> <C> <C>
1998 1997(a)
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.04 0.03
LESS DISTRIBUTIONS Distributions
from net investment income (0.04) (0.03)
NET ASSET VALUE, END OF PERIOD $1.00 $ 1.00
TOTAL RETURN(B) 3.56% 3.42%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.30% 0.30%
Net investment income 3.53% 2.90%
Expense waiver/reimbursement(c) 0.38% 0.35%
SUPPLEMENTAL DATA Net assets, end of
period (000 omitted) $17,701 $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 (the "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. The Fund may
not be a suitable investment for retirement plans because it invests in
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 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 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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies
as an efficient means of carrying out its investment policies. It should be
noted that investment companies incur certain expenses, such as management
fees, and, therefore, any investment by the Fund in shares of other
investment companies may be subject to such duplicate expenses.
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 $120 billion invested across
more than 300 funds under management and/or administration by its
subsidiaries, as of December 31, 1997, 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
approximately 4,000 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.
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.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
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, Martin
Luther King Jr., 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.
ACCOUNT ACTIVITY
Shareholders will receive periodic statements reporting all account activity
including dividends paid. The Fund will not issue share certificates.
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 2, 1998, Parker/Hunter Inc., Pittsburgh, Pennsylvania owned
83.19% 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
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,
tax-equivalent 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. The tax-equivalent yield is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that
would have to be earned to equal the Fund's tax-exempt yield, assuming a
specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in the 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.
FINANCIAL HIGHLIGHTS INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION> YEAR ENDED JANUARY 31,
<S> <C> <C>
1998 1997(a)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENTOPERATIONS
Net investment income 0.03 0.03
LESS DISTRIBUTIONS Distributions
from net investment income (0.03) (0.03)
NET ASSET VALUE, END OF PERIOD $1.00 $ 1.00
TOTAL RETURN(B) 3.43% 3.31%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.43% 0.43%
Net investment income 3.48% 3.08%
Expense waiver/reimbursement(c) 0.23% 0.21%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $41,216 $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)
FINANCIAL HIGHLIGHTS INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994(a)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.04 0.04 0.04 0.03 0.02
LESS DISTRIBUTIONS
Distributions from net investment income (0.04) (0.04) (0.04) (0.03) (0.02)
Distributions from net realized gains (0.00)**
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.68% 3.56% 4.03% 3.04% 2.46%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.18% 0.18% 0.18% 0.15% 0.13%*
Net investment income 3.57% 3.48% 3.95% 2.86% 2.53%*
Expense waiver/reimbursement(c) 0.23% 0.20% 0.12% 0.16% 0.38%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $217,838 $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)
PORTFOLIO OF INVESTMENTS
MUNICIPAL OBLIGATIONS FUND
JANUARY 31, 1998
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--96.7%
ALABAMA--3.3%
$ 3,500,000 Alabama State IDA, Revenue Bonds Weekly VRDNs (Southern Bag $ 3,500,000
Corporation, Ltd.)/ (SouthTrust Bank of Alabama, Birmingham
LOC)
5,500,000 Phoenix City, AL IDB, Environmental Improvement Revenue Bonds 5,500,000
(Series 1990A) Daily VRDNs (Mead Coated Board)/(Sumitomo Bank
Ltd., Osaka LOC)
TOTAL 9,000,000
ARIZONA--1.6%
4,495,000 Pima County, AZ IDA, Single Family Mortgage (PA-159) Weekly 4,495,000
VRDNs (GNMA COL)/(Merrill Lynch Capital Services, Inc. LIQ)
ARKANSAS--1.3%
1,000,000 Arkadelphia, AR, Industrial Development Revenue Bonds (Series 1,000,000
1996) Weekly VRDNs (Siplast, Inc.)/(Den Danske Bank A/S LOC)
2,700,000 Arkansas Development Finance Authority, Single Family 2,700,000
Mortgage Revenue Bonds (1997 Series D), 4.05% TOBs, Mandatory
Tender 7/1/1998
TOTAL 3,700,000
COLORADO--2.5%
7,000,000 Denver (City & County), CO, Airport System Subordinate 7,000,000
Revenue Bonds (Series 1997A), 3.60% CP (Bayerische Landesbank
Girozentrale LOC), Mandatory Tender 5/20/1998
CONNECTICUT--1.5%
4,115,000 Connecticut State HFA, (PT-81) Weekly VRDNs (Rabobank 4,115,000
Nederland, Utrecht LIQ)
DISTRICT OF COLUMBIA--0.9%
2,500,000 District of Columbia Housing Finance Agency, (Series 1997C), 2,500,000
4.05% TOBs (AIG Funding, Inc. INV), Mandatory Tender 9/1/1998
GEORGIA--10.9%
1,300,000 Bowdon, GA Development Authority Weekly VRDNs (Trintex 1,300,000
Corp.)/(First Union National Bank, Charlotte, NC LOC)
2,215,000 Burke County, GA Development Authority, (Series 1996), 3.90% 2,215,000
TOBs (Oglethorpe Power Corp. Vogtle Project), Optional Tender
4/30/1998
4,305,000 Burke County, GA Development Authority, (Series 1997C), 3.90% 4,305,000
TOBs (Oglethorpe Power Corp. Vogtle Project), Optional Tender
5/28/1998
8,000,000 Clayton County, GA Development Authority, (Series 1994) 8,000,000
Weekly VRDNs (Lear Seating Corp.)/ (Chase Manhattan Bank
N.A., New York LOC)
1,440,000 Franklin County, GA Industrial Building Authority, (Series 1,440,000
1995) Weekly VRDNs (Bosal Industries, Inc.)/(ABN AMRO Bank
N.V., Amsterdam LOC)
3,800,000 Gwinnett County, GA IDA Daily VRDNs (Volvo AB)/(Union Bank of 3,800,000
Switzerland, Zurich LOC)
</TABLE>
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
GEORGIA--CONTINUED
$ 2,000,000 Jackson County, GA IDA, (Series 1996) Weekly VRDNs (Buhler $ 2,000,000
Quality Yarns Corp. Project)/ (Union Bank of Switzerland,
Zurich LOC)
3,630,000 LaGrange, GA Housing Authority, Multifamily Refunding Revenue 3,630,000
Bonds (Series 1997) Weekly VRDNs (Greenwood Park)/(Columbus
Bank and Trust Co., GA LOC)
3,465,000 LaGrange, GA Housing Authority, Multifamily Refunding Revenue 3,465,000
Bonds (Series 1997) Weekly VRDNs (Meadow Terrace)/(Columbus
Bank and Trust Co., GA LOC)
TOTAL 30,155,000
ILLINOIS--9.0%
3,000,000 Chicago, IL, Chicago Midway Airport Special Facility Revenue 3,000,000
Bonds (Series 1998), 3.65% TOBs (Signature Flight Support
Corp.)/(Bayerische Landesbank Girozentrale LOC), Optional
Tender 6/1/1998
3,000,000 Chicago, IL, Gas Supply Revenue Bonds (1993 Series B), 3.90% 3,000,000
TOBs (Peoples Gas Light & Coke Company), Optional Tender
12/1/1998
1,800,000 Illinois Development Finance Authority, Industrial 1,800,000
Development Revenue Bonds (Series 1996) Weekly VRDNs (Bimba
Manufacturing Co.)/(Harris Trust & Savings Bank, Chicago LOC)
5,000,000 Illinois Development Finance Authority, PCR, (1997 Series A) 5,000,000
Weekly VRDNs (Illinois Power Co.)/(MBIA INS)/(First National
Bank of Chicago LIQ)
4,010,000 (b)Illinois Development Finance Authority, PT-131 (Series 4,010,000
1995A), 3.95% TOBs (Catholic Health Partners
Services)/(Connie Lee INS)/(Credit Suisse First Boston LIQ),
Mandatory Tender 10/1/1998
1,000,000 Illinois Development Finance Authority, Sewerage Facility 1,000,000
Revenue Bonds (Series 1993) Weekly VRDNs (The NutraSweet
Company)/(Monsanto Co. GTD)
4,000,000 Illinois Housing Development Authority, (1997 Subseries B-2), 4,000,000
4.15% TOBs, Mandatory Tender 7/7/1998
2,470,000 Rockford, IL, EDRB, 4.25% TOBs (Independence Village of 2,470,000
Rockford)/(Banque Paribas, Paris LOC), Optional Tender
12/1/1998
600,000 Southwestern Illinois Development Authority, (Series 1991) 600,000
Weekly VRDNs (Robinson Steel Co.)/(American National Bank,
Chicago LOC)
TOTAL 24,880,000
INDIANA--7.1%
3,800,000 Elkhart County, IN, (Series 1997) Weekly VRDNs (Hart Housing 3,800,000
Group, Inc.)/(KeyBank, N.A. LOC)
3,500,000 Gibson County, IN, Pollution Control Revenue Bonds (Series 3,500,000
1997) Weekly VRDNs (Toyota Motor Manufacturing, Indiana,
Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC)
6,500,000 Jeffersonville, IN, (Series 1997A) Weekly VRDNs (Wayne Steel, 6,500,000
Inc.)/(Bank One, Ohio, N.A. LOC)
1,785,000 Richmond, IN, Economic Development Revenue Bonds (Series 1,785,000
1996) Weekly VRDNs (Holland Colors Americas, Inc.
Project)/(Bank One, Indianapolis, N.A. LOC)
4,000,000 Rushville, IN, (Series 1996) Weekly VRDNs (Fujitsu Ten Corp. 4,000,000
of America)/(Bank of Tokyo- Mitsubishi Ltd. LOC)
TOTAL 19,585,000
</TABLE>
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
KENTUCKY--0.4%
$ 1,000,000 Graves County, KY, School Building Revenue Bonds (Series $ 1,000,000
1988) Weekly VRDNs (Seaboard Farms Project)/(Bank of New
York, New York LOC)
LOUISIANA--1.9%
5,385,000 Louisiana PFA, (Series 1998), 3.80% Bonds (University of New 5,385,000
Orleans Research & Technology Foundation)/(AMBAC INS),
1/1/1999
MAINE--1.4%
4,000,000 Jay, ME, Solid Waste Disposal Revenue Bonds, 4.20% TOBs 4,000,000
(International Paper Co.), Optional Tender 6/1/1998
MARYLAND--1.4%
2,600,000 Maryland State Community Development Administration, (Series 2,600,000
1990A) Weekly VRDNs (College Estates)/(First National Bank of
Maryland, Baltimore LOC)
1,400,000 Montgomery County, MD Weekly VRDNs (Information Systems and 1,400,000
Networks Corp.)/(PNC Bank, N.A. LOC)
TOTAL 4,000,000
MASSACHUSETTS--0.8%
2,250,000 Weymouth, MA, 4.25% BANs, 11/5/1998 2,253,774
MINNESOTA--1.3%
1,600,000 Blaine, MN, (Series 1997) Weekly VRDNs (Plastic Enterprises, 1,600,000
Inc.)/(Norwest Bank Minnesota, N.A. LOC)
2,000,000 White Bear Lake, MN City of, (Series 1997), 4.5475% TOBs 2,000,000
(Century Townhomes)/ (Westdeutsche Landesbank Girozentrale
INV), Mandatory Tender 6/1/1998
TOTAL 3,600,000
MISSISSIPPI--0.4%
1,168,000 Greenville, MS IDA Weekly VRDNs (Mebane Packaging 1,168,000
Corp.)/(First Union National Bank, Charlotte, NC LOC)
MISSOURI--0.4%
1,000,000 St. Louis, MO IDA, (Series 1997) Weekly VRDNs (Cee Kay 1,000,000
Supply)/(Commerce Bank, Kansas City, N.A. LOC)
NEBRASKA--1.0%
2,850,000 Nebraska Investment Finance Authority, (Series 1997) Weekly 2,850,000
VRDNs (Transcrypt International, Inc.)/(Norwest Bank
Minnesota, N.A. LOC)
NEVADA--2.9%
3,500,000 Nevada Housing Division, Multi-Unit Housing Revenue Bonds 3,500,000
(Series 1996A) Weekly VRDNs (Oakmont at Flamingo Road)/(ABN
AMRO Bank N.V., Amsterdam LOC)
3,800,000 Nevada Housing Division, Multi-Unit Housing Revenue Bonds 3,800,000
(Series 1996A) Weekly VRDNs (Oakmont at Fort Apache
Road)/(ABN AMRO Bank N.V., Amsterdam LOC)
</TABLE>
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
NEVADA--CONTINUED
$ 650,000 Nevada State Department of Community & Industrial Development $ 650,000
Weekly VRDNs (Kinplex Company Project)/(Credit Commercial De
France, Paris LOC)
TOTAL 7,950,000
NEW HAMPSHIRE--1.8%
5,100,000 New Hampshire Business Finance Authority, PCR Bonds (Series 5,100,000
A), 3.70% CP (New England Power Co.), Mandatory Tender
5/1/1998
NEW JERSEY--0.9%
2,515,374 Camden County, NJ, (Series 1997A), 4.00% BANs, 2/10/1998 2,515,493
NEW YORK--4.8%
4,215,000 New York City, NY, UT GO, 4.25% Bonds, 2/1/1998 4,215,000
6,000,000 Niagara County, NY IDA, Solid Waste Disposal Facility Revenue 6,000,000
bonds (Series 1996D) Weekly VRDNs (American Ref-Fuel
Co.)/(Wachovia Bank of NC, N.A., Winston-Salem LOC)
3,000,000 Sodus Central School District, NY, 4.00% BANs, 2/4/1998 3,000,047
TOTAL 13,215,047
NORTH CAROLINA--5.4%
6,000,000 Person County, NC Industrial Facilities & Pollution Control 6,000,000
Financing Authority Daily VRDNs (Carolina Power & Light
Co.)/(Fuji Bank, Ltd., Tokyo LOC)
6,630,000 Wake County, NC Industrial Facilities & PCFA, (Series 1990A), 6,630,000
4.00% CP (Carolina Power & Light Co.)/(Fuji Bank, Ltd., Tokyo
LOC), Mandatory Tender 2/17/1998
2,300,000 Wake County, NC Industrial Facilities & PCFA, (Series 1990A), 2,300,000
4.00% CP (Carolina Power & Light Co.)/(Fuji Bank, Ltd., Tokyo
LOC), Mandatory Tender 2/25/1998
TOTAL 14,930,000
OHIO--1.4%
4,000,000 Brookville, OH, (Series 1988) Weekly VRDNs (Green 4,000,000
Tokai)/(Bank of Tokyo-Mitsubishi Ltd. LOC)
OKLAHOMA--0.4%
1,145,000 Tulsa, OK International Airport, Variable Rate Certificates 1,145,000
(Series 1997 B-1) Weekly VRDNs (MBIA INS)/(Bank of America NT
and SA, San Francisco LIQ)
OREGON--0.6%
755,000 Oregon State, Economic Development Revenue Bonds (Series 755,000
1988C) Weekly VRDNs (Jepco Development, Inc.)/(Wells Fargo
Bank, N.A. LOC)
825,000 Oregon State, Economic Development Revenue Bonds 825,000
(Series1988B) Weekly VRDNs (Domaine Drouhin Oregon,
Inc.)/(Wells Fargo Bank, N.A. LOC)
TOTAL 1,580,000
</TABLE>
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) SHORT-TERM MUNICIPALS--CONTINUED
PENNSYLVANIA--1.3%
$ 3,000,000 Clinton County, PA IDA, Solid Waste Disposal Revenue Bonds $ 3,000,000
(Series 1992A), 3.95% TOBs (International Paper Co.),
Optional Tender 1/15/1999
500,000 Pennsylvania State Higher Education Assistance Agency, 500,000
Student Loan Adjustable Rate Revenue Bonds (Series 1997A)
Weekly VRDNs (Student Loan Marketing Association LOC)
TOTAL 3,500,000
SOUTH CAROLINA--4.3%
4,500,000 Dorchester County, SC, 4.25% TANs, 4/15/1998 4,503,063
550,000 South Carolina Job Development Authority, (Series 1987) 550,000
Weekly VRDNs (Jewish Community Center)/(Bank of
Tokyo-Mitsubishi Ltd. LOC)
250,000 South Carolina Job Development Authority, (Series 1988A) 250,000
Weekly VRDNs (Kent Manufacturing Co.)/(Credit Commercial De
France, Paris LOC)
350,000 South Carolina Job Development Authority, (Series 1988B) 350,000
Weekly VRDNs (Seacord Corporation)/(Credit Commercial De
France, Paris LOC)
550,000 South Carolina Job Development Authority, (Series 1990) 550,000
Weekly VRDNs (NMFO Associates)/ (Wachovia Bank & Trust Co.
LOC)
1,050,000 South Carolina Job Development Authority, (Series 1990) 1,050,000
Weekly VRDNs (Old Claussen's Bakery)/(Wachovia Bank & Trust
Co. LOC)
600,000 South Carolina Job Development Authority, (Series 1990) 600,000
Weekly VRDNs (Rice Street Association)/(Wachovia Bank & Trust
Co. LOC)
1,005,000 South Carolina Job Development Authority, (Series B) Weekly 1,005,000
VRDNs (Osmose Wood Preserving)/(Credit Commercial De France,
Paris LOC)
3,150,000 York County, SC IDA, Industrial Development Revenue Bonds 3,150,000
(Series1989) Weekly VRDNs (Sediver Inc)/(Banque Nationale de
Paris LOC)
TOTAL 12,008,063
SOUTH DAKOTA--6.5%
3,000,000 South Dakota Housing Development Authority, (Series H), 3.95% 3,000,000
TOBs, Mandatory Tender 8/13/1998
14,890,000 South Dakota Housing Development Authority, Homeownership 14,890,000
Mortgage Bonds (1997 Series E) Weekly VRDNs
TOTAL 17,890,000
TENNESSEE--3.5%
1,500,000 Cheatham County, TN IDB, (Series 1997B) Weekly VRDNs (Triton 1,500,000
Boat Co.)/(First American National Bank, Nashville, TN LOC)
2,000,000 Hawkins County, TN IDB, (Series 1995) Weekly VRDNs (Sekisui 2,000,000
Ta Industries, Inc. Project)/ (Bank of Tokyo-Mitsubishi Ltd.
LOC)
200,000 Jackson, TN IDB, Solid Waste Facility Bonds (Series 1995) 200,000
Weekly VRDNs (Florida Steel Corp.)/(Nationsbank, N.A.,
Charlotte LOC)
</TABLE>
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <S>
(A) SHORT-TERM MUNICIPALS--CONTINUED
TENNESSEE--CONTINUED
$ 1,800,000 Knox County, TN IDB, (Series 1996) Weekly VRDNs (Health $ 1,800,000
Ventures, Inc. Project)/(SunTrust Bank, Nashville LOC)
3,200,000 Oak Ridge, TN IDB, Solid Waste Facility Bonds (Series 1996) 3,200,000
Weekly VRDNs (M4 Environmental L.P. Project)/(SunTrust Bank,
Atlanta LOC)
1,000,000 South Pittsburg, TN IDB, (Series 1996) Weekly VRDNs (Lodge 1,000,000
Manufacturing Co. Project)/ (SunTrust Bank, Nashville LOC)
TOTAL 9,700,000
TEXAS--3.3%
9,000,000 Tarrant County, TX IDC, (Series 1997) Weekly VRDNs (Lear 9,000,000
Operations Corp.)/(Chase Manhattan Bank N.A., New York LOC)
VIRGINIA--11.0%
4,700,000 Botetourt County, VA IDA, IDRB (Series 1995) Weekly VRDNs 4,700,000
(Emkay Holdings, L.L.C. Project)/ (State Street Bank and
Trust Co. LOC)
5,000,000 Campbell County, VA IDA, Solid Waste Disposal Facilities 5,000,000
Revenue ACES Weekly VRDNs (Georgia-Pacific Corp.)/(Industrial
Bank of Japan Ltd., Tokyo LOC)
2,770,000 Carroll County, VA IDA, IDRB (Series 1995) Weekly VRDNs 2,770,000
(Kentucky Derby Hosiery Co, Inc. Project)/(Bank One, Kentucky
LOC)
6,000,000 Richmond, VA Redevelopment & Housing Authority, (Series B-1) 6,000,000
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC)
6,000,000 Richmond, VA Redevelopment & Housing Authority, (Series B-2) 6,000,000
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Bayerische
Landesbank Girozentrale LOC)
5,795,000 Richmond, VA Redevelopment & Housing Authority, Multifamily 5,795,000
Refunding Revenue Bonds (Series 1997) Weekly VRDNs (Newport
Manor)/(Columbus Bank and Trust Co., GA LOC)
TOTAL 30,265,000
WEST VIRGINIA--0.4%
1,100,000 Fayette County, WV, Solid Waste Disposal Facility Revenue 1,100,000
Bonds (Series 1995) Weekly VRDNs (Georgia-Pacific
Corp.)/(Industrial Bank of Japan Ltd., Tokyo LOC)
WISCONSIN--1.1%
2,000,000 Milwaukee, WI, (Series 1997), 3.90% TOBs (Signature Flight 2,000,000
Support Corp.)/(Bayerische Landesbank Girozentrale LOC),
Optional Tender 6/1/1998
1,000,000 New Berlin, WI, (Series 1997A) Weekly VRDNs (Sunraider 1,000,000
LLC/New Berlin Plastics, Inc.)/ (Bank One, Wisconsin, N.A.
LOC)
TOTAL 3,000,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 267,585,377
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 83.4% 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. An
NRSRO's two highest rating categories are determined without regard for
sub-categories and gradations. For example, securities rated SP-1+, SP-1, or
SP-2 by Standard & Poor's, MIG-1, or MIG-2 by Moody's Investors Service,
Inc., F-1+, F-1, and F-2 by Fitch IBCA, Inc. are all considered rated in one
of the two highest short-term rating categories. Securities rated in the
highest short-term rating category (and unrated securities of comparable
quality) are identified as First Tier securities. Securities rated in the
second highest short-term rating category (and unrated securities of
comparable quality) are identified as Second Tier securities. The Fund
follows applicable regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating
categories should be identified as a First or Second Tier security.
At January 31, 1998, the portfolio securities were rated as follows:
Tier Rating Based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
96.26% 3.74%
(b) Denotes a restricted security which is subject to restrictions on resale
under federal securities laws. At January 31, 1998, the securities amounted
to $4,010,000, which represents 1.5% of net assets.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($276,755,375) at January 31, 1998.
The following acronyms are used throughout this portfolio:
ACES --Adjustable Convertible Extendable Securities
AMBAC --American Municipal Bond Assurance Corporation
BANs --Bond Anticipation Notes
COL --Collateralized
CP --Commercial Paper
EDRB --Economic Development Revenue Bonds
GNMA --Government National Mortgage Association
GO --General Obligation
GTD --Guaranty
HFA --Housing Finance Authority
IDA --Industrial Development Authority
IDB --Industrial Development Bond
IDC --Industrial Development Corporation
IDRB --Industrial Development Revenue Bond
INS --Insured
INV --Investment Agreement
LIQ --Liquidity Agreement
LLC --Limited Liability Corporation
LOC --Letter of Credit
MBIA --Municipal Bond Investors Assurance
PCR --Pollution Control Revenue
PCFA --Pollution Control Finance Authority
PFA --Public Facility Authority
TANs --Tax Anticipation Notes
TOBs --Tender Option Bonds
UT --Unlimited Tax
VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
MUNICIPAL OBLIGATIONS FUND
JANUARY 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 267,585,377
Cash 7,415,239
Income receivable 1,380,946
Receivable for shares sold 1,000,000
Total assets 277,381,562
LIABILITIES:
Income distribution payable $ 565,439
Accrued expenses 60,748
Total liabilities 626,187
Net Assets for 276,732,046 shares outstanding $ 276,755,375
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$217,838,217 divided by 217,815,662 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$41,216,064 divided by 41,216,085 shares outstanding $1.00
INSTITUTIONAL CAPITAL SHARES:
$17,701,094 divided by 17,700,299 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
MUNICIPAL OBLIGATIONS FUND
YEAR ENDED JANUARY 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 8,444,196
EXPENSES:
Investment advisory fee $ 447,960
Administrative personnel and services fee 190,864
Custodian fees 2,159
Transfer and dividend disbursing agent fees and expenses 70,095
Directors'/Trustees' fees 4,542
Auditing fees 14,294
Legal fees 8,105
Portfolio accounting fees 82,007
Shareholder services fee - Institutional Service Shares 30,518
Shareholder services fee - Institutional Capital Shares 33,437
Share registration costs 72,073
Printing and postage 31,066
Insurance premiums 4,485
Taxes 688
Miscellaneous 890
Total expenses 993,183
Waivers and reimbursements
Waiver of investment advisory fee $ (447,960)
Waiver of shareholder services fee - Institutional Capital (20,105)
Shares
Reimbursement of other operating expenses (65,583)
Total waivers and reimbursements (533,648)
Net expenses 459,535
Net investment income $ 7,984,661
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
MUNICIPAL OBLIGATIONS FUND
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 7,984,661 $ 6,313,403
Net realized gain (loss) on investments (32,313)
Change in net assets resulting from operations 7,984,661 6,281,090
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income
Institutional Shares (7,088,218) (6,272,384)
Institutional Service Shares (424,504) (4)
Institutional Capital Shares (472,939) (4,848)
Class C Shares -- (36,167)
Change in net assets resulting from distributions to (7,985,661) (6,313,403)
shareholders
CAPITAL CONTRIBUTION 32,313
SHARE TRANSACTIONS
Proceeds from sale of shares 4,261,655,577 3,319,509,601
Net asset value of shares issued to shareholders in payment 2,454,015 1,279,467
of distributions declared
Cost of shares redeemed (4,146,914,995) (3,298,316,597)
Change in net assets resulting from share transactions 117,194,597 22,472,471
Change in net assets 117,193,597 22,472,471
NET ASSETS:
Beginning of period 159,561,778 137,089,307
End of period $ 276,755,375 $ 159,561,778
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
MUNICIPAL OBLIGATIONS FUND
JANUARY 31, 1998
ORGANIZATION
Money Market Obligations Trust II (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of three portfolios. The
financial statements included herein are only those of Municipal Obligations
Fund (the "Fund"), a diversified portfolio. The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The investment objective of the Fund is to provide current
income exempt from federal regular income tax consistent with stability of
principal.
