1933 Act File No. 33-55034
1940 Act File No. 811-7364
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. ....................
Post-Effective Amendment No. 15 ................... X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 19 ..................................... X
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MONEY MARKET OBLIGATIONS TRUST II
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
_ immediately upon filing pursuant to paragraph (b)
X on March 31, 1998, pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i) on pursuant to paragraph
(a) (i) 75 days after filing pursuant to paragraph (a)(ii) on
_________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
Copies to:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, DC 20037
<PAGE>
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of MONEY MARKET OBLIGATIONS
TRUST II, which consists of three (3) portfolios: (1) Prime Cash Obligations
Fund, consisting of three classes of shares, (a) Institutional Shares, (b)
Institutional Service Shares and (c) Institutional Capital Shares; (2) Prime
Value Obligations Fund, consisting of three classes of shares, (a) Institutional
Shares, (b) Institutional Service Shares and (c) Institutional Capital Shares;
and (3) Municipal Obligations Fund, consisting of three classes of shares, (a)
Institutional Shares, (b) Institutional Service Shares and (c) Institutional
Capital Shares, relates to all of the portfolios and is comprised of the
following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
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<S> <C> <C>
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page....................(1-3) Cover Page.
Item 2. Synopsis (1-3) Summary of Fund Expenses; (1-3) Financial Highlights.
Item 3. Condensed Financial
Information (1-3) Performance Information.
Item 4. General Description of
Registrant...................(1-3) General Information; (1-3) Investment Information; (1-3)
Investment Objective; (1-3) Investment Policies;
(1-3) Investment Risks; (1-3) Investment Limitations;
(3)Municipal Securities (3).
Item 5. Management of the Fund (1-3) Fund
Information; (1-3) Management of the
Fund; (1-3) Distribution of
Institutional/Institutional
Service/Institutional Capital Shares;
(1-3) Administration of the Fund.
Item 6. Capital Stock and Other
Securities...................(1-3) Dividends; (1-3) Capital Gains;
(1-3) Account and Share Information;
(1-3) Voting Rights; (1-3) Federal
Income Tax; (1-3) State and Local
Taxes; (1-3) Other Classes of Shares;
(1-3) Last Meeting of Shareholders.
Item 7. Purchase of Securities Being
Offered......................(1-3) Net Asset Value; (1-3) How to Purchase Shares; (1-3) Purchasing
Shares By Wire; (1-3) Purchasing Shares By Check; (1-3) Invest-by-Phone;
Certificates and Confirmations; (1-3) Shareholder Services.
Item 8. Redemption or Repurchase......(1-3) How to Redeem Shares;(1-3) Redeeming Shares By Telephone; (1-3) Redeeming
Shares By Mail; (1-3) Accounts
with Low Balances.
Item 9. Pending Legal Proceedings.....None.
<PAGE>
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page....................(1-3) Cover Page.
Item 11. Table of Contents.............(1-3) Table of Contents.
Item 12. General Information and
History (1-3) About Federated Investors.
Item 13. Investment Objectives and
Policies.....................(1-3) Investment Policies; (1-3) Investment Limitations;
(1-3) Regulatory Compliance.
Item 14. Management of the Fund........(1-3) Money Market Obligations Trust II Management.
Item 15. Control Persons and Principal
Holders of Securities (1-3) Share Ownership.
Item 16. Investment Advisory and Other
Services.....................(1-3) Investment Advisory Services; (1-3) Other Services;
(1-3) Shareholder Services.
Item 17. Brokerage Allocation..........(1-3) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities...................(1-3) Massachusetts Partnership Law.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered................(1-3) Determining Net Asset Value. (1-3) Redemption in Kind.
Item 20. Tax Status....................(1-3) The Fund's Tax Status;.
Item 21. Underwriters Not Applicable.
Item 22. Calculation of Performance
Data (1-3) Performance Information.
Item 23. Financial Statements Filed in Part A.
Municipal Obligations Fund
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(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
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INSTITUTIONAL SHARES
Shareholder Transaction Expenses
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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
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ANNUAL OPERATING EXPENSES
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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%
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(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.
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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
<S> <C> <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
<S> <C> <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 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(C) NATIONAL INDEX, Miami Beach, Florida, published
weekly, is an average of the interest rates of personal money market
deposit accounts at ten of the largest banks and thrifts in each of the
five largest Standard Metropolitan Statistical Areas. If more than one rate
is offered, the lowest rate is used. Account minimums and compounding
methods may vary.
Advertising and other promotional literature may include charts, graphs, and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging, and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial, and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by 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(C) NATIONAL INDEX, Miami Beach, Florida, published weekly,
is an average of the interest rates of personal money market deposit accounts
at ten of the largest banks and thrifts in each of the five largest Standard
Metropolitan Statistical Areas. If more than one rate is offered, the lowest
rate is used. Account minimums and compounding methods may vary.
Advertising and other promotional literature may include charts, graphs, and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial, and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by 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
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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)
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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> <S>
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(C) NATIONAL INDEX, Miami Beach, Florida, published
weekly, is an average of the interest rates of personal money market
deposit accounts at ten of the largest banks and thrifts in each of the
five largest Standard Metropolitan Statistical Areas. If more than one rate
is offered, the lowest rate is used. Account minimums and compounding
methods may vary.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by 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.
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements. (Filed in Part A)
(b) Exhibits:
(1) (a)Copy of Declaration of Trust of the Registrant
dated November 16, 1992; (4)
(b)Amendment No. 1 to Declaration of Trust; (4)
(c)Designation and establishment of Series; (4)
(d)Form of Certificate pertaining to Classification
of Shares dated February 18, 1994; (1)
(e)Form of Amendment No. 2 to Declaration of Trust; +
(2) (a)Amended and Restated By-Laws dated November 2, 1994;
(4)
(b)Copy of Amendment No. 1 to the By-Laws; +
(3) Not applicable;
(4) Specimen Share Certificate; (4)
(5) Conformed copy of Investment Advisory Contract,
including Exhibit A, between Registrant and Federated
Management dated November 15, 1996; (11)
(6) (a)Copy of Distributor's Contract of the Registrant;
(11) (b) The Registrant incorporates the conformed
copy of the specimen Mutual Funds Sales and
Service Agreement; Mutual Funds Service Agreement;
and Plan Trustee/ Mutual Funds Service Agreement
from Item 24(b)(6) of the Cash Trust Series II
Registration Statement filed with the Commission
on July 24, 1995. (File Number 33-38550 and
811-2669);
(7) Not applicable;
(8) (a) Conformed Copy of Custodian Contract between
Federated Investment Companies and State Street Bank
and Trust Company and
Federated Services Company; +
(b) Conformed copy of State Street Domestic Custody Fee
Schedule; +
(9) Conformed Copy of the Agreement for Fund Accounting
Services, Administrative Services, Transfer Agency
Services, and Custody
Services Procurement; +
(10) Opinion and Consent of Counsel as to Legality of Shares
being Registered; (12) ......
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Registration Statement
on Form N-1A. (File Nos. 33-55034 and 811-7364). 4. Response is incorporated by
reference to Registrant's Post-Effective Amendment No. 9 on Form N-1A filed
March 30, 1995. (File Nos. 33-55034 and
811-7364).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed January 27, 1997. (File Nos. 33-55034
and 811-7364).
12. Filed as part of the Registrant's Registration Statement effective February
5, 1993.
<PAGE>
(11) (a) Power of Attorney for James A. Carbone (10);
(b)Powers of Attorney for Charles F. Barber, Burt N. Dorsett,
Edward J. Kaier, and S. Donald Wiley; (5)
(c)Conformed copy of Consent of the Independent Auditors; +
(d) Consent of Counsel; (10)
(12) Not applicable;
(13) Purchase Agreement between Registrant and Shearson Lehman
Brothers Inc.; (4)
(14) Not applicable;
(15) Conformed copy of Amended and Restated Shareholder Services Agreement; +
(16) Copy of Performance Data; (5)
(17) Copy of Financial Data Schedules;+
(18) The Registrant hereby incorporates the conformed copy of the specimen
Multiple Class Plan from Item 24(b)(18)of the World
Investment Series, Inc. Registration Statement on Form N-1A, filed with
the Commission on January 26, 1996. (File Nos.
33-52149 and 811-07141);
(19) Power of Attorney. +
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of March 2, 1998
-------------- ---------------------
Shares of Beneficial Interest
Prime Cash Obligations Fund
Institutional Shares 926
Institutional Service Shares 98
Institutional Capital Shares 116
Prime Value Obligations Fund
Institutional Shares 795
Institutional Service Shares 408
Institutional Capital Shares 56
Municipal Obligations Fund
Institutional Shares 125
Institutional Service Shares 70
Institutional Capital Shares 21
Item 27. Indemnification: (10)
+ All exhibits have been filed electronically.
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed March 30, 1995. (File Nos. 33-55034 and
811-7364).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed May 26, 1995. (File Nos. 33-55034 and
811-7364).
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on Form N-1A filed March 29, 1996. (File Nos. 33-55034 and
811-7364).