The Fund offers three classes of shares: Institutional Shares, Institutional
Service Shares, and Institutional Capital Shares.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act. Investments in other open-end
regulated investment companies are valued at net asset value.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount,
if applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code"). Distributions to shareholders are recorded on the
ex-dividend date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable
to regulated investment companies and to distribute to shareholders each
year substantially all of its income. Accordingly, no provisions for federal
tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The
Fund records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued
or delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon
registration under federal securities laws or in transactions exempt from
such registration. Many restricted securities may be resold in the secondary
market in transactions exempt from registration. In some cases, the
restricted securities may be resold without registration upon exercise of a
demand feature. Such restricted securities may be determined to be liquid
under criteria established by the Board of Trustees (the "Trustees"). The
Fund will not incur any registration costs upon such resales. Restricted
securities are valued at amortized cost in accordance with Rule 2a-7 under
the Act.
Additional information on each restricted security held at January 31, 1998,
is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Illinois Development Finance Authority 10/2/1997 $4,010,000
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of assets, liabilities, expenses, and
revenues reported in the financial statements. Actual results could differ
from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest ($0.0001 par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION> YEAR ENDED JANUARY 31,
INSTITUTIONAL SHARES 1998 1997
<S> <C> <C>
Shares sold 3,591,948,985 3,310,319,398
Shares issued to shareholders in payment of distributions 1,979,575 1,275,572
declared
Shares redeemed (3,535,649,749) (3,287,154,333)
Net change resulting from Institutional Share transactions 58,278,811 24,440,637
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL SERVICE SHARES 1998 1997
<S> <C> <C>
Shares sold 251,107,687 300
Shares issued to shareholders in payment of
distributions declared 339,358 1
Shares redeemed (210,231,259) (102)
Net change resulting from Institutional Service Share transactions 41,215,786 199
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL CAPITAL SHARES 1998 1997
<S> <C> <C>
Shares sold 418,598,905 5,039,630
Shares issued to shareholders in payment
of distributions declared 135,082 3,892
Shares redeemed (401,033,987) (5,043,323)
Net change resulting from Institutional Capital Share
transactions 17,700,000 199
<CAPTION>
YEAR ENDED JANUARY 31,
CLASS C SHARES 1998(A) 1997
<S> <C> <C>
Shares sold 4,150,273
Shares issued to shareholders in payment of
distributions declared 2
Shares redeemed (6,118,839)
Net change resulting
from Class C Share transactions (1,968,564)
Net change resulting from Share
transactions 117,194,597 22,472,471
</TABLE>
(a) As of November 15, 1996, the Fund's
Class C Shares were no longer operational.
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.
CAPITAL CONTRIBUTION
Lehman Brothers Global Asset Management, the Fund's 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.
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.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the Fund. The
fee paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the 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.
INTERFUND TRANSACTIONS
During the period ended January 31, 1998, the Fund engaged in purchase and
sale transactions with funds that have a common investment adviser (or
affiliated investment advisers), common Directors/Trustees, and/or common
Officers. These purchase and sale transactions were made at current market
value pursuant to Rule 17a-7 under the Act amounting to $1,323,530,128 and
$1,580,624,500, respectively.
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, a
portfolio of Money Market Obligations Trust II, as of January 31, 1998, 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, 1998, by correspondence with the
custodian and brokers or other appropiate auditing procedures where replies
from brokers were not received. 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, 1998, 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 13, 1998
NOTES
NOTES
Federated Investors
[Graphic]
Municipal Obligations Fund
(A Portfolio of Money Market Obligations Trust II)
Institutional Capital Shares
PROSPECTUS
MARCH 31, 1998
A Portfolio of Money Market Obligations Trust II, an Open-End Management
Investment Company
MUNICIPAL
OBLIGATIONS FUND
Institutional Capital Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue
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
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 608912309
G01881-09 (3/98)
[Graphic]
MUNICIPAL OBLIGATIONS FUND
(A PORTFOLIO OF MONEY MARKET OBLIGATIONS TRUST II)
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
INSTITUTIONAL CAPITAL SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectuses of Municipal Obligations Fund (the "Fund"), a portfolio of
Money Market Obligations Trust II (the "Trust") dated March 31, 1998. 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.
MUNICIPAL OBLIGATIONS FUND
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PENNSYLVANIA 15237-7000
Statement dated March 31, 1998
[Graphic]
Cusip 608912101
Cusip 608912200
Cusip 608912309
G01881-12 (3/98)
[Graphic]
TABLE OF CONTENTS
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
Investing in Securities of Other Investment Companies 2
INVESTMENT LIMITATIONS 2
Diversification of Investments 2
Issuing Senior Securities, Borrowing Money and Pledging
Assets 3
Lending Cash or Securities 3
Underwriting 3
Investing in Real Estate 3
Investing in Commodities and Minerals 3
Concentration of Investments 3
Investing in Illiquid Securities 3
Selling Short and Buying on Margin 3
Investing in Options 3
Regulatory Compliance 3
MONEY MARKET OBLIGATIONS TRUST II MANAGEMENT 4
Share Ownership 7
Trustee Compensation 8
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 9
Investment Adviser 9
Advisory Fees 9
BROKERAGE TRANSACTIONS 9
OTHER SERVICES 10
Fund Administration 10
Custodian and Portfolio Accountant 10
Transfer Agent 10
Independent Auditors 10
Shareholder Services 10
DETERMING NET ASSET VALUE 10
REDEMPTION IN KIND 11
MASSACHUSETTS PARTNERSHIP LAW 11
THE FUND'S TAX STATUS 11
PERFORMANCE INFORMATION 11
Yield 11
Effective Yield 12
Tax-Equivalent Yield 12
Tax-Equivalency Table 12
Total Return 13
Performance Comparisons 13
Economic and Market Information 13
ABOUT FEDERATED INVESTORS 13
Mutual Fund Market 14
Institutional Clients 14
Bank Marketing 14
Broker/Dealers and Bank Brokers/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 "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 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 ("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 IBCA, 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 ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission staff
position set forth in the adopting release for Rule 144A under the
Securities Act of 1933. The Trustees consider the following criteria in
determining the liquidity of certain restricted securities:
* the frequency of trades and quotes for the security;
* the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
* dealer undertakings to make a market in the security; and
* the nature of the security and the nature of the marketplace trades.
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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
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 non-negotiable time deposits and 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.
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 Company.
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.
Nicholas P. Constantakis
175 Woodshire Drive
Pittsburgh, PA
Birthdate: September 3, 1939
Trustee
Formerly, Partner, Andersen Worldwide SC; 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.
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; 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 and U.S. Space Foundation;
President Emeritus, University of Pittsburgh; Founding Chairman, National
Advisory Council for Environmental Policy and Technology, Federal Emergency
Management Advisory Board and Czech Management Center, Prague; Director or
Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; 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; 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 Core Trust;
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 Obligations Trust II; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; 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; Wesmark Funds; WCT Funds;
and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund.
As of March 2, 1998, the following shareholders of record owned 5% or more
of the outstanding Institutional Shares of the Municipal Obligations Fund:
Compass Bank, Birmingham, AL, owned approximately 59,409,340 shares
(36.31%); Deposit Guaranty National Bank, Jackson, MS, owned approximately
20,300,027 shares (12.41%); Evergreen North Carolina, Charlotte, NC, owned
approximately 18,156,000 shares (11.10%); Evergreen Select Int Tax Ex Bond
Fd, Charlotte, NC, owned approximately 12,705,000 shares (7.77%); Sinclair
Oil Corp., Salt Lake City, UT, owned approximately 9,500,000 shares (5.81%);
and Eloigne Company, Minneapolis, MN, owned approximately 8,377,407 shares
(5.12%).
As of March 2, 1998, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of the Municipal Obligations
Fund: Fubs & Co. FEBO, Charlotte, NC, owned approximately 9,046,321 shares
(22.17%); Ciana Corp., Houma, LA, owned approximately 8,170,461 shares
(20.03%); A and A Manufacturing, New Berlin, WI, owned approximately
3,862,426 shares (9.47%); Derek E. Dewan, Jacksonville, FL, owned
approximately 3,438,294 shares (8.43%); Paul E. Reather, New York, NY, owned
approximately 3,116,565 shares (7.64%); and James B. Wigdale, Milwaukee, WI,
owned approximately 2,160,026 shares (5.29%).
As of March 2, 1998, the following shareholders of record owned 5% or more
of the outstanding Institutional Capital Shares of the Municipal Obligations
Fund: Parker/Hunter, Inc., Pittsburgh, PA, owned approximately 70,018,618
shares (83.19%); Excel Industries, Elkhart, IN, owned approximately
6,000,000 shares (7.13%); and Leeray & Co., Chicago, IL, owned approximately
5,354,556 shares (6.36%).
TRUSTEE COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND 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 $2,123.12 $111,222 for the Trust and
Trustee 56 other investment companies
in the Fund Complex
John T. Conroy, Jr. $2,335.75 $122,362 for the Trust and
Trustee 56 other investment companies
in the Fund Complex
Nicholas P. Constantakis++ $0 $0 for the Trust and
Trustee 34 other investment companies
in the Fund Complex
William J. Copeland $2,335.75 $122,362 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 $2,335.75 $122,362 for the Trust and
Trustee 56 other investment companies
in the Fund Complex
Lawrence D. Ellis, M.D. $2,123.12 $111,222 for the Trust and
Trustee 56 other investment companies
in the Fund Complex
Edward L. Flaherty, Jr. $2,335.75 $122,362 for the Trust and
Trustee 56 other investment companies
in the Fund Complex
Peter E. Madden $2,123.12 $111,222 for the Trust and
Trustee 56 other investment companies
in the Fund Complex
John E. Murray, Jr. $2,123.12 $111,222 for the Trust and
Trustee 56 other investment companies
in the Fund Complex
Wesley W. Posvar $2,123.12 $111,222 for the Trust and
Trustee 56 other investment companies
in the Fund Complex
Marjorie P. Smuts $2,123.12 $111,222 for the Trust and
Trustee 56 other investment companies
in the Fund Complex
* Information is furnished for the fiscal year ended January 31, 1998.
# The aggregate compensation is provided for the Trust which is comprised of
three portfolios.
+ The information is provided for the last calendar year.
++ Mr. Constantakis became a member of the Board of Trustees on February 23,
1998. He did not receive any fees as of the fiscal year end of the Trust.
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 (the
"former adviser"), New York, NY, served as the Fund's adviser.
ADVISORY FEES
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectus. Prior to November
15, 1996, the former adviser served as the Fund's adviser. For the fiscal
year ended January 31, 1998, and for the period from November 15, 1996 to
January 31, 1997, Federated Management earned $447,960 and $76,352,
respectively, of which $447,960 and $76,352, respectively, were waived. For
the period from February 1, 1996 to November 14, 1996, and for the fiscal
year ended January 31, 1996, the former adviser earned $287,184 and
$172,515, respectively, of which $162,444 and $44,040, 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
years ended January 31, 1998, 1997, and 1996, 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 fiscal year ended January 31, 1998, and for the
period from November 15, 1996 to January 31, 1997, Federated Services
Company earned $190,864 and $19,609, respectively, of which $0 and $0,
respectively, were waived. For the period from February 1, 1996 to November
14, 1996, and the fiscal year ended January 31, 1996, the former
administrator earned $143,592 and $172,515, of which $100,933 and $127,184,
respectively, were waived.
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.
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.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh, PA.
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 fiscal year ended January 31, 1998, the Fund earned shareholder
services fees in the amount of $30,518 and $33,437 for the Fund's
Institutional Service Shares and Institutional Capital Shares, respectively,
of which $0 and $20,105, respectively, were waived.
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.
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; 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, 1998, the yield for Institutional
Shares was 3.54%.
For the seven-day period ended January 31, 1998, the yield for Institutional
Service Shares was 3.29%.
For the seven-day period ended January 31, 1998, the yield for Institutional
Capital Shares was 3.42%.
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, 1998, the effective yield for
Institutional Shares was 3.61%.
For the seven-day period ended January 31, 1998, the effective yield for
Institutional Service Shares was 3.35%.
For the seven-day period ended January 31, 1998, the effective yield for
Institutional Capital Shares was 3.48%.
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, 1998, the tax-equivalent yield
for Institutional Shares was 5.86%.
For the seven-day period ended January 31, 1998, the tax-equivalent yield
for Institutional Service Shares was 5.45%.
For the seven-day period ended January 31, 1998, the tax-equivalent yield
for Institutional Capital Shares was 5.66%.
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.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998
MULTISTATE MUNICIPAL FUND
FEDERAL INCOME TAX BRACKET:
<S> <C> <C> <C> <C> <C>
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
<CAPTION>
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
<C> <C> <C> <C> <C> <C>
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%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used
in calculating the taxable yield equivalent.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the 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, 1998, and for the period from
February 8, 1993 (date of initial public investment) through January 31,
1998, the average annual total returns were 3.68% and 3.37%, respectively,
for Institutional Shares. For the one-year period ended January 31, 1998,
and for the period from February 1, 1996 (date of initial public offering)
through January 31, 1998, the average annual total returns were 3.43% and
3.11%, respectively, for Institutional Service Shares and 3.56% and 3.22%,
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:
* IBC/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.
* BANK RATE MONITOR 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 portfolio managers 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 the 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, 1997, Federated Investors
managed 11 bond funds with approximately $2.1 billion in assets and 22 money
market funds with approximately $10.9 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
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 $4.4 trillion to the more than 6,700 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 approximately 900 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 Timothy C.
Pillion, Senior 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, Federated Securities Corp.
* Source: Investment Company Institute
APPENDIX
STANDARD AND POOR'S LONG-TERM DEBT RATINGS
AAA--Debt rated AAA has the highest rating assigned by S&P. 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 IBCA, 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:
* Leading market positions in well established industries.
* High rates of return on funds employed.
* Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
* Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
* Well established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2--Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
STANDARD AND POOR'S 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 IBCA, 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 MUNICIPAL NOTE RATINGS
An S&P 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 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 Value Obligations Fund
(A Portfolio of Money Market Obligations Trust II)
Institutional Shares
PROSPECTUS
The Institutional Shares of Prime Value Obligations Fund (the "Fund")
offered by this prospectus represent interests in a portfolio of Money
Market Obligations Trust II (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, 1998, 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, 1998
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 5
Investment Limitations 5
Fund Information 6
Management of the Fund 6
Distribution of Institutional Shares 6
Administration of the Fund 7
Net Asset Value 7
How to PurchaseShares 7
Purchasing Shares by Wire 7
Purchasing Shares by Check 7
Invest-by-Phone 8
How to Redeem Shares 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 8
Account and Share Information 8
Dividends 8
Capital Gains 9
Account Activity 9
Accounts with Low Balances 9
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 9
Other Classes of Shares 9
Performance Information 10
Financial Highlights--Institutional Capital Shares 11
Financial Highlights--Institutional Service Shares 12
Financial Statements 13
Report of Ernst & Young LLP, Independent Auditors 26
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.03%
12b-1 Fee None
Total Other Expenses 0.15%
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, 1999. 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, 1999. The total
Institutional Shares operating expenses were 0.14% for fiscal year ended
January 31, 1998 and would have been 0.32% absent the voluntary waiver of a
portion of the management fee and certain other operating expenses.
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.
EXAMPLE
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.
1 Year $ 2
3 Years $ 6
5 Years $10
10 Years $23
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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 26.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.06 0.05 0.06 0.04 0.03
LESS DISTRIBUTIONS
Distributions from net investment income (0.06) (0.05) (0.06) (0.04) (0.03)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 5.68% 5.41% 6.10% 4.51% 3.21%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.14% 0.16% 0.17% 0.09% 0.07%*
Net investment income 5.59% 5.29% 5.93% 4.20% 3.23%*
Expense waiver/reimbursement(c) 0.18% 0.15% 0.08% 0.16% 0.29%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $865,742 $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 (the "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 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 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 or the Savings Association Insurance Fund. 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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies
as an efficient means of carrying out its investment policies. It should be
noted that investment companies incur certain expenses, such as management
fees, and, therefore, any investment by the Fund in shares of other
investment companies may be subject to such duplicate expenses.
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 $120 billion invested across
more than 300 funds under management and/or administration by its
subsidiaries, as of December 31, 1997, 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
approximately 4,000 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.
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.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
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, Martin
Luther King, Jr. 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.
ACCOUNT ACTIVITY
Shareholders will receive periodic statements reporting all account
activity, including dividends paid. The Fund will not issue share
certificates.
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
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 and
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.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL CAPITAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.05
LESS DISTRIBUTIONS
Distributions from net investment income (0.05) (0.05)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
TOTAL RETURN(B) 5.55% 5.26%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.27% 0.28%
Net investment income 5.61% 5.17%
Expense waiver/reimbursement(c) 0.32% 0.31%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $67,064 $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)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.05 0.06 0.04 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.05) (0.05) (0.06) (0.04) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 5.41% 5.15% 5.84% 4.26% 1.26%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.39% 0.41% 0.42% 0.34% 0.32%*
Net investment income 5.32% 5.05% 5.68% 3.95% 2.98%*
Expense waiver/reimbursement(c) 0.17% 0.16% 0.08% 0.16% 0.29%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $325,390 $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)
PORTFOLIO OF INVESTMENTS
PRIME VALUE OBLIGATIONS FUND
JANUARY 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM NOTES--10.0%
BANKING--6.8%
$ 28,000,000 Bank of Boston, Connecticut, 5.840%, 6/1/1998 - 6/16/1998 $ 28,000,000
20,000,000 Goldman Sachs L.P., 5.600%, 4/27/1998 20,000,000
10,000,000 SALTS II Cayman Island Corp., (Bankers Trust Int'l., PLC 10,000,000
Swap Agreement) 6.038%, 6/18/1998
12,000,000 SALTS II Cayman Islands Corp., (Bankers Trust Int'l., PLC 12,000,000
Swap Agreement) 5.988%, 3/19/1998
15,000,000 SALTS III Cayman Island Corp., (Bankers Trust Int'l., PLC 15,000,000
Swap Agreement), 5.725%,7/23/1998
TOTAL 85,000,000
FINANCE - AUTOMOTIVE--1.2%
1,053,142 Chase Manhattan Auto Owner Trust 1997-B, 5.744%, 7/10/1998 1,053,142
13,452,254 MMCA Auto Owner Trust 1997-1, 5.630%, 11/15/1998 13,449,963
TOTAL 14,503,105
FINANCE - COMMERCIAL--0.4%
5,000,000 (b)Triangle Funding Ltd., 5.594%, 11/16/1998 5,000,000
FINANCE - EQUIPMENT--0.7%
7,441,351 Copelco Capital Funding Corp. X 1997-A, 5.809%, 7/20/1998 7,441,351
1,470,956 Heller Equipment Asset Receivables Trust 1997-1, 5.733%, 1,471,212
9/25/1998
TOTAL 8,912,563
INSURANCE--0.9%
4,154,734 Arcadia Automobile Receivables Trust 1997-C, (FSA Gtd.) 4,154,734
5.650%, 9/15/1998
7,781,258 ContiMortgage Home Equity Loan Trust 1997-5, (MBIA Gtd.) 7,781,258
5.906%, 1/15/1999
TOTAL 11,935,992
TOTAL SHORT-TERM NOTES 125,351,660
CERTIFICATES OF DEPOSIT--5.2%
BANKING--5.2%
10,000,000 Crestar Bank of Virginia, Richmond, 5.720%, 2/23/1998 10,000,119
8,000,000 MBNA America Bank, N.A., 5.870%, 3/2/1998 8,000,000
47,000,000 Societe Generale, Paris, 5.920% - 5.970%, 7/16/1998 - 46,988,423
10/15/1998
TOTAL CERTIFICATES OF DEPOSIT 64,988,542
(A)COMMERCIAL PAPER--51.1%
BANKING--10.8%
5,000,000 ABN AMRO Bank N.V., Amsterdam, 5.687%, 2/5/1998 4,996,928
</TABLE>
PRIME VALUE OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)COMMERCIAL PAPER--CONTINUED
BANKING--CONTINUED
$ 5,000,000 Abbey National N.A. Corp., (Guaranteed by Abbey National $ 4,981,500
Bank PLC, London), 5.708%, 2/25/1998
35,000,000 Aspen Funding Corp., (Supported by Deutsche Bank, AG/MBIA), 34,338,042
5.835% - 5.855%, 3/6/1998 - 6/16/1998
23,000,000 Cregem North America, Inc., (Guaranteed by Credit Communal 22,765,369
de Belgique, Brussles), 5.584% - 5.762%, 2/19/1998 -
4/16/1998
2,000,000 Den Danske Corp., Inc., (Guaranteed by Den Danske Bank 1,991,976
A/S), 5.716%, 2/27/1998
20,000,000 Glencore Finance (Bermuda) Ltd., (ABN AMRO Bank N.V., 19,733,556
Amsterdam LOC), 5.525%, 4/30/1998
35,000,000 J.P. Morgan & Co., Inc., 5.608%, 4/6/1998 34,655,911
5,000,000 Lloyds Bank PLC, London, 5.709%, 3/3/1998 4,976,875
8,000,000 Svenska Handelsbanken, Inc., (Guaranteed by Svenska 7,968,538
Handelsbanken, Stockholm), 5.700% - 5.740%, 2/2/1998 -
3/13/1998
TOTAL 136,408,695
BROKERAGE--7.6%
25,000,000 Merrill Lynch & Co., Inc., 5.514%, 4/21/1998 24,701,556
72,000,000 Morgan Stanley Group, Inc., 5.526% - 5.854%, 3/11/1998 - 71,209,353
4/27/1998
TOTAL 95,910,909
FINANCE - AUTOMOTIVE--1.6%
20,000,000 Ford Motor Credit Corp., 5.568%, 4/10/1998 19,792,600
FINANCE - COMMERCIAL--20.5%
15,000,000 Alpha Finance Corp., Ltd., 5.712% - 5.742%, 2/13/1998 - 14,951,008
3/12/1998
18,000,000 Asset Securitization Cooperative Corp., 5.809% - 5.841%, 17,887,856
3/9/1998 - 3/16/1998
16,000,000 Beta Finance, Inc., 5.708% - 5.741%, 2/17/1998 - 3/12/1998 15,924,750
40,000,000 CIESCO, L.P., 5.556%, 4/9/1998 39,592,044
38,000,000 CIT Group Holdings, Inc., 5.586% - 5.654%, 4/3/1998 - 37,631,578
4/6/1998
8,000,000 Falcon Asset Securitization Corp., 5.687%, 2/18/1998 7,979,109
20,000,000 General Electric Capital Corp., 5.709% - 5.743%, 3/2/1998 - 19,856,092
4/6/1998
68,987,000 Greenwich Funding Corp., 5.566% - 5.652%, 4/1/1998 - 68,054,461
7/1/1998
13,000,000 Receivables Capital Corp., 5.520% - 5.776%, 2/12/1998 - 12,976,442
2/13/1998
22,750,000 Sheffield Receivables Corp., 5.577%, 2/6/1998 22,732,464
TOTAL 257,585,804
FINANCE - EQUIPMENT--0.5%
6,800,000 Comdisco, Inc., 5.664% - 6.100%, 3/13/1998 - 4/10/1998 6,731,982
FINANCE - RETAIL--5.9%
75,000,000 New Center Asset Trust, A1+/P1 Series, 5.566% - 5.642%, 74,266,644
4/3/1998 - 4/8/1998
</TABLE>
PRIME VALUE OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)COMMERCIAL PAPER--CONTINUED
INDUSTRIAL PRODUCTS--1.2%
$ 15,600,000 Praxair, Inc., 5.659% - 5.939%, 3/20/1998 - 4/14/1998 $ 15,475,924
INSURANCE--1.0%
12,800,000 CNA Financial Corp., 6.021%, 3/19/1998 12,703,012
MACHINERY, EQUIPMENT, AUTO--0.6%
7,000,000 Eaton Corp., 5.709%, 2/2/1998 6,998,921
OIL & OIL FINANCE--1.4%
17,400,000 Occidental Petroleum Corp., 5.725%, 2/2/1998 17,397,235
TOTAL COMMERCIAL PAPER 643,271,726
(C)NOTES - VARIABLE--23.8%
BANKING--18.0%
9,675,000 500 South Front St. L.P., Series A, (Huntington National 9,675,000
Bank, Columbus, OH LOC), 5.580%, 2/5/1998
6,235,000 500 South Front St. L.P., Series B, (Huntington National 6,235,000
Bank, Columbus, OH LOC), 5.580%, 2/5/1998
1,557,500 Alabama State IDA, (Nichols Research Corp.), (SouthTrust 1,557,500
Bank of Alabama, Birmingham LOC), 5.700%, 2/6/1998
3,000,000 American Seaway Foods, Inc., (KeyBank, N.A. LOC), 5.620%, 3,000,000
2/6/1998
4,900,000 Associated Materials, Inc., (KeyBank, N.A. LOC), 5.620%, 4,900,000
2/6/1998
1,895,000 Athens-Clarke County, GA IDA, Barrett Project (Series 1,895,000
1995), (Columbus Bank and Trust Co., GA LOC), 5.750%,
2/5/1998
20,000,000 Bankers Trust New York Corp., 5.790%, 2/6/1998 20,000,000
16,900,000 Beverly California Corp., (PNC Bank, N.A. LOC), 5.601%, 16,900,000
2/2/1998
17,300,000 Beverly Hills Nursing Center, Inc., Medilodge Project 17,300,000
Series 1996, (KeyBank, N.A. LOC), 5.630%, 2/5/1998
3,240,000 Birmingham, AL IDB, MRS. STRATTONS SALADS, INC., 5.700%, 3,240,000
2/6/1998
2,145,000 Bissett, William K. and Sheryl B., Multi-Option Adjustable 2,145,000
Rate Notes, (Huntington National Bank, Columbus, OH LOC),
5.580%, 2/5/1998
800,000 Carmel, IN, Telamon Corp. Series 1996-C, (Huntington 800,000
National Bank, Columbus, OH LOC), 5.680%, 2/5/1998
1,000,000 Carmel, IN, Telamon Corp. Series A, (Huntington National 1,000,000
Bank, Columbus, OH LOC), 5.680%, 2/5/1998
1,100,000 Carmel, IN, Telamon Corp. Series B, (Huntington National 1,100,000
Bank, Columbus, OH LOC), 5.680%, 2/5/1998
2,000,000 Chestnut Hills Apartments, Ltd., (Huntington National Bank, 2,000,000
Columbus, OH LOC), 5.630%, 2/5/1998
8,400,000 Cloquet, MN, Series 1996-B Potlach Corp., (Credit Suisse 8,400,000
First Boston LOC), 5.650%, 2/4/1998
</TABLE>
PRIME VALUE OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C)NOTES - VARIABLE--CONTINUED
BANKING--CONTINUED
$ 5,478,000 Congregate Care Corp., (Union Bank of California LOC), $ 5,478,000
5.820%, 2/4/1998
1,355,000 Continental Commercial Properties, (Huntington National 1,355,000
Bank, Columbus, OH LOC), 5.580%, 2/5/1998
2,140,000 Continental Downtown Properties, (Huntington National Bank, 2,140,000
Columbus, OH LOC), 5.580%, 2/5/1998
6,000,000 Dellridge Care Center Limited Partnership, Series 1997, 6,000,000
(First National Bank of Maryland, Baltimore LOC), 5.660%,
2/4/1998
2,100,000 Hill Dental Co, Inc., (SouthTrust Bank of Alabama, 2,100,000
Birmingham LOC), 5.700%, 2/6/1998
9,810,000 International Processing Corp., (Bank One, Kentucky LOC), 9,810,000
5.630%, 2/5/1998
2,500,000 Jeffersonville, IN, Series 1997-B Wayne Steel, Inc., (Bank 2,500,000
One, Ohio, N.A. LOC), 5.580%, 2/5/1998
6,200,000 Kenny, Donald R. and Cheryl A., Series 1997, (Star Bank, 6,200,000
N.A., Cincinnati LOC), 5.630%, 2/5/1998
4,000,000 Lake Sherwood Senior Living Center, LLC, (Union Planters 4,000,000
NB, Memphis, TN LOC), 5.880%, 2/5/1998
2,000,000 (b)Liquid Asset Backed Securities Trust, Series 1996-3, 2,000,000
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.614%, 2/17/1998
13,969,159 (b)Liquid Asset Backed Securities Trust, Series 1997-1, 13,969,159
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.594%, 2/17/1998
5,000,000 Long Lane Master Trust III, Series 1997-C, 5.780%, 5,000,000
2/28/1998
4,100,000 Melberger, Clifford K. and Ruth B., (PNC Bank, N.A. LOC), 4,100,000
5.601%, 2/2/1998
6,860,000 Pine Ridge Associates, LTD., (Mellon Bank N.A., Pittsburgh 6,860,000
LOC), 5.600%, 2/4/1998
3,000,000 Poly Foam International, Inc., (National City Bank, 3,000,000
Cleveland, OH LOC), 5.550%, 2/5/1998
8,500,000 Rubloff-Rockford, LLC, Series 1997, (First of America Bank 8,500,000
- Illinois LOC), 5.750%, 2/4/1998
17,900,000 Scranton Times, L.P., Series 1997, (PNC Bank, N.A. LOC), 17,900,000
5.601%, 2/2/1998
2,880,000 Solon, OH, Schneps, (Bank One, Ohio, N.A. LOC), 5.580%, 2,880,000
2/5/1998
895,000 Southeast Regional Holdings, LLC, Series 1995-A, (Columbus 895,000
Bank and Trust Co., GA LOC), 5.830%, 2/5/1998
9,600,000 Southern Coil Processing, Inc. Notes, (Amsouth Bank N.A., 9,600,000
Birmingham LOC), 5.670%, 2/5/1998
1,720,000 Team Rahal of Mechanicsburg, Inc., Series 1997, (Huntington 1,720,000
National Bank, Columbus, OH LOC), 5.580%, 2/5/1998
1,880,000 Team Rahal, Inc., Series 1997, (Huntington National Bank, 1,880,000
Columbus, OH LOC), 5.580%, 2/5/1998
1,668,000 Vista Funding Corp., Series 1995-A, (Star Bank, N.A., 1,668,000
Cincinnati LOC), 5.580%, 2/5/1998
6,040,000 Westcourt, (Bank One, Texas N.A. LOC), 5.630%, 2/5/1998 6,040,000
TOTAL 225,742,659
FINANCE - EQUIPMENT--0.8%
10,600,000 Comdisco, Inc., 5.975%, 2/24/1998 10,600,000
</TABLE>
PRIME VALUE OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C)NOTES - VARIABLE--CONTINUED
FINANCE - RETAIL--1.7%
$ 2,000,000 AFS Insurance Premium Receivables Trust, (Series 1994-A), $ 2,000,000
6.150%, 2/17/1998
20,000,000 Associates Corp. of North America, 5.730%, 1/30/1998 19,991,059
TOTAL 21,991,059
INSURANCE--3.3%
5,000,000 Jackson National Life Insurance Co., 5.699%, 2/1/1998 5,000,000
10,000,000 Jackson National Life Insurance Co., 5.840%, 2/28/1998 10,000,000
26,411,629 (b)Liquid Asset Backed Securities Trust, Series 1997-3 26,411,629
Senior Notes, (Guaranteed by AMBAC), 5.876%, 3/27/1998
TOTAL 41,411,629
TOTAL NOTES--VARIABLE 299,745,347
LOAN PARTICIPATION--0.8%
FINANCE - EQUIPMENT--0.8%
10,000,000 Pitney Bowes Credit Corp., 5.605%, 2/10/1998 9,986,050
SHORT-TERM MUNICIPAL--0.1%
970,000 Colorado Health Facilities Authority, Series B, (Bank One, 970,000
Colorado LOC), 5.630%, 12/1/1998
(D)REPURCHASE AGREEMENTS--10.7%
40,000,000 Bear, Stearns and Co., 5.650%, dated 1/30/1998, due 40,000,000
2/2/1998
15,000,000 Chase Government Securities, Inc., 5.550%, dated 1/27/1998, 15,000,000
due 4/6/1998
15,000,000 Fuji Government Securities, Inc., 5.620%, dated 1/30/1998, 15,000,000
due 2/2/1998
40,000,000 Goldman Sachs Group, LP, 5.650%, dated 1/30/1998, due 40,000,000
2/2/1998
24,000,000 Societe Generale, New York, 5.600%, dated 1/30/1998, due 24,000,000
2/2/1998
TOTAL REPURCHASE AGREEMENTS 134,000,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(E) $ 1,278,313,325
</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, 1998, these securities
amounted to $47,380,788 which represents 3.8% 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
($1,258,195,953) at January 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation
FSA --Financial Security Assurance
IDA --Industrial Development Authority
IDB --Industrial Development Bond
LLC --Limited Liability Corporation
LOC --Letter of Credit
LP --Limited Partnership
MBIA --Municipal Bond Investors Assurance
PLC --Public Limited Company
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
PRIME VALUE OBLIGATIONS FUND
JANUARY 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 134,000,000
Investments in securities 1,144,313,325
Total investments in securities, at amortized cost and value $ 1,278,313,325
Cash 274,674
Income receivable 4,843,248
Receivable for shares sold 21,028
Total assets 1,283,452,275
LIABILITIES:
Payable for investments purchased $ 20,000,000
Payable for shares redeemed 3,564,922
Income distribution payable 1,584,808
Accrued expenses 106,592
Total liabilities 25,256,322
Net Assets for 1,258,195,953 shares outstanding $ 1,258,195,953
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$865,742,169 / 865,742,169 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$325,389,771 / 325,389,771 shares outstanding $1.00
INSTITUTIONAL CAPITAL SHARES:
$67,064,013 / 67,064,013 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
PRIME VALUE OBLIGATIONS FUND
YEAR ENDED JANUARY 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 52,156,915
EXPENSES:
Investment advisory fee $ 1,821,778
Administrative personnel and services fee 687,478
Custodian fees 80,171
Transfer and dividend disbursing agent fees and 17,537
expenses
Directors'/Trustees' fees 6,129
Auditing fees 14,294
Legal fees 3,697
Portfolio accounting fees 141,580
Shareholder services fee--Institutional Service 379,108
Shares
Shareholder services fee--Institutional Capital 66,766
Shares
Share registration costs 46,162
Printing and postage 25,174
Insurance premiums 9,127
Taxes 688
Miscellaneous 38,771
Total expenses 3,338,460
Waivers--
Waiver of investment advisory fee $ (1,553,105)
Waiver of administrative personnel and services fee (44,021)
Waiver of custodian fees (2,485)
Waiver of transfer and dividend disbursing agent (1,584)
fees and expenses
Waiver of portfolio accounting fees (29,739)
Waiver of shareholder services fee--Institutional (40,060)
Capital Shares
Total waivers (1,670,994)
Net expenses 1,667,466
Net investment income $ 50,489,449
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
PRIME VALUE OBLIGATIONS FUND
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 50,489,449 $ 57,298,613
Net realized gain (loss) on investments -- (1,090,952)
Change in net assets resulting from operations 50,489,449 56,207,661
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (40,931,344) (56,210,350)
Institutional Service Shares (8,059,884) (1,082,127)
Institutional Capital Shares (1,498,221) (6,136)
Change in net assets resulting from distributions to (50,489,449) (57,298,613)
shareholders
CAPITAL CONTRIBUTION -- 1,330,378
SHARE TRANSACTIONS--
Proceeds from sale of shares 15,976,645,016 19,361,183,773
Net asset value of shares issued to shareholders in 33,029,994 26,082,775
payment of distributions declared
Cost of shares redeemed (15,177,894,329) (21,735,853,130)
Change in net assets resulting from share transactions 831,780,681 (2,348,586,582)
Change in net assets 831,780,681 (2,348,347,156)
NET ASSETS:
Beginning of period 426,415,272 2,774,762,428
End of period $ 1,258,195,953 $ 426,415,272
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
PRIME VALUE OBLIGATIONS FUND
JANUARY 31, 1998
ORGANIZATION
Money Market Obligations Trust II (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of three portfolios. The
financial statements included herein are only those of Prime Value
Obligations Fund (the "Fund"). The financial statements of the other
portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The investment objective of the Fund is to provide a high
level of current income consistent with stability of principal and
liquidity.
The Fund offers three classes of shares: Institutional Shares, Institutional
Service Shares, and Institutional Capital Shares.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry
System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to
be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount,
if applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code"). 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, 1998
is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Liquid Asset Backed Securities Trust, 9/12/1997 $ 2,000,000
Series 1996-3
Liquid Asset Backed Securities Trust, 2/19/1997 13,969,159
Series 1997-1
Liquid Asset Backed Securities Trust, 6/27/1997 26,411,629
Series 1997-3
Triangle Funding Ltd. 10/16/1997 5,000,000
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The
Fund records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued
or delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ
from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust Permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest ($0.001 par value) for
each class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL SHARES 1998 1997
<S> <C> <C>
Shares sold 13,256,360,968 19,036,179,355
Shares issued to shareholders in payment of distributions 26,084,298 26,074,950
declared
Shares redeemed (12,804,697,557)(21,428,886,085)
Net change resulting from Institutional Share transactions 477,747,709 (2,366,631,780)
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL SERVICE SHARES 1998 1997
<S> <C> <C>
Shares sold 1,999,938,515 305,004,232
Shares issued to shareholders in payment of distributions 5,524,975 2,107
declared
Shares redeemed (1,698,488,527) (306,966,945)
Net change resulting from Institutional Service Share 306,974,963 (1,960,606)
transactions
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL CAPITAL SHARES 1998 1997
<S> <C> <C>
Shares sold 720,345,533 20,000,186
Shares issued to shareholders in payment of distributions 1,420,721 5,718
declared
Shares redeemed (674,708,245) --
Net change resulting from Institutional Capital Share 47,058,009 20,005,904
transactions
<CAPTION>
YEAR ENDED JANUARY 31,
CLASS C SHARES 1998(a) 1997
<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 share transactions 831,780,681 (2,348,586,582)
</TABLE>
(a) As of November 15, 1996, the Fund's Class C Shares were no longer
operational.
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.
CAPITAL CONTRIBUTION
Lehman Brothers Global Asset Management, the Fund's 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.
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 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.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the Fund. The
fee paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee.
The fee is based on the level of the Fund's average daily net assets for the
period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended January 31, 1998, the Fund engaged in purchase and
sale transactions with funds that have a common investment adviser (or
affiliated investment advisers), common Directors/Trustees, and/or common
Officers. These purchase and sale transactions were made at current market
value pursuant to Rule 17a-7 under the Act amounting to $423,872,000 and
$349,618,000, respectively.
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, a
portfolio of Money Market Obligations Trust II, as of January 31, 1998, 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, 1998, by correspondence with the
custodian and brokers or other appropriate auditing procedures where replies
from brokers were not received. 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, 1998, 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 13, 1998
[Graphic]
Prime Value Obligations Fund
(A Portfolio of Money Market Obligations Trust II)
Institutional Shares
PROSPECTUS
MARCH 31, 1998
A Portfolio of Money Market Obligations Trust II, an Open-End Management
Investment Company
PRIME VALUE OBLIGATIONS FUND
INSTITUTIONAL SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue
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
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 608912705
G01881-01-IS (3/98)
[Graphic]
Prime Value Obligations Fund
(A Portfolio of Money Market Obligations Trust II)
Institutional Service Shares
PROSPECTUS
The Institutional Service Shares of Prime Value Obligations Fund (the
"Fund") offered by this prospectus represent interests in a portfolio of
Money Market Obligations Trust II (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, 1998, 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, 1998
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 5
Investment Limitations 5
Fund Information 6
Management of the Fund 6
Distribution of Institutional Service Shares 6
Administration of the Fund 7
Net Asset Value 7
How to PurchaseShares 7
Purchasing Shares by Wire 7
Purchasing Shares by Check 7
Invest-by-Phone 8
How to Redeem Shares 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 8
Account and Share Information 8
Dividends 8
Capital Gains 9
Account Activity 9
Accounts with Low Balances 9
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 9
Other Classes of Shares 9
Performance Information 10
Financial Highlights--Institutional Capital Shares 11
Financial Highlights--Institutional Shares 12
Financial Statements 13
Report of Ernst & Young LLP, Independent Auditors 26
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE SHARES
Shareholder Transaction Expenses
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.03%
12b-1 Fee None
Total Other Expenses 0.40%
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, 1999. The total
Institutional Service Shares operating expenses were 0.39% for fiscal year
ended January 31, 1998 and would have been 0.56% absent the voluntary
waivers of portions of the management fee and certain other operating
expenses.
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.
EXAMPLE
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.
1 Year $ 4
3 Years $14
5 Years $24
10 Years $54
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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 26.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.05 0.06 0.04 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.05) (0.05) (0.06) (0.04) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 5.41% 5.15% 5.84% 4.26% 1.26%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.39% 0.41% 0.42% 0.34% 0.32%*
Net investment income 5.32% 5.05% 5.68% 3.95% 2.98%*
Expense waiver/reimbursement(c) 0.17% 0.16% 0.08% 0.16% 0.29%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $325,390 $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 (the "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 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 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 or the Savings Association Insurance Fund. 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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies
as an efficient means of carrying out its investment policies. It should be
noted that investment companies incur certain expenses, such as management
fees, and, therefore, any investment by the Fund in shares of other
investment companies may be subject to such duplicate expenses.
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 $120 billion invested across
more than 300 funds under management and/or administration by its
subsidiaries, as of December 31, 1997, 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
approximately 4,000 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.
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.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
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, Martin
Luther King 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.
ACCOUNT ACTIVITY
Shareholders will receive periodic statements reporting all account
activity, including dividends paid. The Fund will not issue share
certificates.
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
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.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL CAPITAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.05
LESS DISTRIBUTIONS
Distributions from net investment income (0.05) (0.05)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
TOTAL RETURN(B) 5.55% 5.26%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.27% 0.28%
Net investment income 5.61% 5.17%
Expense waiver/reimbursement(c) 0.32% 0.31%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $67,064 $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)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.06 0.05 0.06 0.04 0.03
LESS DISTRIBUTIONS
Distributions from net investment income (0.06) (0.05) (0.06) (0.04) (0.03)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 5.68% 5.41% 6.10% 4.51% 3.21%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.14% 0.16% 0.17% 0.09% 0.07%*
Net investment income 5.59% 5.29% 5.93% 4.20% 3.23%*
Expense waiver/reimbursement(c) 0.18% 0.15% 0.08% 0.16% 0.29%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $865,742 $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)
PORTFOLIO OF INVESTMENTS
PRIME VALUE OBLIGATIONS FUND
JANUARY 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM NOTES--10.0%
BANKING--6.8%
$ 28,000,000 Bank of Boston, Connecticut, 5.840%, 6/1/1998 - 6/16/1998 $ 28,000,000
20,000,000 Goldman Sachs L.P., 5.600%, 4/27/1998 20,000,000
10,000,000 SALTS II Cayman Island Corp., (Bankers Trust Int'l., PLC 10,000,000
Swap Agreement) 6.038%, 6/18/1998
12,000,000 SALTS II Cayman Islands Corp., (Bankers Trust Int'l., PLC 12,000,000
Swap Agreement) 5.988%, 3/19/1998
15,000,000 SALTS III Cayman Island Corp., (Bankers Trust Int'l., PLC 15,000,000
Swap Agreement), 5.725%,7/23/1998
TOTAL 85,000,000
FINANCE - AUTOMOTIVE--1.2%
1,053,142 Chase Manhattan Auto Owner Trust 1997-B, 5.744%, 7/10/1998 1,053,142
13,452,254 MMCA Auto Owner Trust 1997-1, 5.630%, 11/15/1998 13,449,963
TOTAL 14,503,105
FINANCE - COMMERCIAL--0.4%
5,000,000 (b)Triangle Funding Ltd., 5.594%, 11/16/1998 5,000,000
FINANCE - EQUIPMENT--0.7%
7,441,351 Copelco Capital Funding Corp. X 1997-A, 5.809%, 7/20/1998 7,441,351
1,470,956 Heller Equipment Asset Receivables Trust 1997-1, 5.733%, 1,471,212
9/25/1998
TOTAL 8,912,563
INSURANCE--0.9%
4,154,734 Arcadia Automobile Receivables Trust 1997-C, (FSA Gtd.) 4,154,734
5.650%, 9/15/1998
7,781,258 ContiMortgage Home Equity Loan Trust 1997-5, (MBIA Gtd.) 7,781,258
5.906%, 1/15/1999
TOTAL 11,935,992
TOTAL SHORT-TERM NOTES 125,351,660
CERTIFICATES OF DEPOSIT--5.2%
BANKING--5.2%
10,000,000 Crestar Bank of Virginia, Richmond, 5.720%, 2/23/1998 10,000,119
8,000,000 MBNA America Bank, N.A., 5.870%, 3/2/1998 8,000,000
47,000,000 Societe Generale, Paris, 5.920% - 5.970%, 7/16/1998 - 46,988,423
10/15/1998
TOTAL CERTIFICATES OF DEPOSIT 64,988,542
(A)COMMERCIAL PAPER--51.1%
BANKING--10.8%
5,000,000 ABN AMRO Bank N.V., Amsterdam, 5.687%, 2/5/1998 4,996,928
</TABLE>
PRIME VALUE OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)COMMERCIAL PAPER--CONTINUED
BANKING--CONTINUED
$ 5,000,000 Abbey National N.A. Corp., (Guaranteed by Abbey National $ 4,981,500
Bank PLC, London), 5.708%, 2/25/1998
35,000,000 Aspen Funding Corp., (Supported by Deutsche Bank, AG/MBIA), 34,338,042
5.835% - 5.855%, 3/6/1998 - 6/16/1998
23,000,000 Cregem North America, Inc., (Guaranteed by Credit Communal 22,765,369
de Belgique, Brussles), 5.584% - 5.762%, 2/19/1998 -
4/16/1998
2,000,000 Den Danske Corp., Inc., (Guaranteed by Den Danske Bank 1,991,976
A/S), 5.716%, 2/27/1998
20,000,000 Glencore Finance (Bermuda) Ltd., (ABN AMRO Bank N.V., 19,733,556
Amsterdam LOC), 5.525%, 4/30/1998
35,000,000 J.P. Morgan & Co., Inc., 5.608%, 4/6/1998 34,655,911
5,000,000 Lloyds Bank PLC, London, 5.709%, 3/3/1998 4,976,875
8,000,000 Svenska Handelsbanken, Inc., (Guaranteed by Svenska 7,968,538
Handelsbanken, Stockholm), 5.700% - 5.740%, 2/2/1998 -
3/13/1998
TOTAL 136,408,695
BROKERAGE--7.6%
25,000,000 Merrill Lynch & Co., Inc., 5.514%, 4/21/1998 24,701,556
72,000,000 Morgan Stanley Group, Inc., 5.526% - 5.854%, 3/11/1998 - 71,209,353
4/27/1998
TOTAL 95,910,909
FINANCE - AUTOMOTIVE--1.6%
20,000,000 Ford Motor Credit Corp., 5.568%, 4/10/1998 19,792,600
FINANCE - COMMERCIAL--20.5%
15,000,000 Alpha Finance Corp., Ltd., 5.712% - 5.742%, 2/13/1998 - 14,951,008
3/12/1998
18,000,000 Asset Securitization Cooperative Corp., 5.809% - 5.841%, 17,887,856
3/9/1998 - 3/16/1998
16,000,000 Beta Finance, Inc., 5.708% - 5.741%, 2/17/1998 - 3/12/1998 15,924,750
40,000,000 CIESCO, L.P., 5.556%, 4/9/1998 39,592,044
38,000,000 CIT Group Holdings, Inc., 5.586% - 5.654%, 4/3/1998 - 37,631,578
4/6/1998
8,000,000 Falcon Asset Securitization Corp., 5.687%, 2/18/1998 7,979,109
20,000,000 General Electric Capital Corp., 5.709% - 5.743%, 3/2/1998 - 19,856,092
4/6/1998
68,987,000 Greenwich Funding Corp., 5.566% - 5.652%, 4/1/1998 - 68,054,461
7/1/1998
13,000,000 Receivables Capital Corp., 5.520% - 5.776%, 2/12/1998 - 12,976,442
2/13/1998
22,750,000 Sheffield Receivables Corp., 5.577%, 2/6/1998 22,732,464
TOTAL 257,585,804
FINANCE - EQUIPMENT--0.5%
6,800,000 Comdisco, Inc., 5.664% - 6.100%, 3/13/1998 - 4/10/1998 6,731,982
FINANCE - RETAIL--5.9%
75,000,000 New Center Asset Trust, A1+/P1 Series, 5.566% - 5.642%, 74,266,644
4/3/1998 - 4/8/1998
</TABLE>
PRIME VALUE OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)COMMERCIAL PAPER--CONTINUED
INDUSTRIAL PRODUCTS--1.2%
$ 15,600,000 Praxair, Inc., 5.659% - 5.939%, 3/20/1998 - 4/14/1998 $ 15,475,924
INSURANCE--1.0%
12,800,000 CNA Financial Corp., 6.021%, 3/19/1998 12,703,012
MACHINERY, EQUIPMENT, AUTO--0.6%
7,000,000 Eaton Corp., 5.709%, 2/2/1998 6,998,921
OIL & OIL FINANCE--1.4%
17,400,000 Occidental Petroleum Corp., 5.725%, 2/2/1998 17,397,235
TOTAL COMMERCIAL PAPER 643,271,726
(C)NOTES - VARIABLE--23.8%
BANKING--18.0%
9,675,000 500 South Front St. L.P., Series A, (Huntington National 9,675,000
Bank, Columbus, OH LOC), 5.580%, 2/5/1998
6,235,000 500 South Front St. L.P., Series B, (Huntington National 6,235,000
Bank, Columbus, OH LOC), 5.580%, 2/5/1998
1,557,500 Alabama State IDA, (Nichols Research Corp.), (SouthTrust 1,557,500
Bank of Alabama, Birmingham LOC), 5.700%, 2/6/1998
3,000,000 American Seaway Foods, Inc., (KeyBank, N.A. LOC), 5.620%, 3,000,000
2/6/1998
4,900,000 Associated Materials, Inc., (KeyBank, N.A. LOC), 5.620%, 4,900,000
2/6/1998
1,895,000 Athens-Clarke County, GA IDA, Barrett Project (Series 1,895,000
1995), (Columbus Bank and Trust Co., GA LOC), 5.750%,
2/5/1998
20,000,000 Bankers Trust New York Corp., 5.790%, 2/6/1998 20,000,000
16,900,000 Beverly California Corp., (PNC Bank, N.A. LOC), 5.601%, 16,900,000
2/2/1998
17,300,000 Beverly Hills Nursing Center, Inc., Medilodge Project 17,300,000
Series 1996, (KeyBank, N.A. LOC), 5.630%, 2/5/1998
3,240,000 Birmingham, AL IDB, MRS. STRATTONS SALADS, INC., 5.700%, 3,240,000
2/6/1998
2,145,000 Bissett, William K. and Sheryl B., Multi-Option Adjustable 2,145,000
Rate Notes, (Huntington National Bank, Columbus, OH LOC),
5.580%, 2/5/1998
800,000 Carmel, IN, Telamon Corp. Series 1996-C, (Huntington 800,000
National Bank, Columbus, OH LOC), 5.680%, 2/5/1998
1,000,000 Carmel, IN, Telamon Corp. Series A, (Huntington National 1,000,000
Bank, Columbus, OH LOC), 5.680%, 2/5/1998
1,100,000 Carmel, IN, Telamon Corp. Series B, (Huntington National 1,100,000