<PAGE>
Item 28. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment adviser, see
the section entitled "FUND ADMINISTRATION"in Part A. The affiliations
with the Registrant of four of the Trustees and one of the Officers of
the investment adviser are included in Part B of this Registration
Statement under "INVESTMENT ADVISORY SERVICES." The remaining Trustee
of the investment adviser, his position with the investment adviser,
and, in parentheses, his principal occupation is: Mark D. Olson
(Partner, Wilson, Halbrook & Bayard), 107 W. Market Street, Georgetown,
Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Josephn M. Balestrino
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Sandra L. McInerney
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Vice Presidents: J. Scott Albrecht
Randall S. Bauer
David A. Briggs
Micheal W. Casey
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Steven Lehman
Marian R. Marinack
Charles A. Ritter
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
William F. Stotz
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
<PAGE>
Assistant Vice Presidents: Todd A. Abraham
Stefanie L. Bachhuber
Arthur J. Barry
Robert E. Cauley
Lee R. Cunningham, II
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
Natalie F. Metz
Joseph M. Natoli
Keith J. Sabol
John Sheehy
Michael W. Sirianni
Gregg S. Tenser
Leonardo A. Vila
Lori A. Wolff
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment adviser
is Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
These individuals are also officers of a majority of the investment
advisers to the Funds listed in Part B of this Registration Statement.
Item 29. Principal Underwriters:
(a) Federated Securities Corp. the Distributor for shares of the Registrant,
acts as principal underwriter for the following open-end investment
companies, including the Registrant:
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; Independence One Mutual Funds; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Obligations Trust II; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree
Funds; RIMCO Monument Funds; SouthTrust Vulcan Funds; Star Funds; Targeted
Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Virtus
Funds; The Wachovia Funds; The Wachovia Municipal Funds; Tower Mutual Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
Vision Group of Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the following
closed-end investment company: Liberty Term Trust, Inc.- 1999.
<PAGE>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.
Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian G. Kelly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following
locations:
Registrant Federated Investors Tower
..............................Pittsburgh, PA 15222-3779
Federated Shareholder P.O. Box 8600
Services Company .............Boston, MA 02266-8600
Transfer Agent, Dividend
Disbursing Agent and
Portfolio Recordkeeper
Federated Management Federated Investors Tower
Investment Adviser Pittsburgh, PA 15222-3779
State Street Bank and P.O. Box 8600
Trust Company Boston, MA 02266-8600
Custodian
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to removal of Trustees
and the calling of special shareholder meetings by shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, MONEY MARKET OBLIGATIONS TRUST
II, certifies that it meets all the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 24th day of March, 1998.
MONEY MARKET OBLIGATIONS TRUST II
BY: /s/ Nicholas J. Seitanakis
Nicholas J. Seitanakis, Assistant Secretary
Attorney in Fact for John F. Donahue
March 24, 1998
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Nicholas J. Seitanakis
Nicholas J. Seitanakis Attorney In Fact March 24, 1998
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
J. Christopher Donahue* President and Trustee
John W. McGonigle* Treasurer and Executive Vice
President
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
Nicholas P. Constantakis* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
John E. Murray, Jr.* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
Exhibit 1(e) under Form N-1A
Exhibit 3(i) under Item 601/Reg. S-K
LEHMAN BROTHERS INSTITUTIONAL FUNDS GROUP TRUST
Amendment No. 2
DECLARATION OF TRUST
dated November 16, 1992
This Declaration of Trust is amended as follows:
Strike the first paragraph of Section 1.1 of Article 1 from the
Declaration of Trust and substitute in its place the following:
Section 1.1. Name. The name of the trust created hereby is Money
Market Obligations Trust II (the "Trust").
----------- ----
Strike paragraph (2) of Section 1.2 of Article 1 from the Declaration of
Trust and substitute in its place the following:
(q) "Trust" means Money Market Obligations Trust II.
The undersigned Trustees of Money Market Obligations Trust II hereby
certify that the above stated Amendment is a true and correct Amendment to the
Declaration of Trust, as adopted by the Board of Trustees on the 6th day of
September, 1996.
WITNESS the due execution hereof this 15th day of November, 1996.
- --------------------------------- -------------------------------
John F. Donahue John T. Conroy, Jr.
- --------------------------------- -------------------------------
J. Christopher Donahue Lawrence D. Ellis, M.D.
- --------------------------------- -------------------------------
Peter E. Madden John E. Murray, Jr.
- --------------------------------- -------------------------------
William J. Copeland Gregor F. Meyer
- ---------------------------------
Marjorie P. Smuts
Exhibit 2(b) under Form N-1A
Exhibit 3(ii) under Item 601/Reg. S-K
Money Market Obligations Trust II
Amendment No. 1
to the By-Laws
Effective November 18, 1997
Add the following:
Article V
Committees
Section 3. Action by Consent of the Board of Trustees, Executive Committee or
Other Committee. Subject to Article IV, Section 1 of these By-Laws, any action
required or permitted to be taken at any meeting of the Trustees, Executive
Committee or any other duly appointed Committee may be taken without a meeting
if consents in writing setting forth such action are signed by all members of
the Board or such committee and such consents are filed with the records of the
Trust. In the event of the death, removal, resignation or incapacity of any
Board or committee member prior to that Trustee signing such consent, the
remaining Board or committee members may re-constitute themselves as the entire
Board or committee until such time as the vacancy is filled in order to fulfill
the requirement that such consents be signed by all members of the Board of
committee.
Exhibit 8(a) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
CUSTODIAN CONTRACT
Between
FEDERATED INVESTMENT COMPANIES
and
STATE STREET BANK AND TRUST COMPANY
and
FEDERATED SERVICES COMPANY
<PAGE>
1
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It..................1
2. Duties of the Custodian With Respect to Property of the Funds
Held by the Custodian .................................................2
2.1 Holding Securities...............................................2
2.2 Delivery of Securities...........................................2
2.3 Registration of Securities.......................................5
2.4 Bank Accounts....................................................6
2.5 Payments for Shares..............................................7
2.6 Availability of Federal Funds....................................7
2.7 Collection of Income.............................................7
2.8 Payment of Fund Moneys...........................................8
2.9 Liability for Payment in Advance of Receipt of Securities
Purchased...................................................... 9
2.10 Payments for Repurchases or Redemptions of Shares of a Fund......9
2.11 Appointment of Agents...........................................10
2.12 Deposit of Fund Assets in Securities System.....................10
2.13 Segregated Account..............................................12
2.14 Joint Repurchase Agreements.....................................13
2.15 Ownership Certificates for Tax Purposes.........................13
2.16 Proxies.........................................................13
2.17 Communications Relating to Fund Portfolio Securities............13
2.18 Proper Instructions.............................................14
2.19 Actions Permitted Without Express Authority.....................14
2.20 Evidence of Authority...........................................15
2.21 Notice to Trust by Custodian Regarding Cash Movement............15
3. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.........................15
4. Records .............................................................16
5. Opinion of Funds' Independent Public Accountants/Auditors.............16
6. Reports to Trust by Independent Public Accountants/Auditors...........17
7. Compensation of Custodian.............................................17
8. Responsibility of Custodian...........................................17
9. Effective Period, Termination and Amendment...........................19
10. Successor Custodian...................................................20
11. Interpretive and Additional Provisions................................21
12. Massachusetts Law to Apply............................................22
13. Notices .............................................................22
14. Counterparts..........................................................22
15. Limitations of Liability..............................................22
<PAGE>
Page 1
CUSTODIAN CONTRACT
This Contract between those INVESTMENT COMPANIES listed on Exhibit 1, as it may
be amended from time to time, (the "Trust"), which may be Massachusetts business
trusts or Maryland corporations or have such other form of organization as may
be indicated, on behalf of the portfolios (hereinafter collectively called the
"Funds" and individually referred to as a "Fund") of the Trust, having its
principal place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania, 15222-3779, and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian", and FEDERATED SERVICES COMPANY, a Delaware business trust company,
having its principal place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania, 15222-3779, hereinafter called ("Company").
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Trust hereby employs the Custodian as the custodian of the assets of
each of the Funds of the Trust. Except as otherwise expressly provided
herein, the securities and other assets of each of the Funds shall be
segregated from the assets of each of the other Funds and from all other
persons and entities. The Trust will deliver to the Custodian all
securities and cash owned by the Funds and all payments of income,
payments of principal or capital distributions received by them with
respect to all securities owned by the Funds from time to time, and the
cash consideration received by them for shares ("Shares") of beneficial
interest/capital stock of the Funds as may be issued or sold from time to
time. The Custodian shall not be responsible for any property of the Funds
held or received by the Funds and not delivered to the Custodian. Upon
receipt of "Proper Instructions" (within the meaning of Section 2.18), the
Custodian shall from time to time employ one or more sub-custodians upon
the terms specified in the Proper Instructions, provided that the
Custodian shall have no more or less responsibility or liability to the
Trust or any of the Funds on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the
Custodian.
2. Duties of the Custodian With Respect to Property of the Funds Held by the
Custodian
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Fund all non-cash property, including all
securities owned by each Fund, other than securities which are
maintained pursuant to Section 2.12 in a clearing agency which acts
as a securities depository or in a book-entry system authorized by
the U.S. Department of the Treasury, collectively referred to herein
as "Securities System", or securities which are subject to a joint
repurchase agreement with affiliated funds pursuant to Section 2.14.