Bank, Columbus, OH LOC), 5.680%, 2/5/1998
2,000,000 Chestnut Hills Apartments, Ltd., (Huntington National Bank, 2,000,000
Columbus, OH LOC), 5.630%, 2/5/1998
8,400,000 Cloquet, MN, Series 1996-B Potlach Corp., (Credit Suisse 8,400,000
First Boston LOC), 5.650%, 2/4/1998
</TABLE>
PRIME VALUE OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C)NOTES - VARIABLE--CONTINUED
BANKING--CONTINUED
$ 5,478,000 Congregate Care Corp., (Union Bank of California LOC), $ 5,478,000
5.820%, 2/4/1998
1,355,000 Continental Commercial Properties, (Huntington National 1,355,000
Bank, Columbus, OH LOC), 5.580%, 2/5/1998
2,140,000 Continental Downtown Properties, (Huntington National Bank, 2,140,000
Columbus, OH LOC), 5.580%, 2/5/1998
6,000,000 Dellridge Care Center Limited Partnership, Series 1997, 6,000,000
(First National Bank of Maryland, Baltimore LOC), 5.660%,
2/4/1998
2,100,000 Hill Dental Co, Inc., (SouthTrust Bank of Alabama, 2,100,000
Birmingham LOC), 5.700%, 2/6/1998
9,810,000 International Processing Corp., (Bank One, Kentucky LOC), 9,810,000
5.630%, 2/5/1998
2,500,000 Jeffersonville, IN, Series 1997-B Wayne Steel, Inc., (Bank 2,500,000
One, Ohio, N.A. LOC), 5.580%, 2/5/1998
6,200,000 Kenny, Donald R. and Cheryl A., Series 1997, (Star Bank, 6,200,000
N.A., Cincinnati LOC), 5.630%, 2/5/1998
4,000,000 Lake Sherwood Senior Living Center, LLC, (Union Planters 4,000,000
NB, Memphis, TN LOC), 5.880%, 2/5/1998
2,000,000 (b)Liquid Asset Backed Securities Trust, Series 1996-3, 2,000,000
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.614%, 2/17/1998
13,969,159 (b)Liquid Asset Backed Securities Trust, Series 1997-1, 13,969,159
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.594%, 2/17/1998
5,000,000 Long Lane Master Trust III, Series 1997-C, 5.780%, 5,000,000
2/28/1998
4,100,000 Melberger, Clifford K. and Ruth B., (PNC Bank, N.A. LOC), 4,100,000
5.601%, 2/2/1998
6,860,000 Pine Ridge Associates, LTD., (Mellon Bank N.A., Pittsburgh 6,860,000
LOC), 5.600%, 2/4/1998
3,000,000 Poly Foam International, Inc., (National City Bank, 3,000,000
Cleveland, OH LOC), 5.550%, 2/5/1998
8,500,000 Rubloff-Rockford, LLC, Series 1997, (First of America Bank 8,500,000
- Illinois LOC), 5.750%, 2/4/1998
17,900,000 Scranton Times, L.P., Series 1997, (PNC Bank, N.A. LOC), 17,900,000
5.601%, 2/2/1998
2,880,000 Solon, OH, Schneps, (Bank One, Ohio, N.A. LOC), 5.580%, 2,880,000
2/5/1998
895,000 Southeast Regional Holdings, LLC, Series 1995-A, (Columbus 895,000
Bank and Trust Co., GA LOC), 5.830%, 2/5/1998
9,600,000 Southern Coil Processing, Inc. Notes, (Amsouth Bank N.A., 9,600,000
Birmingham LOC), 5.670%, 2/5/1998
1,720,000 Team Rahal of Mechanicsburg, Inc., Series 1997, (Huntington 1,720,000
National Bank, Columbus, OH LOC), 5.580%, 2/5/1998
1,880,000 Team Rahal, Inc., Series 1997, (Huntington National Bank, 1,880,000
Columbus, OH LOC), 5.580%, 2/5/1998
1,668,000 Vista Funding Corp., Series 1995-A, (Star Bank, N.A., 1,668,000
Cincinnati LOC), 5.580%, 2/5/1998
6,040,000 Westcourt, (Bank One, Texas N.A. LOC), 5.630%, 2/5/1998 6,040,000
TOTAL 225,742,659
FINANCE - EQUIPMENT--0.8%
10,600,000 Comdisco, Inc., 5.975%, 2/24/1998 10,600,000
</TABLE>
PRIME VALUE OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C)NOTES - VARIABLE--CONTINUED
FINANCE - RETAIL--1.7%
$ 2,000,000 AFS Insurance Premium Receivables Trust, (Series 1994-A), $ 2,000,000
6.150%, 2/17/1998
20,000,000 Associates Corp. of North America, 5.730%, 1/30/1998 19,991,059
TOTAL 21,991,059
INSURANCE--3.3%
5,000,000 Jackson National Life Insurance Co., 5.699%, 2/1/1998 5,000,000
10,000,000 Jackson National Life Insurance Co., 5.840%, 2/28/1998 10,000,000
26,411,629 (b)Liquid Asset Backed Securities Trust, Series 1997-3 26,411,629
Senior Notes, (Guaranteed by AMBAC), 5.876%, 3/27/1998
TOTAL 41,411,629
TOTAL NOTES--VARIABLE 299,745,347
LOAN PARTICIPATION--0.8%
FINANCE - EQUIPMENT--0.8%
10,000,000 Pitney Bowes Credit Corp., 5.605%, 2/10/1998 9,986,050
SHORT-TERM MUNICIPAL--0.1%
970,000 Colorado Health Facilities Authority, Series B, (Bank One, 970,000
Colorado LOC), 5.630%, 12/1/1998
(D)REPURCHASE AGREEMENTS--10.7%
40,000,000 Bear, Stearns and Co., 5.650%, dated 1/30/1998, due 40,000,000
2/2/1998
15,000,000 Chase Government Securities, Inc., 5.550%, dated 1/27/1998, 15,000,000
due 4/6/1998
15,000,000 Fuji Government Securities, Inc., 5.620%, dated 1/30/1998, 15,000,000
due 2/2/1998
40,000,000 Goldman Sachs Group, LP, 5.650%, dated 1/30/1998, due 40,000,000
2/2/1998
24,000,000 Societe Generale, New York, 5.600%, dated 1/30/1998, due 24,000,000
2/2/1998
TOTAL REPURCHASE AGREEMENTS 134,000,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(E) $ 1,278,313,325
</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, 1998, these securities
amounted to $47,380,788 which represents 3.8% 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
($1,258,195,953) at January 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation
FSA --Financial Security Assurance
IDA --Industrial Development Authority
IDB --Industrial Development Bond
LLC --Limited Liability Corporation
LOC --Letter of Credit
LP --Limited Partnership
MBIA --Municipal Bond Investors Assurance
PLC --Public Limited Company
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
PRIME VALUE OBLIGATIONS FUND
JANUARY 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 134,000,000
Investments in securities 1,144,313,325
Total investments in securities, at amortized cost and value $ 1,278,313,325
Cash 274,674
Income receivable 4,843,248
Receivable for shares sold 21,028
Total assets 1,283,452,275
LIABILITIES:
Payable for investments purchased $ 20,000,000
Payable for shares redeemed 3,564,922
Income distribution payable 1,584,808
Accrued expenses 106,592
Total liabilities 25,256,322
Net Assets for 1,258,195,953 shares outstanding $ 1,258,195,953
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$865,742,169 / 865,742,169 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$325,389,771 / 325,389,771 shares outstanding $1.00
INSTITUTIONAL CAPITAL SHARES:
$67,064,013 / 67,064,013 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
PRIME VALUE OBLIGATIONS FUND
YEAR ENDED JANUARY 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 52,156,915
EXPENSES:
Investment advisory fee $ 1,821,778
Administrative personnel and services fee 687,478
Custodian fees 80,171
Transfer and dividend disbursing agent fees and 17,537
expenses
Directors'/Trustees' fees 6,129
Auditing fees 14,294
Legal fees 3,697
Portfolio accounting fees 141,580
Shareholder services fee--Institutional Service 379,108
Shares
Shareholder services fee--Institutional Capital 66,766
Shares
Share registration costs 46,162
Printing and postage 25,174
Insurance premiums 9,127
Taxes 688
Miscellaneous 38,771
Total expenses 3,338,460
Waivers--
Waiver of investment advisory fee $ (1,553,105)
Waiver of administrative personnel and services fee (44,021)
Waiver of custodian fees (2,485)
Waiver of transfer and dividend disbursing agent (1,584)
fees and expenses
Waiver of portfolio accounting fees (29,739)
Waiver of shareholder services fee--Institutional (40,060)
Capital Shares
Total waivers (1,670,994)
Net expenses 1,667,466
Net investment income $ 50,489,449
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
PRIME VALUE OBLIGATIONS FUND
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 50,489,449 $ 57,298,613
Net realized gain (loss) on investments -- (1,090,952)
Change in net assets resulting from operations 50,489,449 56,207,661
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (40,931,344) (56,210,350)
Institutional Service Shares (8,059,884) (1,082,127)
Institutional Capital Shares (1,498,221) (6,136)
Change in net assets resulting from distributions to (50,489,449) (57,298,613)
shareholders
CAPITAL CONTRIBUTION -- 1,330,378
SHARE TRANSACTIONS--
Proceeds from sale of shares 15,976,645,016 19,361,183,773
Net asset value of shares issued to shareholders in 33,029,994 26,082,775
payment of distributions declared
Cost of shares redeemed (15,177,894,329) (21,735,853,130)
Change in net assets resulting from share transactions 831,780,681 (2,348,586,582)
Change in net assets 831,780,681 (2,348,347,156)
NET ASSETS:
Beginning of period 426,415,272 2,774,762,428
End of period $ 1,258,195,953 $ 426,415,272
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
PRIME VALUE OBLIGATIONS FUND
JANUARY 31, 1998
ORGANIZATION
Money Market Obligations Trust II (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of three portfolios. The
financial statements included herein are only those of Prime Value
Obligations Fund (the "Fund"). The financial statements of the other
portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The investment objective of the Fund is to provide a high
level of current income consistent with stability of principal and
liquidity.
The Fund offers three classes of shares: Institutional Shares, Institutional
Service Shares, and Institutional Capital Shares.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry
System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to
be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount,
if applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code"). 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, 1998
is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Liquid Asset Backed Securities Trust, 9/12/1997 $ 2,000,000
Series 1996-3
Liquid Asset Backed Securities Trust, 2/19/1997 13,969,159
Series 1997-1
Liquid Asset Backed Securities Trust, 6/27/1997 26,411,629
Series 1997-3
Triangle Funding Ltd. 10/16/1997 5,000,000
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The
Fund records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued
or delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ
from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust Permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest ($0.001 par value) for
each class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL SHARES 1998 1997
<S> <C> <C>
Shares sold 13,256,360,968 19,036,179,355
Shares issued to shareholders in payment of distributions 26,084,298 26,074,950
declared
Shares redeemed (12,804,697,557)(21,428,886,085)
Net change resulting from Institutional Share transactions 477,747,709 (2,366,631,780)
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL SERVICE SHARES 1998 1997
<S> <C> <C>
Shares sold 1,999,938,515 305,004,232
Shares issued to shareholders in payment of distributions 5,524,975 2,107
declared
Shares redeemed (1,698,488,527) (306,966,945)
Net change resulting from Institutional Service Share 306,974,963 (1,960,606)
transactions
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL CAPITAL SHARES 1998 1997
<S> <C> <C>
Shares sold 720,345,533 20,000,186
Shares issued to shareholders in payment of distributions 1,420,721 5,718
declared
Shares redeemed (674,708,245) --
Net change resulting from Institutional Capital Share 47,058,009 20,005,904
transactions
<CAPTION>
YEAR ENDED JANUARY 31,
CLASS C SHARES 1998(a) 1997
<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 share transactions 831,780,681 (2,348,586,582)
</TABLE>
(a) As of November 15, 1996, the Fund's Class C Shares were no longer
operational.
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.
CAPITAL CONTRIBUTION
Lehman Brothers Global Asset Management, the Fund's 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.
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 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.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the Fund. The
fee paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee.
The fee is based on the level of the Fund's average daily net assets for the
period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended January 31, 1998, the Fund engaged in purchase and
sale transactions with funds that have a common investment adviser (or
affiliated investment advisers), common Directors/Trustees, and/or common
Officers. These purchase and sale transactions were made at current market
value pursuant to Rule 17a-7 under the Act amounting to $423,872,000 and
$349,618,000, respectively.
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, a
portfolio of Money Market Obligations Trust II, as of January 31, 1998, 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, 1998, by correspondence with the
custodian and brokers or other appropriate auditing procedures where replies
from brokers were not received. 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, 1998, 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 13, 1998
[Graphic]
Prime Value Obligations Fund
(A Portfolio of Money Market Obligations Trust II)
Institutional Service Shares
PROSPECTUS
MARCH 31, 1998
A Portfolio of Money Market Obligations Trust II, an Open-End Management
Investment Company
PRIME VALUE OBLIGATIONS FUND
INSTITUTIONAL SERVICE SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue
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
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 608912804
G01881-02-SS (3/98)
[Graphic]
Prime Value Obligations Fund
(A Portfolio of Money Market Obligations Trust II)
Institutional Capital Shares
PROSPECTUS
The Institutional Capital Shares of Prime Value Obligations Fund (the
"Fund") offered by this prospectus represent interests in a portfolio of
Money Market Obligations Trust II (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, 1998, 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, 1998
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 5
Investment Limitations 5
Fund Information 6
Management of the Fund 6
Distribution of Institutional Capital Shares 6
Administration of the Fund 7
Net Asset Value 7
How to PurchaseShares 7
Purchasing Shares by Wire 7
Purchasing Shares by Check 8
Invest-by-Phone 8
How to Redeem Shares 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 8
Account and Share Information 9
Dividends 9
Capital Gains 9
Account Activity 9
Accounts with Low Balances 9
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 9
Other Classes of Shares 9
Performance Information 10
Financial Highlights--Institutional Service Shares 11
Financial Highlights--Institutional Shares 12
Financial Statements 13
Report of Ernst & Young LLP, Independent Auditors 26
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL CAPITAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <S>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.03%
12b-1 Fee None
Total Other Expenses 0.27%
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 shareholder 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, 1999. The total
Institutional Capital Shares operating expenses were 0.27% for fiscal year
ended January 31, 1998 and would have been 0.59% absent the voluntary
waivers of portions of the management fee, shareholder services fee and
certain other operating expenses.
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.
EXAMPLE
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.
1 Year $ 3
3 Years $10
5 Years $17
10 Years $38
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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 26.
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.05
LESS DISTRIBUTIONS
Distributions from net investment income (0.05) (0.05)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
TOTAL RETURN(B) 5.55% 5.26%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.27% 0.28%
Net investment income 5.61% 5.17%
Expense waiver/reimbursement(c) 0.32% 0.31%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $67,064 $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 (the "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 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 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 categories 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 or the Savings Association Insurance Fund. 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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies
as an efficient means of carrying out its investment policies. It should be
noted that investment companies incur certain expenses, such as management
fees, and, therefore, any investment by the Fund in shares of other
investment companies may be subject to such duplicate expenses.
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 $120 billion invested across
more than 300 funds under management and/or administration by its
subsidiaries, as of December 31, 1997, 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
approximately 4,000 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.
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.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
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, Martin
Luther King, Jr. 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.
ACCOUNT ACTIVITY
Shareholders will receive periodic statements reporting all account
activity, including dividends paid. The Fund will not issue share
certificates.
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 2, 1998, Centex Corporation, Dallas, Texas, owned 33.37% 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
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.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.05 0.06 0.04 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.05) (0.05) (0.06) (0.04) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 5.41% 5.15% 5.84% 4.26% 1.26%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.39% 0.41% 0.42% 0.34% 0.32%*
Net investment income 5.32% 5.05% 5.68% 3.95% 2.98%*
Expense waiver/reimbursement(c) 0.17% 0.16% 0.08% 0.16% 0.29%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $325,390 $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)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.06 0.05 0.06 0.04 0.03
LESS DISTRIBUTIONS
Distributions from net investment income (0.06) (0.05) (0.06) (0.04) (0.03)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 5.68% 5.41% 6.10% 4.51% 3.21%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.14% 0.16% 0.17% 0.09% 0.07%*
Net investment income 5.59% 5.29% 5.93% 4.20% 3.23%*
Expense waiver/reimbursement(c) 0.18% 0.15% 0.08% 0.16% 0.29%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $865,742 $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)
PORTFOLIO OF INVESTMENTS
PRIME VALUE OBLIGATIONS FUND
JANUARY 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM NOTES--10.0%
BANKING--6.8%
$ 28,000,000 Bank of Boston, Connecticut, 5.840%, 6/1/1998 - 6/16/1998 $ 28,000,000
20,000,000 Goldman Sachs L.P., 5.600%, 4/27/1998 20,000,000
10,000,000 SALTS II Cayman Island Corp., (Bankers Trust Int'l., PLC 10,000,000
Swap Agreement) 6.038%, 6/18/1998
12,000,000 SALTS II Cayman Islands Corp., (Bankers Trust Int'l., PLC 12,000,000
Swap Agreement) 5.988%, 3/19/1998
15,000,000 SALTS III Cayman Island Corp., (Bankers Trust Int'l., PLC 15,000,000
Swap Agreement), 5.725%,7/23/1998
TOTAL 85,000,000
FINANCE - AUTOMOTIVE--1.2%
1,053,142 Chase Manhattan Auto Owner Trust 1997-B, 5.744%, 7/10/1998 1,053,142
13,452,254 MMCA Auto Owner Trust 1997-1, 5.630%, 11/15/1998 13,449,963
TOTAL 14,503,105
FINANCE - COMMERCIAL--0.4%
5,000,000 (b)Triangle Funding Ltd., 5.594%, 11/16/1998 5,000,000
FINANCE - EQUIPMENT--0.7%
7,441,351 Copelco Capital Funding Corp. X 1997-A, 5.809%, 7/20/1998 7,441,351
1,470,956 Heller Equipment Asset Receivables Trust 1997-1, 5.733%, 1,471,212
9/25/1998
TOTAL 8,912,563
INSURANCE--0.9%
4,154,734 Arcadia Automobile Receivables Trust 1997-C, (FSA Gtd.) 4,154,734
5.650%, 9/15/1998
7,781,258 ContiMortgage Home Equity Loan Trust 1997-5, (MBIA Gtd.) 7,781,258
5.906%, 1/15/1999
TOTAL 11,935,992
TOTAL SHORT-TERM NOTES 125,351,660
CERTIFICATES OF DEPOSIT--5.2%
BANKING--5.2%
10,000,000 Crestar Bank of Virginia, Richmond, 5.720%, 2/23/1998 10,000,119
8,000,000 MBNA America Bank, N.A., 5.870%, 3/2/1998 8,000,000
47,000,000 Societe Generale, Paris, 5.920% - 5.970%, 7/16/1998 - 46,988,423
10/15/1998
TOTAL CERTIFICATES OF DEPOSIT 64,988,542
(A)COMMERCIAL PAPER--51.1%
BANKING--10.8%
5,000,000 ABN AMRO Bank N.V., Amsterdam, 5.687%, 2/5/1998 4,996,928
</TABLE>
PRIME VALUE OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)COMMERCIAL PAPER--CONTINUED
BANKING--CONTINUED
$ 5,000,000 Abbey National N.A. Corp., (Guaranteed by Abbey National $ 4,981,500
Bank PLC, London), 5.708%, 2/25/1998
35,000,000 Aspen Funding Corp., (Supported by Deutsche Bank, AG/MBIA), 34,338,042
5.835% - 5.855%, 3/6/1998 - 6/16/1998
23,000,000 Cregem North America, Inc., (Guaranteed by Credit Communal 22,765,369
de Belgique, Brussles), 5.584% - 5.762%, 2/19/1998 -
4/16/1998
2,000,000 Den Danske Corp., Inc., (Guaranteed by Den Danske Bank 1,991,976
A/S), 5.716%, 2/27/1998
20,000,000 Glencore Finance (Bermuda) Ltd., (ABN AMRO Bank N.V., 19,733,556
Amsterdam LOC), 5.525%, 4/30/1998
35,000,000 J.P. Morgan & Co., Inc., 5.608%, 4/6/1998 34,655,911
5,000,000 Lloyds Bank PLC, London, 5.709%, 3/3/1998 4,976,875
8,000,000 Svenska Handelsbanken, Inc., (Guaranteed by Svenska 7,968,538
Handelsbanken, Stockholm), 5.700% - 5.740%, 2/2/1998 -
3/13/1998
TOTAL 136,408,695
BROKERAGE--7.6%
25,000,000 Merrill Lynch & Co., Inc., 5.514%, 4/21/1998 24,701,556
72,000,000 Morgan Stanley Group, Inc., 5.526% - 5.854%, 3/11/1998 - 71,209,353
4/27/1998
TOTAL 95,910,909
FINANCE - AUTOMOTIVE--1.6%
20,000,000 Ford Motor Credit Corp., 5.568%, 4/10/1998 19,792,600
FINANCE - COMMERCIAL--20.5%
15,000,000 Alpha Finance Corp., Ltd., 5.712% - 5.742%, 2/13/1998 - 14,951,008
3/12/1998
18,000,000 Asset Securitization Cooperative Corp., 5.809% - 5.841%, 17,887,856
3/9/1998 - 3/16/1998
16,000,000 Beta Finance, Inc., 5.708% - 5.741%, 2/17/1998 - 3/12/1998 15,924,750
40,000,000 CIESCO, L.P., 5.556%, 4/9/1998 39,592,044
38,000,000 CIT Group Holdings, Inc., 5.586% - 5.654%, 4/3/1998 - 37,631,578
4/6/1998
8,000,000 Falcon Asset Securitization Corp., 5.687%, 2/18/1998 7,979,109
20,000,000 General Electric Capital Corp., 5.709% - 5.743%, 3/2/1998 - 19,856,092
4/6/1998
68,987,000 Greenwich Funding Corp., 5.566% - 5.652%, 4/1/1998 - 68,054,461
7/1/1998
13,000,000 Receivables Capital Corp., 5.520% - 5.776%, 2/12/1998 - 12,976,442
2/13/1998
22,750,000 Sheffield Receivables Corp., 5.577%, 2/6/1998 22,732,464
TOTAL 257,585,804
FINANCE - EQUIPMENT--0.5%
6,800,000 Comdisco, Inc., 5.664% - 6.100%, 3/13/1998 - 4/10/1998 6,731,982
FINANCE - RETAIL--5.9%
75,000,000 New Center Asset Trust, A1+/P1 Series, 5.566% - 5.642%, 74,266,644
4/3/1998 - 4/8/1998
</TABLE>
PRIME VALUE OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)COMMERCIAL PAPER--CONTINUED
INDUSTRIAL PRODUCTS--1.2%
$ 15,600,000 Praxair, Inc., 5.659% - 5.939%, 3/20/1998 - 4/14/1998 $ 15,475,924
INSURANCE--1.0%
12,800,000 CNA Financial Corp., 6.021%, 3/19/1998 12,703,012
MACHINERY, EQUIPMENT, AUTO--0.6%
7,000,000 Eaton Corp., 5.709%, 2/2/1998 6,998,921
OIL & OIL FINANCE--1.4%
17,400,000 Occidental Petroleum Corp., 5.725%, 2/2/1998 17,397,235
TOTAL COMMERCIAL PAPER 643,271,726
(C)NOTES - VARIABLE--23.8%
BANKING--18.0%
9,675,000 500 South Front St. L.P., Series A, (Huntington National 9,675,000
Bank, Columbus, OH LOC), 5.580%, 2/5/1998
6,235,000 500 South Front St. L.P., Series B, (Huntington National 6,235,000
Bank, Columbus, OH LOC), 5.580%, 2/5/1998
1,557,500 Alabama State IDA, (Nichols Research Corp.), (SouthTrust 1,557,500
Bank of Alabama, Birmingham LOC), 5.700%, 2/6/1998
3,000,000 American Seaway Foods, Inc., (KeyBank, N.A. LOC), 5.620%, 3,000,000
2/6/1998
4,900,000 Associated Materials, Inc., (KeyBank, N.A. LOC), 5.620%, 4,900,000
2/6/1998
1,895,000 Athens-Clarke County, GA IDA, Barrett Project (Series 1,895,000
1995), (Columbus Bank and Trust Co., GA LOC), 5.750%,
2/5/1998
20,000,000 Bankers Trust New York Corp., 5.790%, 2/6/1998 20,000,000
16,900,000 Beverly California Corp., (PNC Bank, N.A. LOC), 5.601%, 16,900,000
2/2/1998
17,300,000 Beverly Hills Nursing Center, Inc., Medilodge Project 17,300,000
Series 1996, (KeyBank, N.A. LOC), 5.630%, 2/5/1998
3,240,000 Birmingham, AL IDB, MRS. STRATTONS SALADS, INC., 5.700%, 3,240,000
2/6/1998
2,145,000 Bissett, William K. and Sheryl B., Multi-Option Adjustable 2,145,000
Rate Notes, (Huntington National Bank, Columbus, OH LOC),
5.580%, 2/5/1998
800,000 Carmel, IN, Telamon Corp. Series 1996-C, (Huntington 800,000
National Bank, Columbus, OH LOC), 5.680%, 2/5/1998
1,000,000 Carmel, IN, Telamon Corp. Series A, (Huntington National 1,000,000
Bank, Columbus, OH LOC), 5.680%, 2/5/1998
1,100,000 Carmel, IN, Telamon Corp. Series B, (Huntington National 1,100,000
Bank, Columbus, OH LOC), 5.680%, 2/5/1998
2,000,000 Chestnut Hills Apartments, Ltd., (Huntington National Bank, 2,000,000
Columbus, OH LOC), 5.630%, 2/5/1998
8,400,000 Cloquet, MN, Series 1996-B Potlach Corp., (Credit Suisse 8,400,000
First Boston LOC), 5.650%, 2/4/1998
</TABLE>
PRIME VALUE OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C)NOTES - VARIABLE--CONTINUED
BANKING--CONTINUED
$ 5,478,000 Congregate Care Corp., (Union Bank of California LOC), $ 5,478,000
5.820%, 2/4/1998
1,355,000 Continental Commercial Properties, (Huntington National 1,355,000
Bank, Columbus, OH LOC), 5.580%, 2/5/1998
2,140,000 Continental Downtown Properties, (Huntington National Bank, 2,140,000
Columbus, OH LOC), 5.580%, 2/5/1998
6,000,000 Dellridge Care Center Limited Partnership, Series 1997, 6,000,000
(First National Bank of Maryland, Baltimore LOC), 5.660%,
2/4/1998
2,100,000 Hill Dental Co, Inc., (SouthTrust Bank of Alabama, 2,100,000
Birmingham LOC), 5.700%, 2/6/1998
9,810,000 International Processing Corp., (Bank One, Kentucky LOC), 9,810,000
5.630%, 2/5/1998
2,500,000 Jeffersonville, IN, Series 1997-B Wayne Steel, Inc., (Bank 2,500,000
One, Ohio, N.A. LOC), 5.580%, 2/5/1998
6,200,000 Kenny, Donald R. and Cheryl A., Series 1997, (Star Bank, 6,200,000
N.A., Cincinnati LOC), 5.630%, 2/5/1998
4,000,000 Lake Sherwood Senior Living Center, LLC, (Union Planters 4,000,000
NB, Memphis, TN LOC), 5.880%, 2/5/1998
2,000,000 (b)Liquid Asset Backed Securities Trust, Series 1996-3, 2,000,000
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.614%, 2/17/1998
13,969,159 (b)Liquid Asset Backed Securities Trust, Series 1997-1, 13,969,159
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.594%, 2/17/1998
5,000,000 Long Lane Master Trust III, Series 1997-C, 5.780%, 5,000,000
2/28/1998
4,100,000 Melberger, Clifford K. and Ruth B., (PNC Bank, N.A. LOC), 4,100,000
5.601%, 2/2/1998
6,860,000 Pine Ridge Associates, LTD., (Mellon Bank N.A., Pittsburgh 6,860,000
LOC), 5.600%, 2/4/1998
3,000,000 Poly Foam International, Inc., (National City Bank, 3,000,000
Cleveland, OH LOC), 5.550%, 2/5/1998
8,500,000 Rubloff-Rockford, LLC, Series 1997, (First of America Bank 8,500,000
- Illinois LOC), 5.750%, 2/4/1998
17,900,000 Scranton Times, L.P., Series 1997, (PNC Bank, N.A. LOC), 17,900,000
5.601%, 2/2/1998