The Custodian shall maintain records of all receipts, deliveries and
locations of such securities, together with a current inventory
thereof, and shall conduct periodic physical inspections of
certificates representing stocks, bonds and other securities held by
it under this Contract in such manner as the Custodian shall
determine from time to time to be advisable in order to verify the
accuracy of such inventory. With respect to securities held by any
agent appointed pursuant to Section 2.11 hereof, and with respect to
securities held by any sub-custodian appointed pursuant to Section 1
hereof, the Custodian may rely upon certificates from such agent as
to the holdings of such agent and from such sub-custodian as to the
holdings of such sub-custodian, it being understood that such
reliance in no way relieves the Custodian of its responsibilities
under this Contract. The Custodian will promptly report to the Trust
the results of such inspections, indicating any shortages or
discrepancies uncovered thereby, and take appropriate action to
remedy any such shortages or discrepancies.
2.2 Delivery of Securities. The Custodian shall release and deliver
securities owned by a Fund held by the Custodian or in a Securities
System account of the Custodian only upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
(1) Upon sale of such securities for the account of a Fund and
receipt of payment therefor;
(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Trust;
(3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.12 hereof;
(4) To the depository agent in connection with tender or other
similar offers for portfolio securities of a Fund, in accordance
with the provisions of Section 2.17 hereof;
(5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
(6) To the issuer thereof, or its agent, for transfer into the name
of a Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.11 or into the name or nominee name of any
sub-custodian appointed pursuant to Section 1; or for exchange
for a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
(7) Upon the sale of such securities for the account of a Fund, to
the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery custom"; provided
that in any such case, the Custodian shall have no responsibility
or liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities except
as may arise from the Custodian's own failure to act in
accordance with the standard of reasonable care or any higher
standard of care imposed upon the Custodian by any applicable law
or regulation if such above-stated standard of reasonable care
were not part of this Contract;
(8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
(9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
(10)For delivery in connection with any loans of portfolio securities
of a Fund, but only against receipt of adequate collateral in the
form of (a) cash, in an amount specified by the Trust, (b)
certificated securities of a description specified by the Trust,
registered in the name of the Fund or in the name of a nominee of
the Custodian referred to in Section 2.3 hereof or in proper form
for transfer, or (c) securities of a description specified by the
Trust, transferred through a Securities System in accordance with
Section 2.12 hereof;
(11)For delivery as security in connection with any borrowings
requiring a pledge of assets by a Fund, but only against receipt
of amounts borrowed, except that in cases where additional
collateral is required to secure a borrowing already made,
further securities may be released for the purpose;
(12)For delivery in accordance with the provisions of any agreement
among the Trust or a Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934, as amended,
(the "Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions for a Fund;
(13)For delivery in accordance with the provisions of any agreement
among the Trust or a Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity Futures
Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transaction for a Fund;
(14)Upon receipt of instructions from the transfer agent ("Transfer
Agent") for a Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, in
satisfaction of requests by holders of Shares for repurchase or
redemption; and
(15)For any other proper corporate purpose, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Executive Committee of the Trust on behalf of a
Fund signed by an officer of the Trust and certified by its
Secretary or an Assistant Secretary, specifying the securities to
be delivered, setting forth the purpose for which such delivery
is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of
such securities shall be made.
2.3 Registration of Securities. Securities held by the Custodian (other
than bearer securities) shall be registered in the name of a
particular Fund or in the name of any nominee of the Fund or of any
nominee of the Custodian which nominee shall be assigned exclusively
to the Fund, unless the Trust has authorized in writing the
appointment of a nominee to be used in common with other registered
investment companies affiliated with the Fund, or in the name or
nominee name of any agent appointed pursuant to Section 2.11 or in
the name or nominee name of any sub-custodian appointed pursuant to
Section 1. All securities accepted by the Custodian on behalf of a
Fund under the terms of this Contract shall be in "street name" or
other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the name of each Fund, subject only to draft
or order by the Custodian acting pursuant to the terms of this
Contract, and shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account of
each Fund, other than cash maintained in a joint repurchase account
with other affiliated funds pursuant to Section 2.14 of this Contract
or by a particular Fund in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of 1940,
as amended, (the "1940 Act"). Funds held by the Custodian for a Fund
may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies
as it may in its discretion deem necessary or desirable; provided,
however, that every such bank or trust company shall be qualified to
act as a custodian under the 1940 Act and that each such bank or
trust company and the funds to be deposited with each such bank or
trust company shall be approved by vote of a majority of the Board of
Trustees/Directors ("Board") of the Trust. Such funds shall be
deposited by the Custodian in its capacity as Custodian for the Fund
and shall be withdrawable by the Custodian only in that capacity. If
requested by the Trust, the Custodian shall furnish the Trust, not
later than twenty (20) days after the last business day of each
month, an internal reconciliation of the closing balance as of that
day in all accounts described in this section to the balance shown on
the daily cash report for that day rendered to the Trust.
2.5 Payments for Shares. The Custodian shall make such arrangements with
the Transfer Agent of each Fund, as will enable the Custodian to
receive the cash consideration due to each Fund and will deposit into
each Fund's account such payments as are received from the Transfer
Agent. The Custodian will provide timely notification to the Trust
and the Transfer Agent of any receipt by it of payments for Shares of
the respective Fund.
2.6 Availability of Federal Funds. Upon mutual agreement between the
Trust and the Custodian, the Custodian shall make federal funds
available to the Funds as of specified times agreed upon from time to
time by the Trust and the Custodian in the amount of checks, clearing
house funds, and other non-federal funds received in payment for
Shares of the Funds which are deposited into the Funds' accounts.
2.7 Collection of Income.
(1) The Custodian shall collect on a timely basis all income and
other payments with respect to registered securities held
hereunder to which each Fund shall be entitled either by law or
pursuant to custom in the securities business, and shall collect
on a timely basis all income and other payments with respect to
bearer securities if, on the date of payment by the issuer, such
securities are held by the Custodian or its agent thereof and
shall credit such income, as collected, to each Fund's custodian
account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and
other income items requiring presentation as and when they become
due and shall collect interest when due on securities held
hereunder. The collection of income due the Funds on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be
the responsibility of the Trust. The Custodian will have no duty
or responsibility in connection therewith, other than to provide
the Trust with such information or data as may be necessary to
assist the Trust in arranging for the timely delivery to the
Custodian of the income to which each Fund is properly entitled.
(2) The Custodian shall promptly notify the Trust whenever income due
on securities is not collected in due course and will provide the
Trust with monthly reports of the status of past due income
unless the parties otherwise agree.
2.8 Payment of Fund Moneys. Upon receipt of Proper Instructions, which
may be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out moneys of each Fund in the
following cases only:
(1) Upon the purchase of securities, futures contracts or options on
futures contracts for the account of a Fund but only (a) against
the delivery of such securities, or evidence of title to futures
contracts, to the Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which is
qualified under the 1940 Act to act as a custodian and has been
designated by the Custodian as its agent for this purpose)
registered in the name of the Fund or in the name of a nominee of
the Custodian referred to in Section 2.3 hereof or in proper form
for transfer, (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth in
Section 2.12 hereof or (c) in the case of repurchase agreements
entered into between the Trust and any other party, (i) against
delivery of the securities either in certificate form or through
an entry crediting the Custodian's account at the Federal Reserve
Bank with such securities or (ii) against delivery of the receipt
evidencing purchase for the account of the Fund of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from the
Fund;
(2) In connection with conversion, exchange or surrender of
securities owned by a Fund as set forth in Section 2.2 hereof;
(3) For the redemption or repurchase of Shares of a Fund issued by
the Trust as set forth in Section 2.10 hereof;
(4) For the payment of any expense or liability incurred by a Fund,
including but not limited to the following payments for the
account of the Fund: interest; taxes; management, accounting,
transfer agent and legal fees; and operating expenses of the
Fund, whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
(5) For the payment of any dividends on Shares of a Fund declared
pursuant to the governing documents of the Trust;
(6) For payment of the amount of dividends received in respect of
securities sold short;
(7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution
of the Executive Committee of the Trust on behalf of a Fund
signed by an officer of the Trust and certified by its Secretary
or an Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.9 Liability for Payment in Advance of Receipt of Securities Purchased.
In any and every case where payment for purchase of securities for
the account of a Fund is made by the Custodian in advance of receipt
of the securities purchased, in the absence of specific written
instructions from the Trust to so pay in advance, the Custodian shall
be absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.
2.10 Payments for Repurchases or Redemptions of Shares of a Fund. From
such funds as may be available for the purpose of repurchasing or
redeeming Shares of a Fund, but subject to the limitations of the
Declaration of Trust/Articles of Incorporation and any applicable
votes of the Board of the Trust pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer Agent, make
funds available for payment to holders of shares of such Fund who
have delivered to the Transfer Agent a request for redemption or
repurchase of their shares including without limitation through bank
drafts, automated clearinghouse facilities, or by other means. In
connection with the redemption or repurchase of Shares of the Funds,
the Custodian is authorized upon receipt of instructions from the
Transfer Agent to wire funds to or through a commercial bank
designated by the redeeming shareholders.
2.11 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the 1940 Act and any
applicable state law or regulation, to act as a custodian, as its
agent to carry out such of the provisions of this Section 2 as the
Custodian may from time to time direct; provided, however, that the
appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
2.12 Deposit of Fund Assets in Securities System. The Custodian may
deposit and/or maintain securities owned by the Funds in a clearing
agency registered with the Securities and Exchange Commission ("SEC")
under Section 17A of the Exchange Act, which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "Securities System" in accordance with
applicable Federal Reserve Board and SEC rules and regulations, if
any, and subject to the following provisions:
(1) The Custodian may keep securities of each Fund in a Securities
System provided that such securities are represented in an
account ("Account") of the Custodian in the Securities System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for customers;
(2) The records of the Custodian with respect to securities of the
Funds which are maintained in a Securities System shall identify
by book-entry those securities belonging to each Fund;
(3) The Custodian shall pay for securities purchased for the account
of each Fund upon (i) receipt of advice from the Securities
System that such securities have been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian
to reflect such payment and transfer for the account of the Fund.