2,880,000 Solon, OH, Schneps, (Bank One, Ohio, N.A. LOC), 5.580%, 2,880,000
2/5/1998
895,000 Southeast Regional Holdings, LLC, Series 1995-A, (Columbus 895,000
Bank and Trust Co., GA LOC), 5.830%, 2/5/1998
9,600,000 Southern Coil Processing, Inc. Notes, (Amsouth Bank N.A., 9,600,000
Birmingham LOC), 5.670%, 2/5/1998
1,720,000 Team Rahal of Mechanicsburg, Inc., Series 1997, (Huntington 1,720,000
National Bank, Columbus, OH LOC), 5.580%, 2/5/1998
1,880,000 Team Rahal, Inc., Series 1997, (Huntington National Bank, 1,880,000
Columbus, OH LOC), 5.580%, 2/5/1998
1,668,000 Vista Funding Corp., Series 1995-A, (Star Bank, N.A., 1,668,000
Cincinnati LOC), 5.580%, 2/5/1998
6,040,000 Westcourt, (Bank One, Texas N.A. LOC), 5.630%, 2/5/1998 6,040,000
TOTAL 225,742,659
FINANCE - EQUIPMENT--0.8%
10,600,000 Comdisco, Inc., 5.975%, 2/24/1998 10,600,000
</TABLE>
PRIME VALUE OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C)NOTES - VARIABLE--CONTINUED
FINANCE - RETAIL--1.7%
$ 2,000,000 AFS Insurance Premium Receivables Trust, (Series 1994-A), $ 2,000,000
6.150%, 2/17/1998
20,000,000 Associates Corp. of North America, 5.730%, 1/30/1998 19,991,059
TOTAL 21,991,059
INSURANCE--3.3%
5,000,000 Jackson National Life Insurance Co., 5.699%, 2/1/1998 5,000,000
10,000,000 Jackson National Life Insurance Co., 5.840%, 2/28/1998 10,000,000
26,411,629 (b)Liquid Asset Backed Securities Trust, Series 1997-3 26,411,629
Senior Notes, (Guaranteed by AMBAC), 5.876%, 3/27/1998
TOTAL 41,411,629
TOTAL NOTES--VARIABLE 299,745,347
LOAN PARTICIPATION--0.8%
FINANCE - EQUIPMENT--0.8%
10,000,000 Pitney Bowes Credit Corp., 5.605%, 2/10/1998 9,986,050
SHORT-TERM MUNICIPAL--0.1%
970,000 Colorado Health Facilities Authority, Series B, (Bank One, 970,000
Colorado LOC), 5.630%, 12/1/1998
(D)REPURCHASE AGREEMENTS--10.7%
40,000,000 Bear, Stearns and Co., 5.650%, dated 1/30/1998, due 40,000,000
2/2/1998
15,000,000 Chase Government Securities, Inc., 5.550%, dated 1/27/1998, 15,000,000
due 4/6/1998
15,000,000 Fuji Government Securities, Inc., 5.620%, dated 1/30/1998, 15,000,000
due 2/2/1998
40,000,000 Goldman Sachs Group, LP, 5.650%, dated 1/30/1998, due 40,000,000
2/2/1998
24,000,000 Societe Generale, New York, 5.600%, dated 1/30/1998, due 24,000,000
2/2/1998
TOTAL REPURCHASE AGREEMENTS 134,000,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(E) $ 1,278,313,325
</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, 1998, these securities
amounted to $47,380,788 which represents 3.8% 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
($1,258,195,953) at January 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation
FSA --Financial Security Assurance
IDA --Industrial Development Authority
IDB --Industrial Development Bond
LLC --Limited Liability Corporation
LOC --Letter of Credit
LP --Limited Partnership
MBIA --Municipal Bond Investors Assurance
PLC --Public Limited Company
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
PRIME VALUE OBLIGATIONS FUND
JANUARY 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 134,000,000
Investments in securities 1,144,313,325
Total investments in securities, at amortized cost and value $ 1,278,313,325
Cash 274,674
Income receivable 4,843,248
Receivable for shares sold 21,028
Total assets 1,283,452,275
LIABILITIES:
Payable for investments purchased $ 20,000,000
Payable for shares redeemed 3,564,922
Income distribution payable 1,584,808
Accrued expenses 106,592
Total liabilities 25,256,322
Net Assets for 1,258,195,953 shares outstanding $ 1,258,195,953
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$865,742,169 / 865,742,169 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$325,389,771 / 325,389,771 shares outstanding $1.00
INSTITUTIONAL CAPITAL SHARES:
$67,064,013 / 67,064,013 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
PRIME VALUE OBLIGATIONS FUND
YEAR ENDED JANUARY 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 52,156,915
EXPENSES:
Investment advisory fee $ 1,821,778
Administrative personnel and services fee 687,478
Custodian fees 80,171
Transfer and dividend disbursing agent fees and 17,537
expenses
Directors'/Trustees' fees 6,129
Auditing fees 14,294
Legal fees 3,697
Portfolio accounting fees 141,580
Shareholder services fee--Institutional Service Shares 379,108
Shareholder services fee--Institutional Capital Shares 66,766
Share registration costs 46,162
Printing and postage 25,174
Insurance premiums 9,127
Taxes 688
Miscellaneous 38,771
Total expenses 3,338,460
Waivers--
Waiver of investment advisory fee $ (1,553,105)
Waiver of administrative personnel and services fee (44,021)
Waiver of custodian fees (2,485)
Waiver of transfer and dividend disbursing agent (1,584)
fees and expenses
Waiver of portfolio accounting fees (29,739)
Waiver of shareholder services fee--Institutional (40,060)
Capital Shares
Total waivers (1,670,994)
Net expenses 1,667,466
Net investment income $ 50,489,449
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
PRIME VALUE OBLIGATIONS FUND
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 50,489,449 $ 57,298,613
Net realized gain (loss) on investments -- (1,090,952)
Change in net assets resulting from operations 50,489,449 56,207,661
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (40,931,344) (56,210,350)
Institutional Service Shares (8,059,884) (1,082,127)
Institutional Capital Shares (1,498,221) (6,136)
Change in net assets resulting from distributions to (50,489,449) (57,298,613)
shareholders
CAPITAL CONTRIBUTION -- 1,330,378
SHARE TRANSACTIONS--
Proceeds from sale of shares 15,976,645,016 19,361,183,773
Net asset value of shares issued to shareholders in 33,029,994 26,082,775
payment of distributions declared
Cost of shares redeemed (15,177,894,329) (21,735,853,130)
Change in net assets resulting from share transactions 831,780,681 (2,348,586,582)
Change in net assets 831,780,681 (2,348,347,156)
NET ASSETS:
Beginning of period 426,415,272 2,774,762,428
End of period $ 1,258,195,953 $ 426,415,272
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
PRIME VALUE OBLIGATIONS FUND
JANUARY 31, 1998
ORGANIZATION
Money Market Obligations Trust II (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of three portfolios. The
financial statements included herein are only those of Prime Value
Obligations Fund (the "Fund"). The financial statements of the other
portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The investment objective of the Fund is to provide a high
level of current income consistent with stability of principal and
liquidity.
The Fund offers three classes of shares: Institutional Shares, Institutional
Service Shares, and Institutional Capital Shares.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry
System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to
be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount,
if applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code"). 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, 1998
is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Liquid Asset Backed Securities Trust, Series 1996-3 9/12/1997 2,000,000
Liquid Asset Backed Securities Trust, Series 1997-1 2/19/1997 13,969,159
Liquid Asset Backed Securities Trust, Series 1997-3 6/27/1997 26,411,629
Triangle Funding Ltd. 10/16/1997 5,000,000
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The
Fund records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued
or delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ
from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust Permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest ($0.001 par value) for
each class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL SHARES 1998 1997
<S> <C> <C>
Shares sold 13,256,360,968 19,036,179,355
Shares issued to shareholders in payment of distributions 26,084,298 26,074,950
declared
Shares redeemed (12,804,697,557) (21,428,886,085)
Net change resulting from Institutional Share transactions 477,747,709 (2,366,631,780)
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL SERVICE SHARES 1998 1997
<S> <C> <C>
Shares sold 1,999,938,515 305,004,232
Shares issued to shareholders in payment of distributions 5,524,975 2,107
declared
Shares redeemed (1,698,488,527) (306,966,945)
Net change resulting from Institutional Service Share 306,974,963 (1,960,606)
transactions
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL CAPITAL SHARES 1998 1997
<S> <C> <C>
Shares sold 720,345,533 20,000,186
Shares issued to shareholders in payment of distributions 1,420,721 5,718
declared
Shares redeemed (674,708,245) --
Net change resulting from Institutional Capital Share 47,058,009 20,005,904
transactions
<CAPTION>
YEAR ENDED JANUARY 31,
CLASS C SHARES 1998(a) 1997
<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 share transactions 831,780,681 (2,348,586,582)
</TABLE>
(a) As of November 15, 1996, the Fund's Class C Shares were no longer
operational.
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.
CAPITAL CONTRIBUTION
Lehman Brothers Global Asset Management, the Fund's 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.
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 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.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the Fund. The
fee paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee.
The fee is based on the level of the Fund's average daily net assets for the
period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended January 31, 1998, the Fund engaged in purchase and
sale transactions with funds that have a common investment adviser (or
affiliated investment advisers), common Directors/Trustees, and/or common
Officers. These purchase and sale transactions were made at current market
value pursuant to Rule 17a-7 under the Act amounting to $423,872,000 and
$349,618,000, respectively.
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, a
portfolio of Money Market Obligations Trust II, as of January 31, 1998, 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, 1998, by correspondence with the
custodian and brokers or other appropriate auditing procedures where replies
from brokers were not received. 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, 1998, 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 13, 1998
NOTES
NOTES
[Graphic]Federated Investors
Prime Value Obligations Fund
(A Portfolio of Money Market Obligations Trust II)
Institutional Capital Shares
PROSPECTUS
MARCH 31, 1998
A Portfolio of Money Market Obligations Trust II, an Open-End Management
Investment Company
PRIME VALUE OBLIGATIONS FUND
INSTITUTIONAL CAPITAL SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue
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
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 608912887
G01881-07 (3/98)
[Graphic]
PRIME VALUE OBLIGATIONS FUND
(A PORTFOLIO OF MONEY MARKET OBLIGATIONS TRUST II)
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
INSTITUTIONAL CAPITAL SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectuses of Prime Value Obligations Fund (the "Fund"), a portfolio of
Money Market Obligations Trust II (the "Trust") dated March 31, 1998. 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.
PRIME VALUE OBLIGATIONS FUND
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
Statement dated March 31, 1998
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 608912408
Cusip 608912507
Cusip 608912606
G01881-10 (3/98)
[Graphic]
TABLE OF CONTENTS
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
Investing in Securities of Other Investment Companies 3
INVESTMENT LIMITATIONS 3
Diversification of Investments 3
Issuing Senior Securities, Borrowing Money, and Pledging Assets 3
Concentration of Investments 3
Lending Cash or Securities 3
Underwriting 3
Investing in Real Estate 3
Investing in Commodities and Minerals 3
Investing in Illiquid Securities 3
Selling Short and Buying on Margin 4
Investing in Options 4
Investing in New Issuers 4
Regulatory Compliance 4
MONEY MARKET OBLIGATIONS TRUST II MANAGEMENT 4
Share Ownership 8
Trustee Compensation 9
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 9
Investment Adviser 9
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 10
Fund Administration 10
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Auditors 11
Shareholder Services 11
DETERMINING NET ASSET VALUE 11
REDEMPTION IN KIND 12
MASSACHUSETTS PARTNERSHIP LAW 12
THE FUND'S TAX STATUS 12
PERFORMANCE INFORMATION 12
Yield 12
Effective Yield 12
Total Return 13
Performance Comparisons 13
Economic and Market Information 13
ABOUT FEDERATED INVESTORS 13
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 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 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:
* the full faith and credit of the U.S. Treasury;
* the issuer's right to borrow from the U.S. Treasury;
* the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
* the 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 or the Savings Association Insurance Fund, 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 ("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 IBCA, 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 prospectuses, 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 ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission staff
position set forth in the adopting release for Rule 144A under the
Securities Act of 1933. The Trustees consider the following criteria in
determining the liquidity of certain restricted securities:
* the frequency of trades and quotes for the security;
* the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
* dealer undertakings to make a market in the security; and
* the nature of the security and the nature of the marketplace trades.
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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
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
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.
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 non-negotiable time deposits and 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 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 Company.
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.
Nicholas P. Constantakis
175 Woodshire Drive
Pittsburgh, PA
Birthdate: September 3, 1939
Trustee
Formerly, Partner, Andersen Worldwide SC; 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.
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; 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, and U.S. Space Foundation;
President Emeritus, University of Pittsburgh; Founding Chairman, National
Advisory Council for Environmental Policy and Technology, Federal Emergency
Management Advisory Board, and Czech Management Center, Prague; Director or
Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning; 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; 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 Core Trust;
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 Obligations Trust II; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; 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; Wesmark Funds; WCT Funds;
and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund.
As of March 2, 1998, the following shareholders of record owned 5% or more
of the outstanding Institutional Shares of the Prime Value Obligations Fund:
Intermedia Communications Cap X, Tampa, FL, owned approximately 91,766,549
shares (10.35%); and Intermedia Communications Gen, Tampa, FL, owned
approximately 44,759,579 shares (5.05%).
As of March 2, 1998, the following shareholders 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 23,322,874
shares (8.14%); William C. Eacho III, Warrenton, VA, owned approximately
23,238,231 shares (8.11%); and First Union National Bank, Charlotte, NC,
owned approximately 14,459,193 shares (5.05%).
As of March 2, 1998, the following shareholders of record owned 5% or more
of the outstanding Institutional Capital Shares of the Prime Value
Obligations Fund: Centex Corporation, Dallas, TX, owned approximately
20,269,516 shares (33.37%); World Airways, Herndon, VA, owned approximately
10,045,400 shares (16.54%); Norwest Investment Services, Inc., Minneapolis,
MN, owned approximately 5,184,623 shares (8.54%); Onbank & Trust Co.,
Syracuse, NY, owned approximately 4,379,258 shares (7.21%); and Jordache
Enterprises, New York, NY, owned approximately 3,348,560 shares (5.51%).
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND TRUST*# FROM FUND COMPLEX+
<S> <C> <C>
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley $2,123.12 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $2,335.75 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Nicholas P. Constantakis++ $0 $0 for the Trust and
Trustee 34 other investment companies in the Fund Complex
William J. Copeland $2,335.75 $122,362 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 $2,335.75 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $2,123.12 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $2,335.75 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $2,123.12 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr. $2,123.12 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $2,123.12 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $2,123.12 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended January 31, 1998.
# The aggregate compensation is provided for the Trust which is comprised of
three portfolios.
+ The information is provided for the last calendar year.
++ Mr. Constantakis became a member of the Board of Trustees on February 23,
1998. He did not receive any fees as of the fiscal year end of the Trust.
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 (the
"former adviser"), New York, NY, served as the Fund's adviser.
ADVISORY FEES
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectus. Prior to November
15, 1996, the former adviser served as the Fund's adviser. For the fiscal
year ended January 31, 1998, and for the period from November 15, 1996 to
January 31, 1997, Federated Management earned $1,821,778 and $202,835,
respectively, of which $1,553,105 and $166,441, respectively, were waived.
For the period from February 1, 1996 to November 14, 1996, and the fiscal
year ended January 31, 1996, the former adviser earned $1,965,709 and
$2,885,657, respectively, of which $733,340 and $0; and $0 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
years ended January 31, 1998, 1997, and 1996, 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 fiscal year ended January 31, 1998, and for the
period from November 15, 1996 to January 31, 1997, Federated Services
Company earned $687,478 and $78,894, respectively, of which $44,021 and $0,
respectively, were waived. For the period from February 1, 1996 to November
14, 1996, and for the fiscal year ended January 31, 1996, the former
administrator earned $757,667 and $2,885,657, respectively, of which
$684,170 and $0; and $2,127,361 and $0, respectively, were waived of
administration fees and reimbursement of expenses to maintain the Fund's
operating expense ratios at certain levels.
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.
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.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
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 fiscal year ended January 31, 1998, the Fund earned shareholder
services fees in the amount of $379,108 and $66,766 for the Fund's
Institutional Service Shares and Institutional Capital Shares, respectively,
of which $0 and $40,060, respectively, were waived.
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.
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; 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, 1998, the yield for Institutional
Shares was 5.58%.
For the seven-day period ended January 31, 1998, the yield for Institutional
Service Shares was 5.33%.
For the seven-day period ended January 31, 1998, the yield for Institutional
Capital Shares was 5.46%.
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, 1998, the effective yield for
Institutional Shares was 5.74%.
For the seven-day period ended January 31, 1998, the effective yield for
Institutional Service Shares was 5.48%.
For the seven-day period ended January 31, 1998, the effective yield for
Institutional Capital Shares was 5.61%.
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, 1998, and for the period from
February 8, 1993 (date of initial public investment) through January 31,
1998, the average annual total returns were 5.68% and 5.00%, respectively,
for Institutional Shares. For the one-year period ended January 31, 1998,
and for the period from September 2, 1993 (date of initial public offering)
through January 31, 1998, the average annual total returns were 5.41% and
4.96%, respectively, for Institutional Service Shares. For the one-year
period ended January 31, 1998, and for the period from October 6, 1994 (date
of initial public offering) through January 31, 1998, the average annual
total returns were 5.55% and 4.85%, 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:
* LIPPER 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.
* IBC/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.
* MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
* BANK RATE MONITOR 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 portfolio managers 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 the 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, 1997, Federated Investors managed more
than $63.1 billion in assets across 51 money market funds, including 18
government, 11 prime, and 22 municipal with assets approximating $35.0
billion, $17.1 billion, and $10.9 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 $4.4 trillion to the more than 6,700 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 approximately 900 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 Timothy C.
Pillion, Senior 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, Federated Securities Corp.
* Source: Investment Company Institute
APPENDIX
STANDARD AND POOR'S LONG-TERM DEBT RATINGS
AAA-- Debt rated AAA has the highest rating assigned by S&P. 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 IBCA, 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.
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:
* Leading market positions in well established industries.
* High rates of return on funds employed.
* Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
* Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
* Well established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2-- Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
STANDARD AND POOR'S 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 IBCA, 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."
STANDARD AND POOR'S MUNICIPAL NOTE RATINGS
An S&P 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 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 CASH OBLIGATIONS FUND
(A Portfolio of Money Market Obligations Trust II)
Institutional Shares
PROSPECTUS
The Institutional Shares of Prime Cash Obligations Fund (the "Fund") offered
by this prospectus represent interests in a portfolio of Money Market
Obligations Trust II (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, 1998, 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, 1998
TABLE OF CONTENTS
Summary of Company Expenses 1
Financial Highlights--Institutional Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Investment Risks 5
Investment Limitations 5
Fund Information 6
Management of the Fund 6
Distribution of Institutional Shares 6
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares by Wire 7
Purchasing Shares by Check 7
Invest-by-Phone 7
How to Redeem Shares 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 8
Account and Share Information 8
Dividends 8
Capital Gains 8
Account Activity 9
Accounts with Low Balances 9
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 9
Other Classes of Shares 9
Performance Information 9
Financial Highlights--Institutional Capital Shares 10
Financial Highlights--Institutional Service Shares 11
Financial Statements 12
Report of Ernst & Young LLP, Independent Auditors 24
SUMMARY OF FUND EXPENSES
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.08%
12b-1 Fee None
Total Other Expenses 0.10%
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, 1999. 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 would have been 0.30% 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.
EXAMPLE
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.
<TABLE>
<S> <C>
1 Year $ 2
3 Years $ 6
5 Years $10
10 Years $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.
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 24.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.06 0.05 0.06 0.04 0.03
LESS DISTRIBUTIONS
Distributions from net investment income (0.06) (0.05) (0.06) (0.04) (0.03)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 5.61% 5.38% 6.08% 4.52% 3.14%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.18% 0.18% 0.17% 0.12% 0.11%*
Net investment income 5.44% 5.25% 5.90% 4.30% 3.16%*
Expense waiver/reimbursement(c) 0.12% 0.14% 0.08% 0.13% 0.22%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $1,100,620 $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 (the "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 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 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 or the Savings Association Insurance Fund. 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.
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 Fund's 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.
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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies
as an efficient means of carrying out its investment policies. It should be
noted that investment companies incur certain expenses, such as management
fees, and, therefore, any investment by the Fund in shares of other
investment companies may be subject to such duplicate expenses.
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 $120 billion invested across
more than 300 funds under management and/or administration by its
subsidiaries, as of December 31, 1997, 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
approximately 4,000 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.
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.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
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, Martin
Luther King, Jr. 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.
ACCOUNT ACTIVITY
Shareholders will receive periodic statements reporting all account
activity, including dividends paid. The Fund will not issue share
certificates.