The Custodian shall transfer securities sold for the account of a
Fund upon (i) receipt of advice from the Securities System that
payment for such securities has been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian
to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System of transfers of
securities for the account of a Fund shall identify the Fund, be
maintained for the Fund by the Custodian and be provided to the
Trust at its request. Upon request, the Custodian shall furnish
the Trust confirmation of each transfer to or from the account of
a Fund in the form of a written advice or notice and shall
furnish to the Trust copies of daily transaction sheets
reflecting each day's transactions in the Securities System for
the account of a Fund.
(4) The Custodian shall provide the Trust with any report obtained by
the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
(5) The Custodian shall have received the initial certificate,
required by Section 9 hereof;
(6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Trust for any loss or damage to
a Fund resulting from use of the Securities System by reason of
any negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from failure
of the Custodian or any such agent to enforce effectively such
rights as it may have against the Securities System; at the
election of the Trust, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claim against the
Securities System or any other person which the Custodian may
have as a consequence of any such loss or damage if and to the
extent that a Fund has not been made whole for any such loss or
damage.
(7) The authorization contained in this Section 2.12 shall not
relieve the Custodian from using reasonable care and diligence in
making use of any Securities System.
2.13 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts
for and on behalf of each Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained
in an account by the Custodian pursuant to Section 2.12 hereof, (i)
in accordance with the provisions of any agreement among the Trust,
the Custodian and a broker-dealer registered under the Exchange Act
and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to compliance
with the rules of The Options Clearing Corporation and of any
registered national securities exchange (or the Commodity Futures
Trading Commission or any registered contract market), or of any
similar organization or organizations, regarding escrow or other
arrangements in connection with transactions for a Fund, (ii) for
purpose of segregating cash or government securities in connection
with options purchased, sold or written for a Fund or commodity
futures contracts or options thereon purchased or sold for a Fund,
(iii) for the purpose of compliance by the Trust or a Fund with the
procedures required by any release or releases of the SEC relating to
the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only, in
the case of clause (iv), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board or of the
Executive Committee signed by an officer of the Trust and certified
by the Secretary or an Assistant Secretary, setting forth the purpose
or purposes of such segregated account and declaring such purposes to
be proper corporate purposes.
2.14 Joint Repurchase Agreements. Upon the receipt of Proper Instructions,
the Custodian shall deposit and/or maintain any assets of a Fund and
any affiliated funds which are subject to joint repurchase
transactions in an account established solely for such transactions
for the Fund and its affiliated funds. For purposes of this Section
2.14, "affiliated funds" shall include all investment companies and
their portfolios for which subsidiaries or affiliates of Federated
Investors serve as investment advisers, distributors or
administrators in accordance with applicable exemptive orders from
the SEC. The requirements of segregation set forth in Section 2.1
shall be deemed to be waived with respect to such assets.
2.15 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to securities of a Fund held by it and in
connection with transfers of securities.
2.16 Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in
the name of a Fund or a nominee of a Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Trust such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.17 Communications Relating to Fund Portfolio Securities. The Custodian
shall transmit promptly to the Trust all written information
(including, without limitation, pendency of calls and maturities of
securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund and
the maturity of futures contracts purchased or sold by the Fund)
received by the Custodian from issuers of the securities being held
for the Fund. With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Trust all written
information received by the Custodian from issuers of the securities
whose tender or exchange is sought and from the party (or his agents)
making the tender or exchange offer. If the Trust desires to take
action with respect to any tender offer, exchange offer or any other
similar transaction, the Trust shall notify the Custodian in writing
at least three business days prior to the date on which the Custodian
is to take such action. However, the Custodian shall nevertheless
exercise its best efforts to take such action in the event that
notification is received three business days or less prior to the
date on which action is required.
2.18 Proper Instructions. Proper Instructions as used throughout this
Section 2 means a writing signed or initialed by one or more person
or persons as the Board shall have from time to time authorized. Each
such writing shall set forth the specific transaction or type of
transaction involved. Oral instructions will be deemed to be Proper
Instructions if (a) the Custodian reasonably believes them to have
been given by a person previously authorized in Proper Instructions
to give such instructions with respect to the transaction involved,
and (b) the Trust promptly causes such oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary
or an Assistant Secretary as to the authorization by the Board of the
Trust accompanied by a detailed description of procedures approved by
the Board, Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided
that the Board and the Custodian are satisfied that such procedures
afford adequate safeguards for a Fund's assets.
2.19 Actions Permitted Without Express Authority. The Custodian may in its
discretion, without express authority from the Trust:
(1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under
this Contract, provided that all such payments shall be accounted
for to the Trust in such form that it may be allocated to the
affected Fund;
(2) surrender securities in temporary form for securities in
definitive form;
(3) endorse for collection, in the name of a Fund, checks, drafts and
other negotiable instruments; and
(4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and
other dealings with the securities and property of each Fund
except as otherwise directed by the Trust.
2.20 Evidence of Authority. The Custodian shall be protected in acting
upon any instructions, notice, request, consent, certificate or other
instrument or paper reasonably believed by it to be genuine and to
have been properly executed on behalf of a Fund. The Custodian may
receive and accept a certified copy of a vote of the Board of the
Trust as conclusive evidence (a) of the authority of any person to
act in accordance with such vote or (b) of any determination of or
any action by the Board pursuant to the Declaration of Trust/Articles
of Incorporation as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Custodian
of written notice to the contrary.
2.21 Notice to Trust by Custodian Regarding Cash Movement. The Custodian
will provide timely notification to the Trust of any receipt of cash,
income or payments to the Trust and the release of cash or payment by
the Trust.
3. Duties of Custodian With Respect to the Books of Account and Calculation of
Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of the Trust to keep the books
of account of each Fund and/or compute the net asset value per share of
the outstanding Shares of each Fund or, if directed in writing to do so by
the Trust, shall itself keep such books of account and/or compute such net
asset value per share. If so directed, the Custodian shall also calculate
daily the net income of a Fund as described in the Fund's currently
effective prospectus and Statement of Additional Information
("Prospectus") and shall advise the Trust and the Transfer Agent daily of
the total amounts of such net income and, if instructed in writing by an
officer of the Trust to do so, shall advise the Transfer Agent
periodically of the division of such net income among its various
components. The calculations of the net asset value per share and the
daily income of a Fund shall be made at the time or times described from
time to time in the Fund's currently effective Prospectus.
4. Records.
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet
the obligations of the Trust and the Funds under the 1940 Act, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, and specifically including identified cost records used for
tax purposes. All such records shall be the property of the Trust and
shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of
the Trust and employees and agents of the SEC. In the event of termination
of this Contract, the Custodian will deliver all such records to the
Trust, to a successor Custodian, or to such other person as the Trust may
direct. The Custodian shall supply daily to the Trust a tabulation of
securities owned by a Fund and held by the Custodian and shall, when
requested to do so by the Trust and for such compensation as shall be
agreed upon between the Trust and the Custodian, include certificate
numbers in such tabulations.
5. Opinion of Funds' Independent Public Accountants/Auditors.
The Custodian shall take all reasonable action, as the Trust may from time
to time request, to obtain from year to year favorable opinions from each
Fund's independent public accountants/auditors with respect to its
activities hereunder in connection with the preparation of the Fund's
registration statement, periodic reports, or any other reports to the SEC
and with respect to any other requirements of such Commission.
6. Reports to Trust by Independent Public Accountants/Auditors.
The Custodian shall provide the Trust, at such times as the Trust may
reasonably require, with reports by independent public
accountants/auditors for each Fund on the accounting system, internal
accounting control and procedures for safeguarding securities, futures
contracts and options on futures contracts, including securities deposited
and/or maintained in a Securities System, relating to the services
provided by the Custodian for the Fund under this Contract; such reports
shall be of sufficient scope and in sufficient detail, as may reasonably
be required by the Trust, to provide reasonable assurance that any
material inadequacies would be disclosed by such examination and, if there
are no such inadequacies, the reports shall so state.
7. Compensation of Custodian.
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time
between Company and the Custodian.
8. Responsibility of Custodian.
The Custodian shall be held to a standard of reasonable care in carrying
out the provisions of this Contract; provided, however, that the Custodian
shall be held to any higher standard of care which would be imposed upon
the Custodian by any applicable law or regulation if such above stated
standard of reasonable care was not part of this Contract. The Custodian
shall be entitled to rely on and may act upon advice of counsel (who may
be counsel for the Trust) on all matters, and shall be without liability
for any action reasonably taken or omitted pursuant to such advice,
provided that such action is not in violation of applicable federal or
state laws or regulations, and is in good faith and without negligence.