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
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 Capital Shares and
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 Capital Shares nor Institutional Service Shares are
distributed with a 12b-1 Plan but both are subject to shareholder service
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.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL CAPITAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995(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 0.05 0.06 0.02
LESS DISTRIBUTIONS
Distributions from net investment income (0.05) (0.05) (0.06) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 5.48% 5.23% 5.94% 1.66%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.30% 0.32% 0.32% 0.27%*
Net investment income 5.46% 5.00% 5.75% 4.15%*
Expense waiver/reimbursement(c) 0.26% 0.18% 0.08% 0.12%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $391,159 $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 investment) 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)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.05 0.06 0.04 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.05) (0.05) (0.06) (0.04) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 5.34% 5.11% 5.83% 4.21% 0.99%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.43% 0.43% 0.42% 0.37% 0.36%*
Net investment income 5.29% 5.02% 5.65% 4.05% 2.91%*
Expense waiver/reimbursement(c) 0.12% 0.14% 0.08% 0.13% 0.22%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $668,665 $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 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)
PORTFOLIO OF INVESTMENTS
PRIME CASH OBLIGATIONS FUND
JANUARY 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM NOTES--9.1%
BANKING--1.4%
$ 10,000,000 Abbey National Treasury Services, PLC, 6.050%, 6/8/1998 $ 9,997,240
15,000,000 SALTS II Cayman Islands Corp., (Bankers Trust 15,000,000
International, PLC Swap Agreement), 5.988%, 3/19/1998
5,000,000 SALTS III Cayman Island Corp., (Bankers Trust 5,000,000
International, PLC Swap Agreement), 5.725%, 7/23/1998
TOTAL 29,997,240
BROKERAGE--2.3%
50,000,000 Goldman Sachs & Co., 5.600%, 4/27/1998 50,000,000
FINANCE - AUTOMOTIVE--0.6%
895,171 Chase Manhattan Auto Owner Trust 1997-B, 5.744%, 7/10/1998 895,171
12,801,922 Ford Credit Auto Owner Trust 1997-B, 5.748%, 10/15/1998 12,801,922
TOTAL 13,697,093
FINANCE - COMMERCIAL--4.5%
10,000,000 Beta Finance, Inc., 6.080%, 3/26/1998 10,000,000
11,000,000 Beta Finance, Inc., 6.160%, 5/12/1998 11,000,000
10,000,000 Beta Finance, Inc., 6.260%, 4/30/1998 10,000,000
65,000,000 (b)Triangle Funding Ltd., 5.594%, 11/16/1998 65,000,000
TOTAL 96,000,000
FINANCE - EQUIPMENT--0.3%
628,703 Caterpillar Financial Asset Trust 1997-A, 5.791%, 628,703
5/25/1998
6,325,149 Copelco Capital Funding Corp. X 1997-A, 5.809%, 7/20/1998 6,325,149
TOTAL 6,953,852
TOTAL SHORT-TERM NOTES 196,648,185
CERTIFICATE OF DEPOSIT--5.1%
BANKING--5.1%
47,000,000 Bankers Trust Co., New York, 5.880% - 6.010%, 9/9/1998 - 46,997,867
12/10/1998
10,000,000 Canadian Imperial Bank of Commerce, Toronto, 5.900%, 9,997,289
8/27/1998
10,000,000 Morgan Guaranty Trust Co., New York, 5.870%, 8/6/1998 9,998,538
44,000,000 Societe Generale, Paris, 5.830% - 6.120%, 3/3/1998 - 43,989,019
10/15/1998
TOTAL CERTIFICATE OF DEPOSIT 110,982,713
</TABLE>
PRIME CASH OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)COMMERCIAL PAPER--32.3%
BANKING--7.1%
$ 60,000,000 Aspen Funding Corp., (Guaranteed by Deutsche Bank, AG), $ 59,619,758
5.855% - 5.873%, 3/6/1998 - 3/19/1998
25,000,000 Cregem North America, Inc., (Guaranteed by Credit Communal 24,840,833
de Belgique, Brussles), 5.810%, 3/13/1998
25,000,000 Glencore Finance (Bermuda) Ltd., (ABN AMRO Bank N.V., 24,663,160
Amsterdam LOC), 5.526%, 5/1/1998
19,000,000 Internationale Nederlanden U.S. Funding Corp., 5.827%, 18,635,559
6/3/1998
25,000,000 Svenska Handelsbanken, Inc., (Guaranteed by Svenska 24,887,826
Handelsbanken, Stockholm), 5.729%, 3/2/1998
TOTAL 152,647,136
BROKERAGE--7.5%
89,000,000 Merrill Lynch & Co., Inc., 5.514% - 5.803%, 2/23/1998 - 88,618,253
4/21/1998
75,000,000 Morgan Stanley Group, Inc., 5.526% - 5.835%, 3/16/1998 - 74,334,896
4/27/1998
TOTAL 162,953,149
FINANCE - AUTOMOTIVE--1.2%
25,000,000 Ford Motor Credit Corp., 5.568%, 4/10/1998 24,740,750
FINANCE - COMMERCIAL--11.0%
6,000,000 Beta Finance, Inc., 5.708%, 2/17/1998 5,985,200
75,000,000 Corporate Asset Funding Co., Inc. (CAFCO), 5.516% - 74,360,549
5.796%, 2/6/1998 - 4/24/1998
105,000,000 General Electric Capital Corp., 5.546% - 5.825%, 4/6/1998 102,930,053
- 8/17/1998
55,000,000 Receivables Capital Corp., 5.514% - 5.776%, 2/6/1998 - 54,913,986
2/12/1998
TOTAL 238,189,788
FINANCE - RETAIL--3.2%
70,000,000 New Center Asset Trust, A1+/P1 Series, 5.514% - 5.566%, 69,214,494
4/8/1998 - 4/22/1998
INSURANCE--2.3%
50,000,000 CXC, Inc., 5.510% - 5.511%, 4/9/1998 49,493,778
TOTAL COMMERCIAL PAPER 697,239,095
(C)VARIABLE RATE OBLIGATIONS--15.2%
BANKING--11.2%
2,000,000 Albuquerque, NM, Series 1997 El Canto, Inc., (Norwest Bank 2,000,000
Minnesota, N.A. LOC), 5.880%, 2/5/1998
2,250,000 Beech Grove, IN, Series 1997 Poster Display Co, (Bank One, 2,250,000
Indianapolis, N.A. LOC), 5.580%, 2/5/1998
2,250,000 C. W. Caldwell, Inc, Sweetbriar Assisted Living Facility, 2,250,000
Project, (Huntington National Bank, Columbus, OH LOC),
5.580%, 2/5/1998
</TABLE>
PRIME CASH OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C)VARIABLE RATE OBLIGATIONS--CONTINUED
BANKING--CONTINUED
$ 15,014,000 Capital One Funding Corp., Series 1997B, (Bank One, Texas $ 15,014,000
N.A. LOC), 5.580%, 2/5/1998
2,945,000 Casna Limited Partnership, Series 1997, (Huntington 2,945,000
National Bank, Columbus, OH LOC), 5.580%, 2/5/1998
4,550,000 Chartiers Valley Industrial & Commercial Development 4,550,000
Authority, Woodhaven Convalescent Center Series 1997-B,
(Bank One, Ohio, N.A. LOC), 5.580%, 2/5/1998
5,800,000 Chestnut Hills Apartments, Ltd., (Huntington National 5,800,000
Bank, Columbus, OH LOC), 5.630%, 2/5/1998
1,500,000 Children's Defense Fund, (First National Bank of Maryland, 1,500,000
Baltimore LOC), 5.760%, 2/3/1998
2,500,000 Clarksville, IN, Series 1997 Metal Sales Manf., (Star 2,500,000
Bank, N.A., Cincinnati LOC), 5.630%, 2/5/1998
1,000,000 County of Wood, Williams Industries Service Inc., Project, 1,000,000
(Huntington National Bank, Columbus, OH LOC), 5.580%,
2/5/1998
6,970,000 Franklin County, OH, Edison Wielding, Series 1995, 6,970,000
(Huntington National Bank, Columbus, OH LOC), 5.700%,
2/5/1998
12,500,000 Georgetown, KY Educational Institution, Series 1997-A, 12,500,000
(Bank One, Kentucky LOC), 5.580%, 2/5/1998
1,410,000 Gerald T. Thom, Trustee U.A.D., March 27, 1997, 1,410,000
(Huntington National Bank, Columbus, OH LOC), 5.580%,
2/5/1998
11,550,000 Heritage at the Falls Assisted Living, Ltd., Series 1997, 11,550,000
(BankBoston, N.A. LOC), 5.680%, 2/5/1998
5,900,000 IT Spring Wire, LLC, Series 1997, (Fifth Third Bank, 5,900,000
Cincinnati LOC), 5.550%, 2/5/1998
4,530,000 International Processing Corp., (Bank One, Kentucky LOC), 4,530,000
5.630%, 2/5/1998
1,250,000 Jefferson County, KY, Series 1997 Advanced Filtration 1,250,000
Concepts, Inc., (Bank One, Kentucky LOC), 5.630%, 2/5/1998
2,000,000 Kit Carson County, CO, Midwest Farms Project, (Norwest 2,000,000
Bank Minnesota, N.A. LOC), 5.800%, 2/4/1998
79,158,565 (b)Liquid Asset Backed Securities Trust, Series 1997-1, 79,158,565
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.594%, 2/17/1998
5,000,000 Long Lane Master Trust III, Series 1997-C, 5.780%, 5,000,000
5/31/1998
3,225,000 M/S Land, LLC, (Bank One, Illinois, N.A. LOC), 5.650%, 3,225,000
2/5/1998
5,000,000 Medilodge Group, Meadowbrook Project, (KeyBank, N.A. LOC), 5,000,000
5.960%, 2/5/1998
10,000,000 Mississippi Business Finance Corp., Kohler Project, 10,000,000
(Wachovia Bank of Georgia N.A., Atlanta LOC), 5.800%,
2/5/1998
3,200,000 New Berlin, WI, Sunraider LLC Series 1997B, (Bank One, 3,200,000
Wisconsin, N.A. LOC), 5.580%, 2/5/1998
</TABLE>
PRIME CASH OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C)VARIABLE RATE OBLIGATIONS--CONTINUED
BANKING--CONTINUED
$ 4,700,000 New Jersey EDA, Morey Organization, Inc. Project Series $ 4,700,000
1997, (Corestates Bank N.A., Philadelphia, PA LOC),
5.750%, 2/4/1998
2,565,000 New Jersey EDA, Pheonix Realty Partners, (Corestates Bank 2,565,000
N.A., Philadelphia, PA LOC), 5.750%, 2/4/1998
3,400,000 Oakwoods Master Ltd. Partnership Series 1997, (Amsouth 3,400,000
Bank N.A., Birmingham LOC), 5.629%, 2/5/1998
3,495,000 Oklahoma County Ind. Authority, Fred Jones Manufacturing 3,495,000
Co Project, (Chase Bank of Texas LOC), 6.100%, 4/1/1998
5,000,000 Primex Funding Corp., Series 1997-A, (Bank One, 5,000,000
Indianapolis, N.A. LOC), 5.580%, 2/5/1998
8,706,157 (b) Rabobank Optional Redemption Trust, Series 1997-101, 8,706,157
5.754%, 2/17/1998
4,125,000 Solon Properties, LLC, (Huntington National Bank, 4,125,000
Columbus, OH LOC), 5.580%, 2/5/1998
1,205,000 TDB Realty, Ltd., (Huntington National Bank, Columbus, OH 1,205,000
LOC), 5.580%, 2/5/1998
3,360,000 Team Rahal of Pittsburgh, Inc., Series 1997, (Huntington 3,360,000
National Bank, Columbus, OH LOC), 5.580%, 2/5/1998
4,000,000 Trap Rock Industries, Inc., Series 1997, (Corestates Bank 4,000,000
N.A., Philadelphia, PA LOC), 5.750%, 2/4/1998
5,565,000 VLF, LLC, The Village of Lovejoy, Fountain Project, 5,565,000
(KeyBank, N.A. LOC), 5.700%, 2/5/1998
3,405,000 Van Wyk Enterprises, Inc., (Huntington National Bank, 3,405,000
Columbus, OH LOC), 5.580%, 2/5/1998
TOTAL 241,028,722
FINANCE - RETAIL--0.8%
18,000,000 Associates Corp. of North America, 5.730%, 2/3/1998 17,991,953
INSURANCE--3.2%
44,019,366 (b) Liquid Asset Backed Securities Trust, Series 1997-3 44,019,366
Senior Notes, (Guaranteed by AMBAC), 5.876%, 3/28/1998
15,000,000 Peoples Security Life Insurance Company, 5.829%, 3/2/1998 15,000,000
10,000,000 Travelers Insurance Company, 5.837%, 2/20/1998 10,000,000
TOTAL 69,019,366
TOTAL VARIABLE RATE OBLIGATIONS 328,040,041
TIME DEPOSIT--3.9%
BANKING--3.9%
50,000,000 Royal Bank of Canada, Montreal, 5.625%, 2/2/1998 50,000,000
35,000,000 Societe Generale, Paris, 5.625%, 2/2/1998 35,000,000
TOTAL TIME DEPOSITS 85,000,000
</TABLE>
PRIME CASH OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(D) REPURCHASE AGREEMENTS--34.3%
$ 100,000,000 ABN AMRO Chicago Corp., 5.650%, dated 1/30/1998, due $ 100,000,000
2/2/1998
100,000,000 Bear, Stearns and Co., 5.650%, dated 1/30/1998, due 100,000,000
2/2/1998
100,000,000 Goldman Sachs Group, LP, 5.650%, dated 1/30/1998, due 100,000,000
2/2/1998
91,400,000 HSBC Securities, Inc., 5.650%, dated 1/30/1998, due 91,400,000
2/2/1998
75,000,000 J.P. Morgan & Co., Inc., 5.580%, dated 1/30/1998, due 75,000,000
2/2/1998
75,000,000 Salomon Smith Barney Holdings, Inc., 5.650%, dated 75,000,000
1/30/1998, due 2/2/1998
27,600,000 Societe Generale, New York, 5.600%, dated 1/30/1998, due 27,600,000
2/2/1998
32,000,000 UBS Securities, Inc., 5.590%, dated 1/30/1998, due 32,000,000
2/2/1998
100,000,000 UBS Securities, Inc., 5.650%, dated 1/30/1998, due 100,000,000
2/2/1998
40,000,000 (e)Chase Government Securities, Inc., 5.550%, dated 40,000,000
1/21/1998, due 4/20/1998
TOTAL REPURCHASE AGREEMENTS 741,000,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(F) $ 2,158,910,034
</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) Represents a restricted security which is subject to restrictions on
resale under federal securities laws. At January 31, 1998, these securities
amounted to $196,884,088, which represents 9.1% 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) Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement within seven days.
(f) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($2,160,443,124) at January 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation
EDA --Economic Development Authority
LLC --Limited Liability Corporation
LOC --Letter of Credit
LP --Limited Partnership
PLC --Public Limited Company
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
PRIME CASH OBLIGATIONS FUND
JANUARY 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 741,000,000
Investments in securities 1,417,910,034
Total investments in securities, at amortized cost and value $ 2,158,910,034
Income receivable 7,222,948
Total assets 2,166,132,982
LIABILITIES:
Income distribution payable 4,464,215
Payable to Bank 1,014,608
Accrued expenses 211,035
Total liabilities 5,689,858
Net Assets for 2,160,443,124 shares outstanding $ 2,160,443,124
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$1,100,619,513 / 1,100,619,513 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$668,664,748 / 668,664,748 shares outstanding $1.00
INSTITUTIONAL CAPITAL SHARES:
$391,158,863 / 391,158,863 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
PRIME CASH OBLIGATIONS FUND
YEAR ENDED JANUARY 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 98,581,162
EXPENSES:
Investment advisory fee $ 3,485,448
Administrative personnel and services fee 1,315,415
Custodian fees 152,710
Transfer and dividend disbursing agent fees and 48,196
expenses
Directors'/Trustees' fees 15,379
Auditing fees 14,294
Legal fees 6,505
Portfolio accounting fees 197,911
Shareholder services fee--Institutional Service 1,225,311
Shares
Shareholder services fee--Institutional Capital 161,172
Shares
Share registration costs 41,206
Printing and postage 26,340
Insurance premiums 11,962
Taxes 873
Miscellaneous 17,993
Total expenses 6,720,715
Waivers--
Waiver of investment advisory fee $ (2,107,753)
Waiver of shareholder services fee--Institutional (96,703)
Capital Shares
Total waivers (2,204,456)
Net expenses 4,516,259
Net investment income $ 94,064,903
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
PRIME CASH OBLIGATIONS FUND
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 94,064,903 $ 149,363,883
Net realized gain (loss) on investments -- (930,171)
Change in net assets resulting from operations 94,064,903 148,433,712
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (64,610,393) (131,246,169)
Institutional Service Shares (25,937,194) (16,786,956)
Institutional Capital Shares (3,517,316) (861,359)
Class C Shares -- (489,156)
Change in net assets resulting from distributions (94,064,903) (149,383,640)
to shareholders
CAPITAL CONTRIBUTION -- 1,107,973
SHARE TRANSACTIONS--
Proceeds from sale of shares 25,518,721,091 44,315,024,567
Net asset value of shares issued to shareholders in 45,738,378 70,429,183
payment of distributions declared
Cost of shares redeemed (25,438,600,121) (46,619,754,483)
Change in net assets resulting from share 125,859,348 (2,234,300,733)
transactions
Change in net assets 125,859,348 (2,234,142,688)
NET ASSETS:
Beginning of period 2,034,583,776 4,268,726,464
End of period $ 2,160,443,124 $ 2,034,583,776
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
PRIME CASH OBLIGATIONS FUND
JANUARY 31, 1998
ORGANIZATION
Money Market Obligations Trust II (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of three portfolios. The
financial statements included herein are only those of Prime Cash
Obligations Fund (the "Fund"). The financial statements of the other
portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The investment objective of the Fund is to provide a high
level of current income consistent with stability of principal and
liquidity.
The Fund offers three classes of shares: Institutional Shares, Institutional
Service Shares and Institutional Capital Shares.
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 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, 1998,
is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
Liquid Asset Backed Securities Trust, Series 1997-1 2/19/1997 $79,158,565
Liquid Asset Backed Securities Trust, Series 1997-3
Senior Notes 6/27/1997 44,019,366
Rabobank Optional Redemption Trust 4/17/1997 8,706,157
Triangle Funding Ltd. 11/4/1997 65,000,000
</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.
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. At January 31, 1998, capital paid-in aggregated
$2,160,443,124. Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL SHARES 1998 1997
<S> <C> <C>
Shares sold 18,791,341,606 40,032,958,456
Shares issued to shareholders in payment of distributions 42,611,959 69,513,711
declared
Shares redeemed (19,306,246,896) (42,448,889,011)
Net change resulting from Institutional Share transactions (472,293,331) (2,346,416,844)
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL SERVICE SHARES 1998 1997
<S> <C> <C>
Shares sold 5,032,974,804 3,521,627,120
Shares issued to shareholders in payment of distributions declared 580,621 64,147
Shares redeemed (4,777,652,535) (3,433,416,889)
Net change resulting from Institutional Service Share transactions 255,902,890 88,274,378
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL CAPITAL SHARES 1998 1997
<S> <C> <C>
Shares sold 1,694,404,681 730,851,647
Shares issued to shareholders in payment of distributions declared 2,545,798 756,768
Shares redeemed (1,354,700,690) (694,511,244)
Net change resulting from Institutional Capital Share transactions 342,249,789 37,097,171
<CAPTION>
YEAR ENDED JANUARY 31,
CLASS C SHARES 1998 1997(A)
<S> <C> <C>
Shares sold -- 29,587,344
Shares issued to shareholders in payment of distributions declared -- 94,557
Shares redeemed -- (42,937,339)
Net change resulting from Class C Share transactions -- (13,255,438)
Net change resulting from share transactions 125,859,348 (2,234,300,733)
</TABLE>
(a) As of November 15, 1996, the Fund's Class C Shares were no longer
operational.
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.
CAPITAL CONTRIBUTION
Lehman Brothers Global Asset Management, Inc., 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.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated
Shareholder Services, the Fund will pay Federated Shareholder Services up to
0.25% of average daily net assets of the Fund's 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.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the Fund. The
fee paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
Federated Services Company maintains the Fund's accounting records for which
it receives a fee. The fee is based on the level of the Fund's average daily
net assets for the period, plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors
or Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of 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, a
portfolio of Money Market Obligations Trust II, as of January 31, 1998, 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 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, 1998, by correspondence with the
custodian and brokers or other appropriate auditing procedures where replies
from brokers were not received. 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 as of January 31, 1998, 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 13, 1998
PRIME CASH
OBLIGATIONS FUND
INSTITUTIONAL SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue
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
Federated Securities Corp., Distributor
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
[Graphic]
PRIME CASH OBLIGATIONS FUND
(A Portfolio of Money Market Obligations Trust II)
Institutional Shares
PROSPECTUS
MARCH 31, 1998
A Portfolio of Money Market Obligations Trust II,
an Open-End Management Investment Company
Cusip 608912705
G01881-03-IS (3/98)
[Graphic]
PRIME CASH OBLIGATIONS FUND
(A Portfolio of Money Market Obligations Trust II)
Institutional Service Shares
PROSPECTUS
The Institutional Service Shares of Prime Cash Obligations Fund (the "Fund")
offered by this prospectus represent interests in a portfolio of Money
Market Obligations Trust II (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, 1998, 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, 1998
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 5
Investment Limitations 5
Fund Information 6
Management of the Fund 6
Distribution of Institutional Service Shares 6
Administration of the Fund 7
Administrative Services 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares by Wire 7
Purchasing Shares by Check 7
Invest-by-Phone 8
How to Redeem Shares 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 8
Account and Share Information 8
Dividends 8
Capital Gains 9
Account Activity 9
Accounts with Low Balances 9
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 9
Other Classes of Shares 9
Performance Information 10
Financial Highlights--Institutional Capital Shares 11
Financial Highlights--Institutional Shares 12
Financial Statements 13
Report of Ernst & Young LLP, Independent Auditors 25
SUMMARY OF FUND EXPENSES
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver)(1) 0.08%
12b-1 Fee None
Total Other Expenses 0.35%
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 would have been 0.55% 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.
EXAMPLE
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.
<TABLE>
<S> <C>
1 Year $ 4
3 Years $14
5 Years $24
10 Years $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.
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 25.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.05 0.06 0.04 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.05) (0.05) (0.06) (0.04) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 5.34% 5.11% 5.83% 4.21% 0.99%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.43% 0.43% 0.42% 0.37% 0.36%*
Net investment income 5.29% 5.02% 5.65% 4.05% 2.91%*
Expense waiver/reimbursement(c) 0.12% 0.14% 0.08% 0.13% 0.22%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $668,665 $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 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 (the "Trustees") has established
three classes of shares known as Institutional Service Shares, Institutional
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 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 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 or the Savings Association Insurance Fund. 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.
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 Fund's 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.
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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies
as an efficient means of carrying out its investment policies. It should be
noted that investment companies incur certain expenses, such as management
fees, and, therefore, any investment by the Fund in shares of other
investment companies may be subject to such duplicate expenses.
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 $120 billion invested across
more than 300 funds under management and/or administration by its
subsidiaries, as of December 31, 1997, 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
approximately 4,000 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.
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.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
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, Martin
Luther King, Jr. 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 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.
ACCOUNT ACTIVITY
Shareholders will receive periodic statements reporting all account
activity, including dividends paid. The Fund will not issue share
certificates.
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 2, 1998, Harris Trust and Savings Bank, Chicago, Illinois owned
67.73% 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
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 a 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 holding shares in a fiduciary capacity, 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 service
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.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL CAPITAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995(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 0.05 0.06 0.02
LESS DISTRIBUTIONS
Distributions from net investment income (0.05) (0.05) (0.06) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 5.48% 5.23% 5.94% 1.66%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.30% 0.32% 0.32% 0.27%*
Net investment income 5.46% 5.00% 5.75% 4.15%*
Expense waiver/reimbursement(c) 0.26% 0.18% 0.08% 0.12%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $391,159 $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 investment) 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)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.06 0.05 0.06 0.04 0.03
LESS DISTRIBUTIONS
Distributions from net investment income (0.06) (0.05) (0.06) (0.04) (0.03)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 5.61% 5.38% 6.08% 4.52% 3.14%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.18% 0.18% 0.17% 0.12% 0.11%*
Net investment income 5.44% 5.25% 5.90% 4.30% 3.16%*
Expense waiver/reimbursement(c) 0.12% 0.14% 0.08% 0.13% 0.22%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $1,100,620 $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)
PORTFOLIO OF INVESTMENTS
PRIME CASH OBLIGATIONS FUND
JANUARY 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM NOTES--9.1%
BANKING--1.4%
$ 10,000,000 Abbey National Treasury Services, PLC, 6.050%, 6/8/1998 $ 9,997,240
15,000,000 SALTS II Cayman Islands Corp., (Bankers Trust 15,000,000
International, PLC Swap Agreement), 5.988%, 3/19/1998
5,000,000 SALTS III Cayman Island Corp., (Bankers Trust 5,000,000
International, PLC Swap Agreement), 5.725%, 7/23/1998
TOTAL 29,997,240
BROKERAGE--2.3%
50,000,000 Goldman Sachs & Co., 5.600%, 4/27/1998 50,000,000
FINANCE - AUTOMOTIVE--0.6%
895,171 Chase Manhattan Auto Owner Trust 1997-B, 5.744%, 7/10/1998 895,171
12,801,922 Ford Credit Auto Owner Trust 1997-B, 5.748%, 10/15/1998 12,801,922
TOTAL 13,697,093
FINANCE - COMMERCIAL--4.5%
10,000,000 Beta Finance, Inc., 6.080%, 3/26/1998 10,000,000
11,000,000 Beta Finance, Inc., 6.160%, 5/12/1998 11,000,000
10,000,000 Beta Finance, Inc., 6.260%, 4/30/1998 10,000,000
65,000,000 (b)Triangle Funding Ltd., 5.594%, 11/16/1998 65,000,000
TOTAL 96,000,000
FINANCE - EQUIPMENT--0.3%
628,703 Caterpillar Financial Asset Trust 1997-A, 5.791%, 628,703
5/25/1998
6,325,149 Copelco Capital Funding Corp. X 1997-A, 5.809%, 7/20/1998 6,325,149
TOTAL 6,953,852
TOTAL SHORT-TERM NOTES 196,648,185
CERTIFICATE OF DEPOSIT--5.1%
BANKING--5.1%
47,000,000 Bankers Trust Co., New York, 5.880% - 6.010%, 9/9/1998 - 46,997,867
12/10/1998
10,000,000 Canadian Imperial Bank of Commerce, Toronto, 5.900%, 9,997,289
8/27/1998
10,000,000 Morgan Guaranty Trust Co., New York, 5.870%, 8/6/1998 9,998,538
44,000,000 Societe Generale, Paris, 5.830% - 6.120%, 3/3/1998 - 43,989,019
10/15/1998
TOTAL CERTIFICATE OF DEPOSIT 110,982,713
</TABLE>
PRIME CASH OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)COMMERCIAL PAPER--32.3%
BANKING--7.1%
$ 60,000,000 Aspen Funding Corp., (Guaranteed by Deutsche Bank, AG), $ 59,619,758
5.855% - 5.873%, 3/6/1998 - 3/19/1998
25,000,000 Cregem North America, Inc., (Guaranteed by Credit Communal 24,840,833
de Belgique, Brussles), 5.810%, 3/13/1998
25,000,000 Glencore Finance (Bermuda) Ltd., (ABN AMRO Bank N.V., 24,663,160
Amsterdam LOC), 5.526%, 5/1/1998
19,000,000 Internationale Nederlanden U.S. Funding Corp., 5.827%, 18,635,559
6/3/1998
25,000,000 Svenska Handelsbanken, Inc., (Guaranteed by Svenska 24,887,826
Handelsbanken, Stockholm), 5.729%, 3/2/1998
TOTAL 152,647,136
BROKERAGE--7.5%
89,000,000 Merrill Lynch & Co., Inc., 5.514% - 5.803%, 2/23/1998 - 88,618,253
4/21/1998
75,000,000 Morgan Stanley Group, Inc., 5.526% - 5.835%, 3/16/1998 - 74,334,896
4/27/1998
TOTAL 162,953,149
FINANCE - AUTOMOTIVE--1.2%
25,000,000 Ford Motor Credit Corp., 5.568%, 4/10/1998 24,740,750
FINANCE - COMMERCIAL--11.0%
6,000,000 Beta Finance, Inc., 5.708%, 2/17/1998 5,985,200
75,000,000 Corporate Asset Funding Co., Inc. (CAFCO), 5.516% - 74,360,549
5.796%, 2/6/1998 - 4/24/1998
105,000,000 General Electric Capital Corp., 5.546% - 5.825%, 4/6/1998 102,930,053
- 8/17/1998
55,000,000 Receivables Capital Corp., 5.514% - 5.776%, 2/6/1998 - 54,913,986
2/12/1998
TOTAL 238,189,788
FINANCE - RETAIL--3.2%
70,000,000 New Center Asset Trust, A1+/P1 Series, 5.514% - 5.566%, 69,214,494
4/8/1998 - 4/22/1998
INSURANCE--2.3%
50,000,000 CXC, Inc., 5.510% - 5.511%, 4/9/1998 49,493,778
TOTAL COMMERCIAL PAPER 697,239,095
(C)VARIABLE RATE OBLIGATIONS--15.2%
BANKING--11.2%
2,000,000 Albuquerque, NM, Series 1997 El Canto, Inc., (Norwest Bank 2,000,000
Minnesota, N.A. LOC), 5.880%, 2/5/1998
2,250,000 Beech Grove, IN, Series 1997 Poster Display Co, (Bank One, 2,250,000
Indianapolis, N.A. LOC), 5.580%, 2/5/1998
2,250,000 C. W. Caldwell, Inc, Sweetbriar Assisted Living Facility, 2,250,000
Project, (Huntington National Bank, Columbus, OH LOC),
5.580%, 2/5/1998
</TABLE>
PRIME CASH OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C)VARIABLE RATE OBLIGATIONS--CONTINUED
BANKING--CONTINUED
$ 15,014,000 Capital One Funding Corp., Series 1997B, (Bank One, Texas $ 15,014,000
N.A. LOC), 5.580%, 2/5/1998
2,945,000 Casna Limited Partnership, Series 1997, (Huntington 2,945,000
National Bank, Columbus, OH LOC), 5.580%, 2/5/1998
4,550,000 Chartiers Valley Industrial & Commercial Development 4,550,000
Authority, Woodhaven Convalescent Center Series 1997-B,
(Bank One, Ohio, N.A. LOC), 5.580%, 2/5/1998
5,800,000 Chestnut Hills Apartments, Ltd., (Huntington National 5,800,000
Bank, Columbus, OH LOC), 5.630%, 2/5/1998
1,500,000 Children's Defense Fund, (First National Bank of Maryland, 1,500,000
Baltimore LOC), 5.760%, 2/3/1998
2,500,000 Clarksville, IN, Series 1997 Metal Sales Manf., (Star 2,500,000
Bank, N.A., Cincinnati LOC), 5.630%, 2/5/1998
1,000,000 County of Wood, Williams Industries Service Inc., Project, 1,000,000
(Huntington National Bank, Columbus, OH LOC), 5.580%,
2/5/1998
6,970,000 Franklin County, OH, Edison Wielding, Series 1995, 6,970,000
(Huntington National Bank, Columbus, OH LOC), 5.700%,
2/5/1998
12,500,000 Georgetown, KY Educational Institution, Series 1997-A, 12,500,000
(Bank One, Kentucky LOC), 5.580%, 2/5/1998
1,410,000 Gerald T. Thom, Trustee U.A.D., March 27, 1997, 1,410,000
(Huntington National Bank, Columbus, OH LOC), 5.580%,
2/5/1998
11,550,000 Heritage at the Falls Assisted Living, Ltd., Series 1997, 11,550,000
(BankBoston, N.A. LOC), 5.680%, 2/5/1998
5,900,000 IT Spring Wire, LLC, Series 1997, (Fifth Third Bank, 5,900,000
Cincinnati LOC), 5.550%, 2/5/1998
4,530,000 International Processing Corp., (Bank One, Kentucky LOC), 4,530,000
5.630%, 2/5/1998
1,250,000 Jefferson County, KY, Series 1997 Advanced Filtration 1,250,000
Concepts, Inc., (Bank One, Kentucky LOC), 5.630%, 2/5/1998
2,000,000 Kit Carson County, CO, Midwest Farms Project, (Norwest 2,000,000
Bank Minnesota, N.A. LOC), 5.800%, 2/4/1998
79,158,565 (b)Liquid Asset Backed Securities Trust, Series 1997-1, 79,158,565
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.594%, 2/17/1998
5,000,000 Long Lane Master Trust III, Series 1997-C, 5.780%, 5,000,000
5/31/1998
3,225,000 M/S Land, LLC, (Bank One, Illinois, N.A. LOC), 5.650%, 3,225,000
2/5/1998
5,000,000 Medilodge Group, Meadowbrook Project, (KeyBank, N.A. LOC), 5,000,000
5.960%, 2/5/1998
10,000,000 Mississippi Business Finance Corp., Kohler Project, 10,000,000
(Wachovia Bank of Georgia N.A., Atlanta LOC), 5.800%,
2/5/1998
3,200,000 New Berlin, WI, Sunraider LLC Series 1997B, (Bank One, 3,200,000
Wisconsin, N.A. LOC), 5.580%, 2/5/1998
</TABLE>
PRIME CASH OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C)VARIABLE RATE OBLIGATIONS--CONTINUED
BANKING--CONTINUED
$ 4,700,000 New Jersey EDA, Morey Organization, Inc. Project Series $ 4,700,000
1997, (Corestates Bank N.A., Philadelphia, PA LOC),
5.750%, 2/4/1998
2,565,000 New Jersey EDA, Pheonix Realty Partners, (Corestates Bank 2,565,000
N.A., Philadelphia, PA LOC), 5.750%, 2/4/1998
3,400,000 Oakwoods Master Ltd. Partnership Series 1997, (Amsouth 3,400,000
Bank N.A., Birmingham LOC), 5.629%, 2/5/1998
3,495,000 Oklahoma County Ind. Authority, Fred Jones Manufacturing 3,495,000
Co Project, (Chase Bank of Texas LOC), 6.100%, 4/1/1998
5,000,000 Primex Funding Corp., Series 1997-A, (Bank One, 5,000,000
Indianapolis, N.A. LOC), 5.580%, 2/5/1998
8,706,157 (b) Rabobank Optional Redemption Trust, Series 1997-101, 8,706,157
5.754%, 2/17/1998
4,125,000 Solon Properties, LLC, (Huntington National Bank, 4,125,000
Columbus, OH LOC), 5.580%, 2/5/1998
1,205,000 TDB Realty, Ltd., (Huntington National Bank, Columbus, OH 1,205,000
LOC), 5.580%, 2/5/1998
3,360,000 Team Rahal of Pittsburgh, Inc., Series 1997, (Huntington 3,360,000
National Bank, Columbus, OH LOC), 5.580%, 2/5/1998
4,000,000 Trap Rock Industries, Inc., Series 1997, (Corestates Bank 4,000,000
N.A., Philadelphia, PA LOC), 5.750%, 2/4/1998
5,565,000 VLF, LLC, The Village of Lovejoy, Fountain Project, 5,565,000
(KeyBank, N.A. LOC), 5.700%, 2/5/1998
3,405,000 Van Wyk Enterprises, Inc., (Huntington National Bank, 3,405,000
Columbus, OH LOC), 5.580%, 2/5/1998
TOTAL 241,028,722
FINANCE - RETAIL--0.8%
18,000,000 Associates Corp. of North America, 5.730%, 2/3/1998 17,991,953
INSURANCE--3.2%
44,019,366 (b) Liquid Asset Backed Securities Trust, Series 1997-3 44,019,366
Senior Notes, (Guaranteed by AMBAC), 5.876%, 3/28/1998
15,000,000 Peoples Security Life Insurance Company, 5.829%, 3/2/1998 15,000,000
10,000,000 Travelers Insurance Company, 5.837%, 2/20/1998 10,000,000
TOTAL 69,019,366
TOTAL VARIABLE RATE OBLIGATIONS 328,040,041
TIME DEPOSIT--3.9%
BANKING--3.9%
50,000,000 Royal Bank of Canada, Montreal, 5.625%, 2/2/1998 50,000,000
35,000,000 Societe Generale, Paris, 5.625%, 2/2/1998 35,000,000
TOTAL TIME DEPOSITS 85,000,000
</TABLE>
PRIME CASH OBLIGATIONS FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(D) REPURCHASE AGREEMENTS--34.3%
$ 100,000,000 ABN AMRO Chicago Corp., 5.650%, dated 1/30/1998, due $ 100,000,000
2/2/1998
100,000,000 Bear, Stearns and Co., 5.650%, dated 1/30/1998, due 100,000,000
2/2/1998
100,000,000 Goldman Sachs Group, LP, 5.650%, dated 1/30/1998, due 100,000,000
2/2/1998
91,400,000 HSBC Securities, Inc., 5.650%, dated 1/30/1998, due 91,400,000
2/2/1998
75,000,000 J.P. Morgan & Co., Inc., 5.580%, dated 1/30/1998, due 75,000,000
2/2/1998
75,000,000 Salomon Smith Barney Holdings, Inc., 5.650%, dated 75,000,000
1/30/1998, due 2/2/1998
27,600,000 Societe Generale, New York, 5.600%, dated 1/30/1998, due 27,600,000
2/2/1998
32,000,000 UBS Securities, Inc., 5.590%, dated 1/30/1998, due 32,000,000
2/2/1998
100,000,000 UBS Securities, Inc., 5.650%, dated 1/30/1998, due 100,000,000
2/2/1998
40,000,000 (e)Chase Government Securities, Inc., 5.550%, dated 40,000,000
1/21/1998, due 4/20/1998
TOTAL REPURCHASE AGREEMENTS 741,000,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(F) $ 2,158,910,034
</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) Represents a restricted security which is subject to restrictions on
resale under federal securities laws. At January 31, 1998, these securities
amounted to $196,884,088, which represents 9.1% 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) Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement within seven days.
(f) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($2,160,443,124) at January 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation
EDA --Economic Development Authority
LLC --Limited Liability Corporation
LOC --Letter of Credit
LP --Limited Partnership
PLC --Public Limited Company
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
PRIME CASH OBLIGATIONS FUND
JANUARY 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 741,000,000
Investments in securities 1,417,910,034
Total investments in securities, at amortized cost and value $ 2,158,910,034
Income receivable 7,222,948
Total assets 2,166,132,982
LIABILITIES:
Income distribution payable 4,464,215
Payable to Bank 1,014,608
Accrued expenses 211,035
Total liabilities 5,689,858
NET ASSETS for 2,160,443,124 shares outstanding $ 2,160,443,124
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$1,100,619,513 / 1,100,619,513 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$668,664,748 / 668,664,748 shares outstanding $1.00
INSTITUTIONAL CAPITAL SHARES:
$391,158,863 / 391,158,863 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
PRIME CASH OBLIGATIONS FUND
YEAR ENDED JANUARY 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 98,581,162
EXPENSES:
Investment advisory fee $ 3,485,448
Administrative personnel and services fee 1,315,415
Custodian fees 152,710
Transfer and dividend disbursing agent fees and 48,196
expenses
Directors'/Trustees' fees 15,379
Auditing fees 14,294
Legal fees 6,505
Portfolio accounting fees 197,911
Shareholder services fee--Institutional Service 1,225,311
Shares
Shareholder services fee--Institutional Capital 161,172
Shares
Share registration costs 41,206
Printing and postage 26,340
Insurance premiums 11,962
Taxes 873
Miscellaneous 17,993
Total expenses 6,720,715
Waivers--
Waiver of investment advisory fee $ (2,107,753)
Waiver of shareholder services fee--Institutional (96,703)
Capital Shares
Total waivers (2,204,456)
Net expenses 4,516,259
Net investment income $ 94,064,903
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
PRIME CASH OBLIGATIONS FUND
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 94,064,903 $ 149,363,883
Net realized gain (loss) on investments -- (930,171)
Change in net assets resulting from operations 94,064,903 148,433,712
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (64,610,393) (131,246,169)
Institutional Service Shares (25,937,194) (16,786,956)
Institutional Capital Shares (3,517,316) (861,359)
Class C Shares -- (489,156)
Change in net assets resulting from distributions (94,064,903) (149,383,640)
to shareholders
CAPITAL CONTRIBUTION -- 1,107,973
SHARE TRANSACTIONS--
Proceeds from sale of shares 25,518,721,091 44,315,024,567
Net asset value of shares issued to shareholders in 45,738,378 70,429,183
payment of distributions declared
Cost of shares redeemed (25,438,600,121) (46,619,754,483)
Change in net assets resulting from share 125,859,348 (2,234,300,733)
transactions
Change in net assets 125,859,348 (2,234,142,688)
NET ASSETS:
Beginning of period 2,034,583,776 4,268,726,464
End of period $ 2,160,443,124 $ 2,034,583,776
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
PRIME CASH OBLIGATIONS FUND
JANUARY 31, 1998
ORGANIZATION
Money Market Obligations Trust II (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of three portfolios. The
financial statements included herein are only those of Prime Cash
Obligations Fund (the "Fund"). The financial statements of the other
portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The investment objective of the Fund is to provide a high
level of current income consistent with stability of principal and
liquidity.
The Fund offers three classes of shares: Institutional Shares, Institutional
Service Shares and Institutional Capital Shares.
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 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, 1998,
is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
Liquid Asset Backed Securities Trust, Series 1997-1 2/19/1997 $79,158,565
Liquid Asset Backed Securities Trust, Series 1997-3
Senior Notes 6/27/1997 44,019,366
Rabobank Optional Redemption Trust 4/17/1997 8,706,157
Triangle Funding Ltd. 11/4/1997 65,000,000
</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.
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. At January 31, 1998, capital paid-in aggregated
$2,160,443,124. Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL SHARES 1998 1997
<S> <C> <C>
Shares sold 18,791,341,606 40,032,958,456
Shares issued to shareholders in payment of distributions 42,611,959 69,513,711
declared
Shares redeemed (19,306,246,896) (42,448,889,011)
Net change resulting from Institutional Share transactions (472,293,331) (2,346,416,844)
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL SERVICE SHARES 1998 1997
<S> <C> <C>
Shares sold 5,032,974,804 3,521,627,120
Shares issued to shareholders in payment of distributions declared 580,621 64,147
Shares redeemed (4,777,652,535) (3,433,416,889)
Net change resulting from Institutional Service Share transactions 255,902,890 88,274,378
<CAPTION>
YEAR ENDED JANUARY 31,
INSTITUTIONAL CAPITAL SHARES 1998 1997
<S> <C> <C>
Shares sold 1,694,404,681 730,851,647
Shares issued to shareholders in payment of distributions declared 2,545,798 756,768
Shares redeemed (1,354,700,690) (694,511,244)
Net change resulting from Institutional Capital Share transactions 342,249,789 37,097,171
<CAPTION>
YEAR ENDED JANUARY 31,
CLASS C SHARES 1998 1997(A)
<S> <C> <C>
Shares sold -- 29,587,344
Shares issued to shareholders in payment of distributions declared -- 94,557
Shares redeemed -- (42,937,339)
Net change resulting from Class C Share transactions -- (13,255,438)
Net change resulting from share transactions 125,859,348 (2,234,300,733)
</TABLE>
(a) As of November 15, 1996, the Fund's Class C Shares were no longer
operational.
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.
CAPITAL CONTRIBUTION
Lehman Brothers Global Asset Management, Inc., 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.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated
Shareholder Services, the Fund will pay Federated Shareholder Services up to
0.25% of average daily net assets of the Fund's 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.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the Fund. The
fee paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
Federated Services Company maintains the Fund's accounting records for which
it receives a fee. The fee is based on the level of the Fund's average daily
net assets for the period, plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors
or Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of 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, a
portfolio of Money Market Obligations Trust II, as of January 31, 1998, 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 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, 1998, by correspondence with the
custodian and brokers or other appropriate auditing procedures where replies
from brokers were not received. 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 as of January 31, 1998, 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 13, 1998
PRIME CASH
OBLIGATIONS FUND
INSTITUTIONAL SERVICE SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue
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
Federated Securities Corp., Distributor
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
[Graphic]
PRIME CASH OBLIGATIONS FUND
(A Portfolio of Money Market
Obligations Trust II)
Institutional Service Shares
PROSPECTUS
MARCH 31, 1998
A Portfolio of Money Market Obligations Trust II,
an Open-End Management
Investment Company
Cusip 608912804
G01881-04-SS (3/98)
[Graphic]
Prime Cash Obligations Fund
(A Portfolio of Money Market Obligations Trust II)
Institutional Capital Shares
PROSPECTUS
The Institutional Capital Shares of Prime Cash Obligations Fund (the "Fund")
offered by this prospectus represent interests in a portfolio of Money
Market Obligations Trust II (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, 1998, 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, 1998
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 5
Investment Limitations 5
Fund Information 6
Management of the Fund 6
Distribution of Institutional Capital Shares 6
Administration of the Fund 7
Net Asset Value 7
How To Purchase Shares 7
Purchasing Shares by Wire 7
Purchasing Shares by Check 8
Invest-By-Phone 8
How To Redeem Shares 8
Redeeming Shares by Telephone 8
Redeeming Shares by Mail 8
Account and Share Information 9
Dividends 9
Capital Gains 9
Account Activity 9
Accounts with Low Balances 9
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 9
Other Classes of Shares 9
Performance Information 10
Financial Highlights--Institutional Shares 11
Financial Highlights--Institutional Service Shares 12
Financial Statements 13
Report of Ernst & Young LLP, Independent Auditors 25
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
<S> <C>
INSTITUTIONAL CAPITAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
<S> <C <C>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1) 0.08%
12b-1 Fee None
Total Other Expenses 0.22%
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 shareholder 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 would have been 0.56% 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 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
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.
<S> <C>
1 Year $ 3
3 Years $10
5 Years $17
10 Years $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.
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 25.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995(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 0.05 0.06 0.02
LESS DISTRIBUTIONS
Distributions from net investment income (0.05) (0.05) (0.06) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 5.48% 5.23% 5.94% 1.66%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.30% 0.32% 0.32% 0.27%*
Net investment income 5.46% 5.00% 5.75% 4.15%*
Expense waiver/reimbursement(c) 0.26% 0.18% 0.08% 0.12%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $391,159 $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 investment) 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 (the "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 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 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 or the Savings Association Insurance Fund. 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.
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 Fund's 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.
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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies
as an efficient means of carrying out its investment policies. It should be
noted that investment companies incur certain expenses, such as management
fees, and, therefore, any investment by the Fund in shares of other
investment companies may be subject to such duplicate expenses.
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 $120 billion invested across
more than 300 funds under management and/or administration by its
subsidiaries, as of December 31, 1997, 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
approximately 4,000 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.
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.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
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, Martin
Luther King, Jr. 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 an 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.
ACCOUNT ACTIVITY
Shareholders will receive periodic statements reporting all account
activity, including dividends paid. The Fund will not issue share
certificates.
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
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 service
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.