Subject to the limitations set forth in Section 15 hereof, the Custodian
shall be kept indemnified by the Trust but only from the assets of the
Fund involved in the issue at hand and be without liability for any action
taken or thing done by it in carrying out the terms and provisions of this
Contract in accordance with the above standards. In order that the
indemnification provisions contained in this Section 8 shall apply,
however, it is understood that if in any case the Trust may be asked to
indemnify or save the Custodian harmless, the Trust shall be fully and
promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the Custodian will use all
reasonable care to identify and notify the Trust promptly concerning any
situation which presents or appears likely to present the probability of
such a claim for indemnification. The Trust shall have the option to
defend the Custodian against any claim which may be the subject of this
indemnification, and in the event that the Trust so elects it will so
notify the Custodian and thereupon the Trust shall take over complete
defense of the claim, and the Custodian shall in such situation initiate
no further legal or other expenses for which it shall seek indemnification
under this Section. The Custodian shall in no case confess any claim or
make any compromise in any case in which the Trust will be asked to
indemnify the Custodian except with the Trust's prior written consent.
Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a
separate Agreement entered into between the Custodian and the Trust. If
the Trust requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action
may, in the reasonable opinion of the Custodian, result in the Custodian
or its nominee assigned to a Fund being liable for the payment of money or
incurring liability of some other form, the Custodian may request the
Trust, as a prerequisite to requiring the Custodian to take such action,
to provide indemnity to the Custodian in an amount and form satisfactory
to the Custodian. Subject to the limitations set forth in Section 15
hereof, the Trust agrees to indemnify and hold harmless the Custodian and
its nominee from and against all taxes, charges, expenses, assessments,
claims and liabilities (including counsel fees) (referred to herein as
authorized charges) incurred or assessed against it or its nominee in
connection with the performance of this Contract, except such as may arise
from it or its nominee's own failure to act in accordance with the
standard of reasonable care or any higher standard of care which would be
imposed upon the Custodian by any applicable law or regulation if such
above-stated standard of reasonable care were not part of this Contract.
To secure any authorized charges and any advances of cash or securities
made by the Custodian to or for the benefit of a Fund for any purpose
which results in the Fund incurring an overdraft at the end of any
business day or for extraordinary or emergency purposes during any
business day, the Trust hereby grants to the Custodian a security interest
in and pledges to the Custodian securities held for the Fund by the
Custodian, in an amount not to exceed 10 percent of the Fund's gross
assets, the specific securities to be designated in writing from time to
time by the Trust or the Fund's investment adviser. Should the Trust fail
to make such designation, or should it instruct the Custodian to make
advances exceeding the percentage amount set forth above and should the
Custodian do so, the Trust hereby agrees that the Custodian shall have a
security interest in all securities or other property purchased for a Fund
with the advances by the Custodian, which securities or property shall be
deemed to be pledged to the Custodian, and the written instructions of the
Trust instructing their purchase shall be considered the requisite
description and designation of the property so pledged for purposes of the
requirements of the Uniform Commercial Code. Should the Trust fail to
cause a Fund to repay promptly any authorized charges or advances of cash
or securities, subject to the provision of the second paragraph of this
Section 8 regarding indemnification, the Custodian shall be entitled to
use available cash and to dispose of pledged securities and property as is
necessary to repay any such advances.
9. Effective Period, Termination and Amendment.
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take
effect not sooner than sixty (60) days after the date of such delivery or
mailing; provided, however that the Custodian shall not act under Section
2.12 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of the Trust has
approved the initial use of a particular Securities System as required in
each case by Rule 17f-4 under the 1940 Act; provided further, however,
that the Trust shall not amend or terminate this Contract in contravention
of any applicable federal or state regulations, or any provision of the
Declaration of Trust/Articles of Incorporation, and further provided, that
the Trust may at any time by action of its Board (i) substitute another
bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the
event of the appointment of a conservator or receiver for the Custodian by
the appropriate banking regulatory agency or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of
competent jurisdiction. Upon termination of the Contract, the Trust shall
pay to the Custodian such compensation as may be due as of the date of
such termination and shall likewise reimburse the Custodian for its costs,
expenses and disbursements.
10. Successor Custodian.
If a successor custodian shall be appointed by the Board of the Trust, the
Custodian shall, upon termination, deliver to such successor custodian at
the office of the Custodian, duly endorsed and in the form for transfer,
all securities then held by it hereunder for each Fund and shall transfer
to separate accounts of the successor custodian all of each Fund's
securities held in a Securities System. If no such successor custodian
shall be appointed, the Custodian shall, in like manner, upon receipt of a
certified copy of a vote of the Board of the Trust, deliver at the office
of the Custodian and transfer such securities, funds and other properties
in accordance with such vote. In the event that no written order
designating a successor custodian or certified copy of a vote of the Board
shall have been delivered to the Custodian on or before the date when such
termination shall become effective, then the Custodian shall have the
right to deliver to a bank or trust company, which is a "bank" as defined
in the 1940 Act, (delete "doing business ... Massachusetts" unless SSBT is
the Custodian) doing business in Boston, Massachusetts, of its own
selection, having an aggregate capital, surplus, and undivided profits, as
shown by its last published report, of not less than $100,000,000, all
securities, funds and other properties held by the Custodian and all
instruments held by the Custodian relative thereto and all other property
held by it under this Contract for each Fund and to transfer to separate
accounts of such successor custodian all of each Fund's securities held in
any Securities System. Thereafter, such bank or trust company shall be the
successor of the Custodian under this Contract. In the event that
securities, funds and other properties remain in the possession of the
Custodian after the date of termination hereof owing to failure of the
Trust to procure the certified copy of the vote referred to or of the
Board to appoint a successor custodian, the Custodian shall be entitled to
fair compensation for its services during such period as the Custodian
retains possession of such securities, funds and other properties and the
provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
11. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian and the
Trust may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion
be consistent with the general tenor of this Contract. Any such
interpretive or additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such interpretive or
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Declaration of Trust/Articles of
Incorporation. No interpretive or additional provisions made as provided
in the preceding sentence shall be deemed to be an amendment of this
Contract.
12. Massachusetts Law to Apply.
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
13. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the Custodian
at address for SSBT only: 225 Franklin Street, Boston, Massachusetts,
02110, or to such other address as the Trust or the Custodian may
hereafter specify, shall be deemed to have been properly delivered or
given hereunder to the respective address.
14. Counterparts.
This Contract may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original.
15. Limitations of Liability.
The Custodian is expressly put on notice of the limitation of liability as
set forth in Article XI of the Declaration of Trust of those Trusts which
are business trusts and agrees that the obligations and liabilities
assumed by the Trust and any Fund pursuant to this Contract, including,
without limitation, any obligation or liability to indemnify the Custodian
pursuant to Section 8 hereof, shall be limited in any case to the relevant
Fund and its assets and that the Custodian shall not seek satisfaction of
any such obligation from the shareholders of the relevant Fund, from any
other Fund or its shareholders or from the Trustees, Officers, employees
or agents of the Trust, or any of them. In addition, in connection with
the discharge and satisfaction of any claim made by the Custodian against
the Trust, for whatever reasons, involving more than one Fund, the Trust
shall have the exclusive right to determine the appropriate allocations of
liability for any such claim between or among the Funds.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed effective as of the 1st day of December, 1993.
ATTEST: INVESTMENT COMPANIES
/s/John G. McGonigle_________ By /s/John G. Donahue__________
John G. McGonigle John F. Donahue
Secretary Chairman
ATTEST: STATE STREET BANK AND TRUST
COMPANY
/s/ Ed McKenzie______________ By /s/ F. J. Sidoti, Jr._____________
(Assistant) Secretary Typed Name: Frank J. Sidoti, Jr.
Typed Name: Ed McKenzie Title: Vice President
ATTEST: FEDERATED SERVICES COMPANY
/s/ Jeannette Fisher-Garber______ By /s/ James J. Dolan____________
Jeannette Fisher-Garber James J. Dolan
Secretary President
<PAGE>
Page 1
EXHIBIT 1
CONTRACT
DATE INVESTMENT COMPANY
November 15, 1996 Money Market Obligations Trust II
Municipal Obligations Fund
Institutional Shares
Institutional Service Shares
Institutional Capital Shares
Prime Cash Obligations Fund
Institutional Shares
Institutional Service Shares
Institutional Capital Shares
Prime Value Obligations Fund
Institutional Shares
Institutional Service Shares
Institutional Capital Shares
Exhibit 8(b) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
STATE STREET
DOMESTIC CUSTODY
FEE SCHEDULE
Federated Funds
I. Custody Services
Maintain custody of fund assets. Settle portfolio purchases and sales.
Report buy and sell fails. Determine and collect portfolio income. Make
cash disbursements and report cash transactions. Monitor corporate
actions.
ANNUAL FEES
ASSET
Per Fund .25 Basis Points
Wire Fees $3.00 per wire
Settlements:
o Each DTC Transaction $5.00
o Each Federal Reserve Book Entry Transaction $3.75
o Each Repo Transaction (All Repo) $3.75
o Each Physical Transaction (NY/Boston, Private Placement) $15.00
o Each Option Written/Exercised/Expired $18.75
Each Book Entry Muni (Sub-custody) Transaction $15.00
o Government Paydowns $5.00
o Maturity Collections $8.00
o PTC Transactions $6.00
II. Special Services
Fees for activities of a non-recurring nature such as fund consolidation
or reorganization, extraordinary security shipments and the preparation of
special reports will be subject to negotiation.
III. Balance Credit
Municipal Funds
A balance credit equal to 75% of the average demand deposit account
balance in the custodian account for the month billed times the 30 day
T-Bill Rate on the last Monday of the month billed, will be applied
against the month's custodian bill.
Transfer Agent
A balance credit equal to 100% of the average balance in the transfer
agent demand deposit accounts, less the reserve requirement and applicable
related expenses, times 75% of the 30 average Fed Funds Rate.