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.06 0.05 0.06 0.04 0.03
LESS DISTRIBUTIONS
Distributions from net investment income (0.06) (0.05) (0.06) (0.04) (0.03)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 5.61% 5.38% 6.08% 4.52% 3.14%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.18% 0.18% 0.17% 0.12% 0.11%*
Net investment income 5.44% 5.25% 5.90% 4.30% 3.16%*
Expense waiver/reimbursement(c) 0.12% 0.14% 0.08% 0.13% 0.22%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $1,100,620 $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)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.05 0.06 0.04 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.05) (0.05) (0.06) (0.04) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 5.34% 5.11% 5.83% 4.21% 0.99%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.43% 0.43% 0.42% 0.37% 0.36%*
Net investment income 5.29% 5.02% 5.65% 4.05% 2.91%*
Expense waiver/reimbursement(c) 0.12% 0.14% 0.08% 0.13% 0.22%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $668,665 $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 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)
PORTFOLIO OF INVESTMENTS
PRIME CASH OBLIGATIONS FUND
JANUARY 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM NOTES--9.1%
BANKING--1.4%
$ 10,000,000 Abbey National Treasury Services, PLC, 6.050%, 6/8/1998 $ 9,997,240
15,000,000 SALTS II Cayman Islands Corp., (Bankers Trust 15,000,000
International, PLC Swap Agreement), 5.988%, 3/19/1998
5,000,000 SALTS III Cayman Island Corp., (Bankers Trust 5,000,000
International, PLC Swap Agreement), 5.725%, 7/23/1998
TOTAL 29,997,240
BROKERAGE--2.3%
50,000,000 Goldman Sachs & Co., 5.600%, 4/27/1998 50,000,000
FINANCE - AUTOMOTIVE--0.6%
895,171 Chase Manhattan Auto Owner Trust 1997-B, 5.744%, 7/10/1998 895,171
12,801,922 Ford Credit Auto Owner Trust 1997-B, 5.748%, 10/15/1998 12,801,922
TOTAL 13,697,093
FINANCE - COMMERCIAL--4.5%
10,000,000 Beta Finance, Inc., 6.080%, 3/26/1998 10,000,000
11,000,000 Beta Finance, Inc., 6.160%, 5/12/1998 11,000,000
10,000,000 Beta Finance, Inc., 6.260%, 4/30/1998 10,000,000
65,000,000 (b)Triangle Funding Ltd., 5.594%, 11/16/1998 65,000,000
TOTAL 96,000,000
FINANCE - EQUIPMENT--0.3%
628,703 Caterpillar Financial Asset Trust 1997-A, 5.791%, 628,703
5/25/1998
6,325,149 Copelco Capital Funding Corp. X 1997-A, 5.809%, 7/20/1998 6,325,149
TOTAL 6,953,852
TOTAL SHORT-TERM NOTES 196,648,185
CERTIFICATE OF DEPOSIT--5.1%
BANKING--5.1%
47,000,000 Bankers Trust Co., New York, 5.880% - 6.010%, 9/9/1998 - 46,997,867
12/10/1998
10,000,000 Canadian Imperial Bank of Commerce, Toronto, 5.900%, 9,997,289
8/27/1998
10,000,000 Morgan Guaranty Trust Co., New York, 5.870%, 8/6/1998 9,998,538
44,000,000 Societe Generale, Paris, 5.830% - 6.120%, 3/3/1998 - 43,989,019
10/15/1998
TOTAL CERTIFICATE OF DEPOSIT 110,982,713
</TABLE>
Prime Cash Obligations Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)COMMERCIAL PAPER--32.3%
BANKING--7.1%
$ 60,000,000 Aspen Funding Corp., (Guaranteed by Deutsche Bank, AG), $ 59,619,758
5.855% - 5.873%, 3/6/1998 - 3/19/1998
25,000,000 Cregem North America, Inc., (Guaranteed by Credit Communal 24,840,833
de Belgique, Brussles), 5.810%, 3/13/1998
25,000,000 Glencore Finance (Bermuda) Ltd., (ABN AMRO Bank N.V., 24,663,160
Amsterdam LOC), 5.526%, 5/1/1998
19,000,000 Internationale Nederlanden U.S. Funding Corp., 5.827%, 18,635,559
6/3/1998
25,000,000 Svenska Handelsbanken, Inc., (Guaranteed by Svenska 24,887,826
Handelsbanken, Stockholm), 5.729%, 3/2/1998
TOTAL 152,647,136
BROKERAGE--7.5%
89,000,000 Merrill Lynch & Co., Inc., 5.514% - 5.803%, 2/23/1998 - 88,618,253
4/21/1998
75,000,000 Morgan Stanley Group, Inc., 5.526% - 5.835%, 3/16/1998 - 74,334,896
4/27/1998
TOTAL 162,953,149
FINANCE - AUTOMOTIVE--1.2%
25,000,000 Ford Motor Credit Corp., 5.568%, 4/10/1998 24,740,750
FINANCE - COMMERCIAL--11.0%
6,000,000 Beta Finance, Inc., 5.708%, 2/17/1998 5,985,200
75,000,000 Corporate Asset Funding Co., Inc. (CAFCO), 5.516% - 74,360,549
5.796%, 2/6/1998 - 4/24/1998
105,000,000 General Electric Capital Corp., 5.546% - 5.825%, 4/6/1998 102,930,053
- 8/17/1998
55,000,000 Receivables Capital Corp., 5.514% - 5.776%, 2/6/1998 - 54,913,986
2/12/1998
TOTAL 238,189,788
FINANCE - RETAIL--3.2%
70,000,000 New Center Asset Trust, A1+/P1 Series, 5.514% - 5.566%, 69,214,494
4/8/1998 - 4/22/1998
INSURANCE--2.3%
50,000,000 CXC, Inc., 5.510% - 5.511%, 4/9/1998 49,493,778
TOTAL COMMERCIAL PAPER 697,239,095
(C)VARIABLE RATE OBLIGATIONS--15.2%
BANKING--11.2%
2,000,000 Albuquerque, NM, Series 1997 El Canto, Inc., (Norwest Bank 2,000,000
Minnesota, N.A. LOC), 5.880%, 2/5/1998
2,250,000 Beech Grove, IN, Series 1997 Poster Display Co, (Bank One, 2,250,000
Indianapolis, N.A. LOC), 5.580%, 2/5/1998
2,250,000 C. W. Caldwell, Inc, Sweetbriar Assisted Living Facility, 2,250,000
Project, (Huntington National Bank, Columbus, OH LOC),
5.580%, 2/5/1998
</TABLE>
Prime Cash Obligations Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C)VARIABLE RATE OBLIGATIONS--CONTINUED
BANKING--CONTINUED
$ 15,014,000 Capital One Funding Corp., Series 1997B, (Bank One, Texas $ 15,014,000
N.A. LOC), 5.580%, 2/5/1998
2,945,000 Casna Limited Partnership, Series 1997, (Huntington 2,945,000
National Bank, Columbus, OH LOC), 5.580%, 2/5/1998
4,550,000 Chartiers Valley Industrial & Commercial Development 4,550,000
Authority, Woodhaven Convalescent Center Series 1997-B,
(Bank One, Ohio, N.A. LOC), 5.580%, 2/5/1998
5,800,000 Chestnut Hills Apartments, Ltd., (Huntington National 5,800,000
Bank, Columbus, OH LOC), 5.630%, 2/5/1998
1,500,000 Children's Defense Fund, (First National Bank of Maryland, 1,500,000
Baltimore LOC), 5.760%, 2/3/1998
2,500,000 Clarksville, IN, Series 1997 Metal Sales Manf., (Star 2,500,000
Bank, N.A., Cincinnati LOC), 5.630%, 2/5/1998
1,000,000 County of Wood, Williams Industries Service Inc., Project, 1,000,000
(Huntington National Bank, Columbus, OH LOC), 5.580%,
2/5/1998
6,970,000 Franklin County, OH, Edison Wielding, Series 1995, 6,970,000
(Huntington National Bank, Columbus, OH LOC), 5.700%,
2/5/1998
12,500,000 Georgetown, KY Educational Institution, Series 1997-A, 12,500,000
(Bank One, Kentucky LOC), 5.580%, 2/5/1998
1,410,000 Gerald T. Thom, Trustee U.A.D., March 27, 1997, 1,410,000
(Huntington National Bank, Columbus, OH LOC), 5.580%,
2/5/1998
11,550,000 Heritage at the Falls Assisted Living, Ltd., Series 1997, 11,550,000
(BankBoston, N.A. LOC), 5.680%, 2/5/1998
5,900,000 IT Spring Wire, LLC, Series 1997, (Fifth Third Bank, 5,900,000
Cincinnati LOC), 5.550%, 2/5/1998
4,530,000 International Processing Corp., (Bank One, Kentucky LOC), 4,530,000
5.630%, 2/5/1998
1,250,000 Jefferson County, KY, Series 1997 Advanced Filtration 1,250,000
Concepts, Inc., (Bank One, Kentucky LOC), 5.630%, 2/5/1998
2,000,000 Kit Carson County, CO, Midwest Farms Project, (Norwest 2,000,000
Bank Minnesota, N.A. LOC), 5.800%, 2/4/1998
79,158,565 (b)Liquid Asset Backed Securities Trust, Series 1997-1, 79,158,565
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.594%, 2/17/1998
5,000,000 Long Lane Master Trust III, Series 1997-C, 5.780%, 5,000,000
5/31/1998
3,225,000 M/S Land, LLC, (Bank One, Illinois, N.A. LOC), 5.650%, 3,225,000
2/5/1998
5,000,000 Medilodge Group, Meadowbrook Project, (KeyBank, N.A. LOC), 5,000,000
5.960%, 2/5/1998
10,000,000 Mississippi Business Finance Corp., Kohler Project, 10,000,000
(Wachovia Bank of Georgia N.A., Atlanta LOC), 5.800%,
2/5/1998
3,200,000 New Berlin, WI, Sunraider LLC Series 1997B, (Bank One, 3,200,000
Wisconsin, N.A. LOC), 5.580%, 2/5/1998
</TABLE>
Prime Cash Obligations Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C)VARIABLE RATE OBLIGATIONS--CONTINUED
BANKING--CONTINUED
$ 4,700,000 New Jersey EDA, Morey Organization, Inc. Project Series $ 4,700,000
1997, (Corestates Bank N.A., Philadelphia, PA LOC),
5.750%, 2/4/1998
2,565,000 New Jersey EDA, Pheonix Realty Partners, (Corestates Bank 2,565,000
N.A., Philadelphia, PA LOC), 5.750%, 2/4/1998
3,400,000 Oakwoods Master Ltd. Partnership Series 1997, (Amsouth 3,400,000
Bank N.A., Birmingham LOC), 5.629%, 2/5/1998
3,495,000 Oklahoma County Ind. Authority, Fred Jones Manufacturing 3,495,000
Co Project, (Chase Bank of Texas LOC), 6.100%, 4/1/1998
5,000,000 Primex Funding Corp., Series 1997-A, (Bank One, 5,000,000
Indianapolis, N.A. LOC), 5.580%, 2/5/1998
8,706,157 (b) Rabobank Optional Redemption Trust, Series 1997-101, 8,706,157
5.754%, 2/17/1998
4,125,000 Solon Properties, LLC, (Huntington National Bank, 4,125,000
Columbus, OH LOC), 5.580%, 2/5/1998
1,205,000 TDB Realty, Ltd., (Huntington National Bank, Columbus, OH 1,205,000
LOC), 5.580%, 2/5/1998
3,360,000 Team Rahal of Pittsburgh, Inc., Series 1997, (Huntington 3,360,000
National Bank, Columbus, OH LOC), 5.580%, 2/5/1998
4,000,000 Trap Rock Industries, Inc., Series 1997, (Corestates Bank 4,000,000
N.A., Philadelphia, PA LOC), 5.750%, 2/4/1998
5,565,000 VLF, LLC, The Village of Lovejoy, Fountain Project, 5,565,000
(KeyBank, N.A. LOC), 5.700%, 2/5/1998
3,405,000 Van Wyk Enterprises, Inc., (Huntington National Bank, 3,405,000
Columbus, OH LOC), 5.580%, 2/5/1998
TOTAL 241,028,722
FINANCE - RETAIL--0.8%
18,000,000 Associates Corp. of North America, 5.730%, 2/3/1998 17,991,953
INSURANCE--3.2%
44,019,366 (b) Liquid Asset Backed Securities Trust, Series 1997-3 44,019,366
Senior Notes, (Guaranteed by AMBAC), 5.876%, 3/28/1998
15,000,000 Peoples Security Life Insurance Company, 5.829%, 3/2/1998 15,000,000
10,000,000 Travelers Insurance Company, 5.837%, 2/20/1998 10,000,000
TOTAL 69,019,366
TOTAL VARIABLE RATE OBLIGATIONS 328,040,041
TIME DEPOSIT--3.9%
BANKING--3.9%
50,000,000 Royal Bank of Canada, Montreal, 5.625%, 2/2/1998 50,000,000
35,000,000 Societe Generale, Paris, 5.625%, 2/2/1998 35,000,000
TOTAL TIME DEPOSITS 85,000,000
</TABLE>
Prime Cash Obligations Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(D) REPURCHASE AGREEMENTS--34.3%
$ 100,000,000 ABN AMRO Chicago Corp., 5.650%, dated 1/30/1998, due $ 100,000,000
2/2/1998
100,000,000 Bear, Stearns and Co., 5.650%, dated 1/30/1998, due 100,000,000
2/2/1998
100,000,000 Goldman Sachs Group, LP, 5.650%, dated 1/30/1998, due 100,000,000
2/2/1998
91,400,000 HSBC Securities, Inc., 5.650%, dated 1/30/1998, due 91,400,000
2/2/1998
75,000,000 J.P. Morgan & Co., Inc., 5.580%, dated 1/30/1998, due 75,000,000
2/2/1998
75,000,000 Salomon Smith Barney Holdings, Inc., 5.650%, dated 75,000,000
1/30/1998, due 2/2/1998
27,600,000 Societe Generale, New York, 5.600%, dated 1/30/1998, due 27,600,000
2/2/1998
32,000,000 UBS Securities, Inc., 5.590%, dated 1/30/1998, due 32,000,000
2/2/1998
100,000,000 UBS Securities, Inc., 5.650%, dated 1/30/1998, due 100,000,000
2/2/1998
40,000,000 (e)Chase Government Securities, Inc., 5.550%, dated 40,000,000
1/21/1998, due 4/20/1998
TOTAL REPURCHASE AGREEMENTS 741,000,000
TOTAL INVESTMENTS (AT AMORTIZED COST) $ 2,158,910,034
</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) Represents a restricted security which is subject to restrictions on
resale under federal securities laws. At January 31, 1998, these securities
amounted to $196,884,088, which represents 9.1% 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) Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement within seven days.
(f) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($2,160,443,124) at January 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation
EDA --Economic Development Authority
LLC --Limited Liability Corporation
LOC --Letter of Credit
LP --Limited Partnership
PLC --Public Limited Company
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
PRIME CASH OBLIGATIONS FUND
JANUARY 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 741,000,000
Investments in securities 1,417,910,034
Total investments in securities, at amortized cost and value $ 2,158,910,034
Income receivable 7,222,948
Total assets 2,166,132,982
LIABILITIES:
Income distribution payable 4,464,215
Payable to Bank 1,014,608
Accrued expenses 211,035
Total liabilities 5,689,858
Net Assets for 2,160,443,124 shares outstanding $ 2,160,443,124
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$1,100,619,513 / 1,100,619,513 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$668,664,748 / 668,664,748 shares outstanding $1.00
INSTITUTIONAL CAPITAL SHARES:
$391,158,863 / 391,158,863 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
PRIME CASH OBLIGATIONS FUND
YEAR ENDED JANUARY 31, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 98,581,162
EXPENSES:
Investment advisory fee $ 3,485,448
Administrative personnel and services fee 1,315,415
Custodian fees 152,710
Transfer and dividend disbursing agent fees and 48,196
expenses
Directors'/Trustees' fees 15,379
Auditing fees 14,294
Legal fees 6,505
Portfolio accounting fees 197,911
Shareholder services fee--Institutional Service 1,225,311
Shares
Shareholder services fee--Institutional Capital 161,172
Shares
Share registration costs 41,206
Printing and postage 26,340
Insurance premiums 11,962
Taxes 873
Miscellaneous 17,993
Total expenses 6,720,715
Waivers--
Waiver of investment advisory fee $ (2,107,753)
Waiver of shareholder services fee--Institutional (96,703)
Capital Shares
Total waivers (2,204,456)
Net expenses 4,516,259
Net investment income $ 94,064,903
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
PRIME CASH OBLIGATIONS FUND
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 94,064,903 $ 149,363,883
Net realized gain (loss) on investments -- (930,171)
Change in net assets resulting from operations 94,064,903 148,433,712
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (64,610,393) (131,246,169)
Institutional Service Shares (25,937,194) (16,786,956)
Institutional Capital Shares (3,517,316) (861,359)
Class C Shares -- (489,156)
Change in net assets resulting from distributions (94,064,903) (149,383,640)
to shareholders
CAPITAL CONTRIBUTION -- 1,107,973
SHARE TRANSACTIONS--
Proceeds from sale of shares 25,518,721,091 44,315,024,567
Net asset value of shares issued to shareholders in 45,738,378 70,429,183
payment of distributions declared
Cost of shares redeemed (25,438,600,121) (46,619,754,483)
Change in net assets resulting from share 125,859,348 (2,234,300,733)
transactions
Change in net assets 125,859,348 (2,234,142,688)
NET ASSETS:
Beginning of period 2,034,583,776 4,268,726,464
End of period $ 2,160,443,124 $ 2,034,583,776
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
PRIME CASH OBLIGATIONS FUND
JANUARY 31, 1998
ORGANIZATION
Money Market Obligations Trust II (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of three portfolios. The
financial statements included herein are only those of Prime Cash
Obligations Fund (the "Fund"). The financial statements of the other
portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The investment objective of the Fund is to provide a high
level of current income consistent with stability of principal and
liquidity.
The Fund offers three classes of shares: Institutional Shares, Institutional
Service Shares and Institutional Capital Shares.
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 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, 1998,
is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
SECURITY ACQUISITION DATE ACQUISITION COST
Liquid Asset Backed Securities Trust, Series 1997-1 2/19/1997 $79,158,565
Liquid Asset Backed Securities Trust, Series 1997-3 Senior Notes 6/27/1997 44,019,366
Rabobank Optional Redemption Trust 4/17/1997 8,706,157
Triangle Funding Ltd 11/4/1997 65,000,000
</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.
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. At January 31, 1998, capital paid-in aggregated
$2,160,443,124. Transactions in shares were as follows:
<TABLE>
YEAR ENDED JANUARY 31,
<CAPTION>
<S> <C> <C>
INSTITUTIONAL SHARES 1998 1997
Shares sold 18,791,341,606 40,032,958,456
Shares issued to shareholders in payment of distributions 42,611,959 69,513,711
declared
Shares redeemed (19,306,246,896) (42,448,889,011)
Net change resulting from Institutional Share (472,293,331) (2,346,416,844)
transactions
YEAR ENDED JANUARY 31,
<CAPTION>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES 1998 1997
Shares sold 5,032,974 3,521,627,120
Shares issued to shareholders in payment
of distributions declared 580,621 64,147
Shares redeemed (4,777,652,535) (3,433,416,889)
Net change resulting from
Institutional Service Share transactions 255,902,890 88,274,378
YEAR ENDED JANUARY 31,
<CAPTION>
<S> <C> <C>
INSTITUTIONAL CAPITAL SHARES 1998 1997
Shares sold 1,694,404,681 730,851,647
Shares issued to shareholders in
payment of distributions declared 2,545,798 756,768
Shares redeemed (1,354,700,690) (694,511,244)
Net change resulting from
Institutional Capital Share transactions 342,249,789 37,097,171
YEAR ENDED JANUARY 31,
<CAPTION>
<S> <C> <C>
CLASS C SHARES 1998 1997(A)
Shares sold -- 29,587,344
Shares issued to shareholders in payment of
distributions declared -- 94,557
Shares redeemed -- (42,937,339)
Net change resulting from Class C Share transactions -- (13,255,438)
Net change resulting from share transactions 125,859,348 (2,234,300,733)
</TABLE>
(a)As of November 15, 1996, the Fund's Class C Shares were no longer
operational.
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.
CAPITAL CONTRIBUTION
Lehman Brothers Global Asset Management, Inc., 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.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated
Shareholder Services, the Fund will pay Federated Shareholder Services up to
0.25% of average daily net assets of the Fund's 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.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the Fund. The
fee paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
Federated Services Company maintains the Fund's accounting records for which
it receives a fee. The fee is based on the level of the Fund's average daily
net assets for the period, plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors
or Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of 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, a
portfolio of Money Market Obligations Trust II, as of January 31, 1998, 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 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, 1998, by correspondence with the
custodian and brokers or other appropriate auditing procedures where replies
from brokers were not received. 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 as of January 31, 1998, 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 13, 1998
[Graphic]
Prime Cash Obligations Fund
(A Portfolio of Money Market Obligations Trust II)
Institutional Capital Shares
PROSPECTUS
MARCH 31, 1998
A Portfolio of Money Market Obligations Trust II, an Open-End Management
Investment Company
PRIME CASH
OBLIGATIONS FUND INSTITUTIONAL
CAPITAL SHARES
Federated Investors Funds
5800 Corporate Drive Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Management Federated Investors Tower
1001 Liberty Avenue
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
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 608912887
G01881-08 (3/98)
[Graphic]
PRIME CASH OBLIGATIONS FUND
(A PORTFOLIO OF MONEY MARKET OBLIGATIONS TRUST II)
INSTITUTIONAL CAPITAL SHARES
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectuses of Prime Cash Obligations Fund (the "Fund"), a portfolio of
Money Market Obligations Trust II (the "Trust") dated March 31, 1998. 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.
PRIME CASH OBLIGATIONS FUND
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
Statement dated March 31, 1998
[Graphic]Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 608912705
Cusip 608912804
Cusip 608912887
G01881-11 (3/98)
[Graphic]
TABLE OF CONTENTS
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
Investing in Securities of Other Investment Companies 2
INVESTMENT LIMITATIONS 3
Diversification of Investments 3
Issuing Senior Securities, Borrowing Money, and Pledging Assets 3
Concentration of Investments 3
Lending Cash of Securities 3
Underwriting 3
Investing in Real Estate 3
Investing in Commodities andMinerals 3
Investing in Illiquid Securities 3
Selling Short and Buying on Margin 3
Investing in Options 3
Investing in New Issuers 4
Regulatory Compliance 4
MONEY MARKET OBLIGATIONS TRUST II MANAGEMENT 4
Share Ownership 8
Trustee Compensation 8
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 9
Investment Adviser 9
Advisory Fees 9
BROKERAGE TRANSACTIONS 9
OTHER SERVICES 10
Fund Administration 10
Custodian and Portfolio Accountant 10
Independent Auditors 10
Shareholder Services 10
DETERMINING NET ASSET VALUE 10
REDEMPTION IN KIND 11
MASSACHUSETTS PARTNERSHIP LAY 11
THE FUND'S TAX STATUS 11
PERFORMANCE INFORMATION 11
Yield 11
Effective Yield 12
Total Return 12
Performance Comparisons 12
Economic and Market Information 12
ABOUT FEDERATED INVESTORS 13
Mutual Fund Market 13
Institutional Clients 13
Bank Marketing 13
Broker/Dealers and Bank Broker/Dealers Subsidiaries 13
APPENDIX 14
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 (the "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 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:
* the full faith and credit of the U.S. Treasury;
* the issuer's right to borrow from the U.S. Treasury;
* the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
* the 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 or the Savings Association Insurance Fund, 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
A nationally recognized statistical rating organizations ("NRSROs") 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
("S&P"), Prime-1 by Moody's Investors Service, Inc. ("Moody's"), or F-1 (+
or -) by Fitch IBCA, 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 prospectuses, 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 ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission staff
position set forth in the adopting release for Rule 144A under the
Securities Act of 1933. The Trustees consider the following criteria in
determining the liquidity of certain restricted securities:
* the frequency of trades and quotes for the security;
* the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
* dealer undertakings to make a market in the security; and
* the nature of the security and the nature of the marketplace trades.
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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.
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
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.
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 non-negotiable time deposits and 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 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 Company.
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.
Nicholas P. Constantakis
175 Woodshire Drive
Pittsburgh, PA
Birthdate: September 3, 1939
Trustee
Formerly, Partner, Andersen Worldwide SC; 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.
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; 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 and U.S. Space Foundation;
President Emeritus, University of Pittsburgh; Founding Chairman, National
Advisory Council for Environmental Policy and Technology, Federal Emergency
Management Advisory Board and Czech Management Center, Prague; Director or
Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; 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; 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 Core Trust; 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 Obligations Trust II; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; RIMCO Monument Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; The Planters Funds; 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;
WesMark Funds; WCT Funds; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund.
As of March 2, 1998, the following shareholders of record owned 5% or more
of the outstanding Shares of Prime Cash Obligations Fund:
Heart Special Trust Account, New York, New York, owned approximately
41,490,685 Institutional Capital Shares (23.77%); Lynspen & Co., SouthTrust
Bank of Alabama, Birmingham, Alabama, owned approximately 19,416,111
Institutional Capital Shares (11.12%); Mellon Bank Capital Markets, Omnibus
Account, owned approximately 17,753,054 Institutional Capital Shares
(10.17%); Norwest Investment Services, Inc., Minneapolis, Minnesota, owned
approximately 25,691,444 Institutional Capital Shares (14.72%); and Micro
Electronics, Inc., Hilliard, Ohio, owned approximately 23,390,357
Institutional Capital Shares (13.40%).
Colonial Penn Insurance Co., Seattle, Washington, owned approximately 65,911
Institutional Shares (5.38%).
Hare Co., New York, New York, owned approximately 72,741,235 Institutional
Service Shares (10.13%); Harris Trust and Savings Bank, Chicago, Illinois,
owned approximately 486,500,722 Institutional Service Shares (67.73%); and
Kaw & Co., One Valley Bank, Charleston, West Virginia, owned approximately
70,044,366 Institutional Service Shares (9.75%).
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND TRUST*# FROM FUND COMPLEX+
<S> <C> <C>
John F. Donahue $0 $0 for the Trust and 56 other investment
Chairman and Trustee companies in the Fund Complex
Thomas G. Bigley $2123.12 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy $2335.75 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Nicholas P. Constantakis** $0 $0 for the Trust and
Trustee 34 other investment companies in the Fund Complex
William J. Copeland $2335.75 $122,362 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 $2335.75 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $2123.12 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $2335.75 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $2123.12 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr. $2123.12 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $2123.12 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $2123.12 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended January 31, 1998.
** Mr. Constantakis became a member of the Board of Trustees on February 23,
1998. He did not receive any fees as of the fiscal year end of the Trust.
# 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, (the "former adviser") served as the Fund's adviser.
ADVISORY FEES
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectuses. Prior to November
15, 1996, Lehman Brothers Global Asset Management (the "former adviser"),
New York, NY served as the Fund's adviser. For the fiscal years ended
January 31, 1998, and for the period from November 15, 1996, to January 31,
1997, Federated Management earned $3,485,448, and $911,504, of which
$2,107,753 and $505,519 respectively were waived. For the period from
February 1, 1996, to November 14, 1996, and the fiscal year ended January
31, 1996, the former adviser earned $4,814,270, and $4,452,829,
respectively, of which $1,648,981 and $0, 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
years ended January 31, 1998, 1997, and 1996, 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 fiscal year ended January 31, 1998, and for the
period from November 15, 1996, to January 31, 1997, Federated Services
Company earned $1,315,415 and $30,284, respectively, of which $0 and $0 were
waived. For the period from February 1, 1996, to November 14, 1996, and the
fiscal year ended January 31, 1996, the former administrator earned
$2,380,339, and $4,452,829, respectively, of which $1,681,402 and $0,
respectively were waived.
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.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young, Pittsburgh, PA.
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 fiscal year ended January 31, 1998, the Fund earned shareholder
service fees in the amount of $1,225,311 and $161,172, respectively, for the
Fund's Institutional Service Shares and Institutional Capital Shares,
respectively, of which $0 and $96,703, respectively were 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, 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.
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.
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; 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, 1998, the yield for Institutional
Capital Shares, Institutional Shares, and Institutional Service Shares were
5.45%, 5.57%, and 5.32%, respectively.
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, 1998, the effective yield for
Institutional Capital Shares, Institutional Shares, and Institutional
Service Shares were 5.59%, 5.72%, and 5.46%, respectively.
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, 1998, and for the period from
October 6, 1994 (date of initial public investment) through January 31,
1998, the average annual total returns were 5.48% and 5.52%, respectively,
for Institutional Capital Shares. For the one-year period ended January 31,
1998, and for the period from February 8, 1993 (date of initial public
investment) through January 31, 1998, the average annual total returns were
5.61% and 4.96%, respectively, for Institutional Shares. For the one-year
period ended January 31, 1998, and for the period from September 2, 1993
(date of initial public investment) through January 31, 1998, the average
annual total returns were 5.34% and 4.93%, respectively, for Institutional
Service 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:
* LIPPER 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.
* IBC/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.
* MONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
* BANK RATE MONITOR 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 portfolio managers 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 the 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, 1997, Federated Investors managed more
than $63.1 billion in assets across 51 money market funds, including 18
government, 11 prime and 22 municipal with assets approximating $35 billion,
$17.1 billion and $10.9 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 $4.4 trillion to the more than 6,700 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 approximately 900 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 Timothy C.
Pillion, Senior 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, Federated Securities Corp.
* Source: Investment Company Institute
APPENDIX
STANDARD & POOR'S LONG-TERM DEBT RATINGS
AAA--Debt rated AAA has the highest rating assigned by S&P. 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 IBCA, 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.
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:
* Leading market positions in well established industries.
* High rates of return on funds employed.
* Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
* Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
* Well established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2--Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
STANDARD & POOR'S 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 IBCA, 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."
STANDARD & POOR'S MUNICIPAL NOTE RATINGS
An S&P 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 S&P'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 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.