IV. Payment
The above fees will be charged against the funds' custodian checking
account thirty (30) days after the invoice is mailed to the funds' offices.
V. Term of Contract
The parties agree that this fee schedule shall become effective January 1,
1997.
FEDERATED SERVICES COMPANY STATE STREET
BY: /s/ Douglas L. Hein BY: /s/ Michael E. Hagerty
TITLE: Senior Vice President TITLE: Vice President
DATE: April 15, 1997 DATE: April 8, 1997
----------------------------------- -------------
Exhibit 9 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AGREEMENT
for
FUND ACCOUNTING SERVICES,
ADMINISTRATIVE SERVICES,
TRANSFER AGENCY SERVICES
and
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of March 1, 1996, by and between those investment companies
listed on Exhibit 1 as may be amended from time to time, having their principal
office and place of business at Federated Investors Tower, Pittsburgh, PA
15222-3779 (the "Investment Company"), on behalf of the portfolios (individually
referred to herein as a "Fund" and collectively as "Funds") of the Investment
Company, and FEDERATED SERVICES COMPANY, a Pennsylvania corporation, having its
principal office and place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779 on behalf of itself and its subsidiaries (the
"Company").
WHEREAS, the Investment Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), with authorized and issued shares of capital stock or beneficial
interest ("Shares");
WHEREAS, the Investment Company may desire to retain the Company as fund
accountant to provide fund accounting services (as herein defined) including
certain pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes") if so indicated
on Exhibit 1, and the Company desires to accept such appointment;
WHEREAS, the Investment Company may desire to appoint the Company as its
administrator to provide it with administrative services (as herein defined), if
so indicated on Exhibit, and the Company desires to accept such appointment;
WHEREAS, the Investment Company may desire to appoint the Company as its
transfer agent and dividend disbursing agent to provide it with transfer agency
services (as herein defined) if so indicated on Exhibit 1, and agent in
connection with certain other activities, and the Company desires to accept such
appointment; and
WHEREAS, the Investment Company may desire to appoint the Company as its
agent to select, negotiate and subcontract for custodian services from an
approved list of qualified banks if so indicated on Exhibit 1, and the Company
desires to accept such appointment; and
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
SECTION ONE: Fund Accounting.
Article 1. Appointment.
The Investment Company hereby appoints the Company to provide certain pricing
and accounting services to the Funds, and/or the Classes, for the period and on
the terms set forth in this Agreement. The Company accepts such appointment and
agrees to furnish the services herein set forth in return for the compensation
as provided in Article 3 of this Section.
Article 2. The Company's Duties.
Subject to the supervision and control of the Investment Company's Board of
Trustees or Directors ("Board"), the Company will assist the Investment Company
with regard to fund accounting for the Investment Company, and/or the Funds,
and/or the Classes, and in connection therewith undertakes to perform the
following specific services;
A. Value the assets of the Funds using: primarily, market quotations,
including the use of matrix pricing, supplied by the independent pricing
services selected by the Company in consultation with the adviser, or
sources selected by the adviser, and reviewed by the board; secondarily, if
a designated pricing service does not provide a price for a security which
the Company believes should be available by market quotation, the Company
may obtain a price by calling brokers designated by the investment adviser
of the fund holding the security, or if the adviser does not supply the
names of such brokers, the Company will attempt on its own to find brokers
to price those securities; thirdly, for securities for which no market
price is available, the Pricing Committee of the Board will determine a
fair value in good faith. Consistent with Rule 2a-4 of the 40 Act,
estimates may be used where necessary or appropriate. The Company's
obligations with regard to the prices received from outside pricing
services and designated brokers or other outside sources, is to exercise
reasonable care in the supervision of the pricing agent. The Company is not
the guarantor of the securities prices received from such agents and the
Company is not liable to the Fund for potential errors in valuing a Fund's
assets or calculating the net asset value per share of such Fund or Class
when the calculations are based upon such prices. All of the above sources
of prices used as described are deemed by the Company to be authorized
sources of security prices. The Company provides daily to the adviser the
securities prices used in calculating the net asset value of the fund, for
its use in preparing exception reports for those prices on which the
adviser has comment. Further, upon receipt of the exception reports
generated by the adviser, the Company diligently pursues communication
regarding exception reports with the designated pricing agents;
B. Determine the net asset value per share of each Fund and/or Class, at
the time and in the manner from time to time determined by the Board
and as set forth in the Prospectus and Statement of Additional
Information ("Prospectus") of each Fund;
C. Calculate the net income of each of the Funds, if any;
D. Calculate realized capital gains or losses of each of the Funds
resulting from sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and financial
records of the Investment Company, including for each Fund, and/or
Class, as required under Section 31(a) of the 1940 Act and the Rules
thereunder in connection with the services provided by the Company;
F. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records to be maintained by Rule 31a-1 under the 1940 Act in
connection with the services provided by the Company. The Company
further agrees that all such records it maintains for the Investment
Company are the property of the Investment Company and further agrees
to surrender promptly to the Investment Company such records upon the
Investment Company's request;
G. At the request of the Investment Company, prepare various reports or
other financial documents in accordance with generally accepted
accounting principles as required by federal, state and other
applicable laws and regulations; and
H. Such other similar services as may be reasonably requested by the
Investment Company.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section One,
shall hereafter be referred to as "Fund Accounting Services."
Article 3. Compensation and Allocation of Expenses.
A. The Funds will compensate the Company for Fund Accounting Services in
accordance with the fees agreed upon from time to time between the
parties hereto. Such fees do not include out-of-pocket disbursements
of the Company for which the Funds shall reimburse the Company.
Out-of-pocket disbursements shall include, but shall not be limited
to, the items agreed upon between the parties from time to time.
B. The Fund and/or the Class, and not the Company, shall bear the cost
of: custodial expenses; membership dues in the Investment Company
Institute or any similar organization; transfer agency expenses;
investment advisory expenses; costs of printing and mailing stock
certificates, Prospectuses, reports and notices; administrative
expenses; interest on borrowed money; brokerage commissions; taxes
and fees payable to federal, state and other governmental agencies;
fees of Trustees or Directors of the Investment Company; independent
auditors expenses; legal and audit department expenses billed to the
Company for work performed related to the Investment Company, the
Funds, or the Classes; law firm expenses; organizational expenses; or
other expenses not specified in this Article 3 which may be properly
payable by the Funds and/or Classes.
C. The compensation and out-of-pocket expenses attributable to the Fund
shall be accrued by the Fund and shall be paid to the Company no less
frequently than monthly, and shall be paid daily upon request of the
Company. The Company will maintain detailed information about the
compensation and out-of-pocket expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly
authorized officer of the Company.
E. The fee for the period from the effective date of this Agreement with
respect to a Fund or a Class to the end of the initial month shall be
prorated according to the proportion that such period bears to the
full month period. Upon any termination of this Agreement before the
end of any month, the fee for such period shall be prorated according
to the proportion which such period bears to the full month period.
For purposes of determining fees payable to the Company, the value of
the Fund's net assets shall be computed at the time and in the manner
specified in the Fund's Prospectus.
F. The Company, in its sole discretion, may from time to time
subcontract to, employ or associate with itself such person or
persons as the Company may believe to be particularly suited to
assist it in performing Fund Accounting Services. Such person or
persons may be affiliates of the Company, third-party service
providers, or they may be officers and employees who are employed by
both the Company and the Investment Company; provided, however, that
the Company shall be as fully responsible to each Fund for the acts
and omissions of any such subcontractor as it is for its own acts and
omissions. The compensation of such person or persons shall be paid
by the Company and no obligation shall be incurred on behalf of the
Investment Company, the Funds, or the Classes in such respect.
SECTION TWO: ADMINISTRATIVE SERVICES.
Article 4. Appointment.
The Investment Company hereby appoints the Company as Administrator for the
period on the terms and conditions set forth in this Agreement. The Company
hereby accepts such appointment and agrees to furnish the services set forth in
Article 5 of this Agreement in return for the compensation set forth in Article
9 of this Agreement.
Article 5. The Company's Duties.
As Administrator, and subject to the supervision and control of the Board and
in accordance with Proper Instructions (as defined hereafter) from the
Investment Company, the Company will provide facilities, equipment, and
personnel to carry out the following administrative services for operation of
the business and affairs of the Investment Company and each of its portfolios:
A. prepare, file, and maintain the Investment Company's governing documents
and any amendments thereto, including the Charter (which has already
been prepared and filed), the By-laws and minutes of meetings of the
Board and Shareholders;
B. prepare and file with the Securities and Exchange Commission and the
appropriate state securities authorities the registration statements for
the Investment Company and the Investment Company's shares and all
amendments thereto, reports to regulatory authorities and shareholders,
prospectuses, proxy statements, and such other documents all as may be
necessary to enable the Investment Company to make a continuous offering
of its shares;
C. prepare, negotiate, and administer contracts (if any) on behalf of the
Investment Company with, among others, the Investment Company's
investment advisers and distributors, subject to any applicable
restrictions of the Board or the 1940 Act;
D. calculate performance data of the Investment Company for dissemination
to information services covering the investment company industry;
E. prepare and file the Investment Company's tax returns;
F. coordinate the layout and printing of publicly disseminated
prospectuses and reports;
G. perform internal audit examinations in accordance with a charter to be
adopted by the Company and the Investment Company;
H. assist with the design, development, and operation of the Investment
Company and the Funds;
I. provide individuals reasonably acceptable to the Board for nomination,
appointment, or election as officers of the Investment Company, who will
be responsible for the management of certain of the Investment Company's
affairs as determined by the Investment Company's Board; and
J. consult with the Investment Company and its Board on matters
concerning the Investment Company and its affairs.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section Two,
shall hereafter be referred to as "Administrative Services."
Article 6. Records.
The Company shall create and maintain all necessary books and records in
accordance with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the Investment Company act of
1940 and the rules thereunder, as the same may be amended from time to time,
pertaining to the Administrative Services performed by it and not otherwise
created and maintained by another party pursuant to contract with the Investment
Company. Where applicable, such records shall be maintained by the Company for
the periods and in the places required by Rule 31a-2 under the 1940 Act. The
books and records pertaining to the Investment Company which are in the
possession of the Company shall be the property of the Investment Company. The
Investment Company, or the Investment Company's authorized representatives,
shall have access to such books and records at all times during the Company's
normal business hours. Upon the reasonable request of the Investment Company,
copies of any such books and records shall be provided promptly by the Company
to the Investment Company or the Investment Company's authorized
representatives.
Article 7. Duties of the Fund.
The Fund assumes full responsibility for the preparation, contents and
distribution of its own offering document and for complying with all applicable
requirements the 1940 Act, the Internal Revenue Code, and any other laws, rules
and regulations of government authorities having jurisdiction.
Article 8. Expenses.
The Company shall be responsible for expenses incurred in providing office
space, equipment, and personnel as may be necessary or convenient to provide the
Administrative Services to the Investment Company, including the compensation of
the Company employees who serve as trustees or directors or officers of the
Investment Company. The Investment Company shall be responsible for all other
expenses incurred by the Company on behalf of the Investment Company, including
without limitation postage and courier expenses, printing expenses, travel
expenses, registration fees, filing fees, fees of outside counsel and
independent auditors, or other professional services, organizational expenses,
insurance premiums, fees payable to persons who are not the Company's employees,
trade association dues, and other expenses properly payable by the Funds and/or
the Classes.
Article 9. Compensation.
For the Administrative Services provided, the Investment Company hereby
agrees to pay and the Company hereby agrees to accept as full compensation for
its services rendered hereunder an administrative fee at an annual rate per
Fund, as specified below.
The compensation and out of pocket expenses attributable to the Fund shall be
accrued by the Fund and paid to the Company no less frequently than monthly, and
shall be paid daily upon request of the Company. The Company will maintain
detailed information about the compensation and out of pocket expenses by the
Fund.
Max. Admin. Average Daily Net Assets
Fee of the Funds
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
(Average Daily Net Asset break-points are on a
complex-wide basis)
However, in no event shall the administrative fee received during any year of
the Agreement be less than, or be paid at a rate less than would aggregate
$125,000 per Fund and $30,000 per Class. The minimum fee set forth above in this
Article 9 may increase annually upon each March 1 anniversary of this Agreement
over the minimum fee during the prior 12 months, as calculated under this
agreement, in an amount equal to the increase in Pennsylvania Consumer Price
Index (not to exceed 6% annually) as last reported by the U.S. Bureau of Labor
Statistics for the twelve months immediately preceding such anniversary.
Article 10. Responsibility of Administrator.
A. The Company shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Investment Company in
connection with the matters to which this Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
The Company shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for the Investment Company) on all
matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice. Any person, even though also
an officer, director, trustee, partner, employee or agent of the
Company, who may be or become an officer, director, trustee, partner,
employee or agent of the Investment Company, shall be deemed, when
rendering services to the Investment Company or acting on any business
of the Investment Company (other than services or business in
connection with the duties of the Company hereunder) to be rendering
such services to or acting solely for the Investment Company and not
as an officer, director, trustee, partner, employee or agent or one
under the control or direction of the Company even though paid by the
Company.
B. The Company shall be kept indemnified by the Investment Company and be
without liability for any action taken or thing done by it in
performing the Administrative Services in accordance with the above
standards. In order that the indemnification provisions contained in
this Article 10 shall apply, however, it is understood that if in any
case the Investment Company may be asked to indemnify or hold the
Company harmless, the Investment Company shall be fully and promptly
advised of all pertinent facts concerning the situation in question,
and it is further understood that the Company will use all reasonable
care to identify and notify the Investment Company promptly concerning
any situation which presents or appears likely to present the
probability of such a claim for indemnification against the Investment
Company. The Investment Company shall have the option to defend the
Company against any claim which may be the subject of this
indemnification. In the event that the Investment Company so elects,
it will so notify the Company and thereupon the Investment Company
shall take over complete defense of the claim, and the Company shall
in such situation initiate no further legal or other expenses for
which it shall seek indemnification under this Article. The Company
shall in no case confess any claim or make any compromise in any case
in which the Investment Company will be asked to indemnify the Company
except with the Investment Company's written consent.
SECTION THREE: Transfer Agency Services.
Article 11. Terms of Appointment.
Subject to the terms and conditions set forth in this Agreement, the
Investment Company hereby appoints the Company to act as, and the Company agrees
to act as, transfer agent and dividend disbursing agent for each Fund's Shares,
and agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of any Fund ("Shareholder(s)"), including without
limitation any periodic investment plan or periodic withdrawal program.
Article 12. Duties of the Company.
The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Investment Company as
to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase of
shares and promptly deliver payment and appropriate documentation
therefore to the custodian of the relevant Fund, (the
"Custodian"). The Company shall notify the Fund and the Custodian
on a daily basis of the total amount of orders and payments so
delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and hold
such Shares in the appropriate Shareholder accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or its
agent requests a certificate, the Company, as Transfer Agent,
shall countersign and mail by first class mail, a certificate to
the Shareholder at its address as set forth on the transfer books
of the Funds, and/or Classes, subject to any Proper Instructions
regarding the delivery of certificates.
(4) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any
reason, the Company shall debit the Share account of the
Shareholder by the number of Shares that had been credited to its
account upon receipt of the check or other order, promptly mail a
debit advice to the Shareholder, and notify the Fund and/or Class
of its action. In the event that the amount paid for such Shares
exceeds proceeds of the redemption of such Shares plus the amount
of any dividends paid with respect to such Shares, the Fund
and/the Class or its distributor will reimburse the Company on
the amount of such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as Dividend
Disbursing Agent for the Funds in accordance with the provisions
of its governing document and the then-current Prospectus of the
Fund. The Company shall prepare and mail or credit income,
capital gain, or any other payments to Shareholders. As the
Dividend Disbursing Agent, the Company shall, on or before the
payment date of any such distribution, notify the Custodian of
the estimated amount required to pay any portion of said
distribution which is payable in cash and request the Custodian
to make available sufficient funds for the cash amount to be paid
out. The Company shall reconcile the amounts so requested and the
amounts actually received with the Custodian on a daily basis. If
a Shareholder is entitled to receive additional Shares by virtue
of any such distribution or dividend, appropriate credits shall
be made to the Shareholder's account, for certificated Funds
and/or Classes, delivered where requested; and
(2) The Company shall maintain records of account for each Fund and
Class and advise the Investment Company, each Fund and Class and
its Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set
forth in Proper Instructions, deliver the appropriate
instructions therefor to the Custodian. The Company shall notify
the Funds on a daily basis of the total amount of redemption
requests processed and monies paid to the Company by the
Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds from
the Custodian with respect to any redemption, the Company shall
pay or cause to be paid the redemption proceeds in the manner
instructed by the redeeming Shareholders, pursuant to procedures
described in the then-current Prospectus of the Fund.
(3) If any certificate returned for redemption or other request for
redemption does not comply with the procedures for redemption
approved by the Fund, the Company shall promptly notify the
Shareholder of such fact, together with the reason therefor, and
shall effect such redemption at the price applicable to the date
and time of receipt of documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the registered
owners thereof.
(5) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual basis
and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the total
number of Shares of the Fund and/or Class which are authorized,
based upon data provided to it by the Fund, and issued and
outstanding. The Company shall also provide the Fund on a regular
basis or upon reasonable request with the total number of Shares
which are authorized and issued and outstanding, but shall have
no obligation when recording the issuance of Shares, except as
otherwise set forth herein, to monitor the issuance of such
Shares or to take cognizance of any laws relating to the issue or
sale of such Shares, which functions shall be the sole
responsibility of the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Investment Company or the Fund to include a record for each
Shareholder's account of the following:
(a) Name, address and tax identification number (and whether such
number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) Any stop or restraining order placed against the account;
(e) Information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application, dividend
address and correspondence relating to the current
maintenance of the account;
(g) Certificate numbers and denominations for any Shareholder
holding certificates;
(h) Any information required in order for the Company to perform
the calculations contemplated or required by this Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such record
retention shall be at the expense of the Company, and such
records may be inspected by the Fund at reasonable times. The
Company may, at its option at any time, and shall forthwith upon
the Fund's demand, turn over to the Fund and cease to retain in
the Company's files, records and documents created and maintained
by the Company pursuant to this Agreement, which are no longer
needed by the Company in performance of its services or for its
protection. If not so turned over to the Fund, such records and
documents will be retained by the Company for six years from the
year of creation, during the first two of which such documents
will be in readily accessible form. At the end of the six year
period, such records and documents will either be turned over to
the Fund or destroyed in accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the following
information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in each
state for "blue sky" purposes as determined according to
Proper Instructions delivered from time to time by the Fund
to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption fees, or
other transaction- or sales-related payments;
(f) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if
required, mail to Shareholders, such notices for reporting
dividends and distributions paid as are required to be so filed
and mailed and shall withhold such sums as are required to be
withheld under applicable federal and state income tax laws,
rules and regulations.
(3) In addition to and not in lieu of the services set forth above,
the Company shall:
(a) Perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in
connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan
or periodic withdrawal program), including but not limited
to: maintaining all Shareholder accounts, mailing
Shareholder reports and Prospectuses to current
Shareholders, withholding taxes on accounts subject to
back-up or other withholding (including non-resident alien
accounts), preparing and filing reports on U.S. Treasury
Department Form 1099 and other appropriate forms required
with respect to dividends and distributions by federal
authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders
for all purchases and redemptions of Shares and other
conformable transactions in Shareholder accounts, preparing
and mailing activity statements for Shareholders, and
providing Shareholder account information; and
(b) provide a system which will enable the Fund to monitor the
total number of Shares of each Fund (and/or Class) sold in
each state ("blue sky reporting"). The Fund shall by Proper
Instructions (i) identify to the Company those transactions
and assets to be treated as exempt from the blue sky
reporting for each state and (ii) verify the classification
of transactions for each state on the system prior to
activation and thereafter monitor the daily activity for
each state. The responsibility of the Company for each
Fund's (and/or Class's) state blue sky registration status
is limited solely to the recording of the initial
classification of transactions or accounts with regard to
blue sky compliance and the reporting of such transactions
and accounts to the Fund as provided above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders
relating to their Share accounts and such other correspondence as
may from time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail proxy
cards and other material supplied to it by the Fund in connection
with Shareholder meetings of each Fund; receive, examine and
tabulate returned proxies, and certify the vote of the
Shareholders;
(3) The Company shall establish and maintain facilities and
procedures for safekeeping of stock certificates, check forms and
facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such
certificates, forms and devices.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section Three,
shall hereafter be referred to as "Transfer Agency Services."
Article 13. Duties of the Investment Company.
A. Compliance
The Investment Company or Fund assume full responsibility for the
preparation, contents and distribution of their own and/or their
classes' Prospectus and for complying with all applicable requirements
of the Securities Act of 1933, as amended (the "1933 Act"), the 1940 Act
and any laws, rules and regulations of government authorities having
jurisdiction.
B. Share Certificates
The Investment Company shall supply the Company with a sufficient supply
of blank Share certificates and from time to time shall renew such
supply upon request of the Company. Such blank Share certificates shall
be properly signed, manually or by facsimile, if authorized by the
Investment Company and shall bear the seal of the Investment Company or
facsimile thereof; and notwithstanding the death, resignation or removal
of any officer of the Investment Company authorized to sign
certificates, the Company may continue to countersign certificates which
bear the manual or facsimile signature of such officer until otherwise
directed by the Investment Company.
C. Distributions
The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.
Article 14. Compensation and Expenses.
A. Annual Fee
For performance by the Company pursuant to Section Three of this
Agreement, the Investment Company and/or the Fund agree to pay the
Company an annual maintenance fee for each Shareholder account as agreed
upon between the parties and as may be added to or amended from time to
time. Such fees may be changed from time to time subject to written
agreement between the Investment Company and the Company. Pursuant to
information in the Fund Prospectus or other information or instructions
from the Fund, the Company may sub-divide any Fund into Classes or other
sub-components for recordkeeping purposes. The Company will charge the
Fund the same fees for each such Class or sub-component the same as if
each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed upon
between the parties, as may be added to or amended from time to time. In
addition, any other expenses incurred by the Company at the request or
with the consent of the Investment Company and/or the Fund, will be
reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid to the Company no less frequently than
monthly, and shall be paid daily upon request of the Company. The
Company will maintain detailed information about the compensation and
out-of-pocket expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly
authorized officer of the Company.
SECTION FOUR: Custody Services Procurement.
Article 15. Appointment.
The Investment Company hereby appoints Company as its agent to evaluate and
obtain custody services from a financial institution that (i) meets the criteria
established in Section 17(f) of the 1940 Act and (ii) has been approved by the
Board as eligible for selection by the Company as a custodian (the "Eligible
Custodian"). The Company accepts such appointment.
Article 16. The Company and Its Duties.
Subject to the review, supervision and control of the Board, the Company
shall:
A. evaluate and obtain custody services from a financial institution that
meets the criteria established in Section 17(f) of the 1940 Act and
has been approved by the Board as being eligible for selection by the
Company as an Eligible Custodian;
B. negotiate and enter into agreements with Eligible Custodians for the
benefit of the Investment Company, with the Investment Company as a
party to each such agreement. The Company may, as paying agent, be a
party to any agreement with any such Eligible Custodian;
C. establish procedures to monitor the nature and the quality of the
services provided by Eligible Custodians;
D. monitor and evaluate the nature and the quality of services provided
by Eligible Custodians;
E. periodically provide to the Investment Company (i) written reports on
the activities and services of Eligible Custodians; (ii) the nature
and amount of disbursements made on account of the each Fund with
respect to each custodial agreement; and (iii) such other information
as the Board shall reasonably request to enable it to fulfill its
duties and obligations under Sections 17(f) and 36(b) of the 1940 Act
and other duties and obligations thereof;
F. periodically provide recommendations to the Board to enhance Eligible
Custodian's customer services capabilities and improve upon fees
being charged to the Fund by Eligible Custodian; and
The foregoing, along with any additional services that Company shall agree in
writing to perform for the Fund under this Section Four, shall hereafter be
referred to as "Custody Services Procurement."
Article 17. Fees and Expenses.
A. Annual Fee
For the performance of Custody Services Procurement by the Company
pursuant to Section Four of this Agreement, the Investment Company
and/or the Fund agree to compensate the Company in accordance with
the fees agreed upon from time to time.
B. Reimbursements
In addition to the fee paid under Section 11A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed upon
between the parties, as may be added to or amended from time to time. In
addition, any other expenses incurred by the Company at the request or
with the consent of the Investment Company and/or the Fund, will be
reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid to the Company no less frequently than
monthly, and shall be paid daily upon request of the Company. The
Company will maintain detailed information about the compensation and
out-of-pocket expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly
authorized officer of the Company.
Article 18. Representations.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to enter into
this arrangement and to provide the services contemplated in Section Four of
this Agreement.
SECTION FIVE: General Provisions.
Article 19. Proper Instructions.
As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will be deemed to
be Proper Instructions if (a) the Company reasonably believes them to have been
given by a person previously authorized in Proper Instructions to give such
instructions with respect to the transaction involved, and (b) the Investment
Company, or the Fund, and the Company promptly cause such oral instructions to
be confirmed in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
Investment Company, or the Fund, and the Company are satisfied that such
procedures afford adequate safeguards for the Fund's assets. Proper Instructions
may only be amended in writing.
Article 20. Assignment.
Except as provided below, neither this Agreement nor any of the rights or
obligations under this Agreement may be assigned by either party without the
written consent of the other party.
A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
B. With regard to Transfer Agency Services, the Company may without
further consent on the part of the Investment Company subcontract for
the performance of Transfer Agency Services with
(1) its subsidiary, Federated Shareholder Service Company, a Delaware
business trust, which is duly registered as a transfer agent
pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended, or any succeeding statute ("Section 17A(c)(1)");
or
(2) such other provider of services duly registered as a transfer agent
under Section 17A(c)(1) as Company shall select.
The Company shall be as fully responsible to the Investment Company
for the acts and omissions of any subcontractor as it is for its own
acts and omissions.
C. With regard to Fund Accounting Services, Administrative Services and
Custody Procurement Services, the Company may without further consent
on the part of the Investment Company subcontract for the performance
of such services with Federated Administrative Services, a
wholly-owned subsidiary of the Company.
D. The Company shall upon instruction from the Investment Company
subcontract for the performance of services under this Agreement with an
Agent selected by the Investment Company, other than as described in B.
and C. above; provided, however, that the Company shall in no way be
responsible to the Investment Company for the acts and omissions of the
Agent.
Article 21. Documents.
A. In connection with the appointment of the Company under this
Agreement, the Investment Company shall file with the Company the
following documents:
(1) A copy of the Charter and By-Laws of the Investment Company and
all amendments thereto;
(2) A copy of the resolution of the Board of the Investment Company
authorizing this Agreement;
(3) Specimens of all forms of outstanding Share certificates of the
Investment Company or the Funds in the forms approved by the
Board of the Investment Company with a certificate of the
Secretary of the Investment Company as to such approval;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following documents:
(1) Each resolution of the Board of the Investment Company
authorizing the original issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and amendments
thereof and orders relating thereto in effect with respect to the
sale of Shares of any Fund, and/or Class;
(3) A certified copy of each amendment to the governing document and
the By-Laws of the Investment Company;
(4) Certified copies of each vote of the Board authorizing officers
to give Proper Instructions to the Custodian and agents for fund
accountant, custody services procurement, and shareholder
recordkeeping or transfer agency services;
(5) Specimens of all new Share certificates representing Shares of
any Fund, accompanied by Board resolutions approving such forms;
(6) Such other certificates, documents or opinions which the Company
may, in its discretion, deem necessary or appropriate in the
proper performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
Article 22. Representations and Warranties.
A. Representations and Warranties of the Company
The Company represents and warrants to the Fund that:
(1) it is a corporation duly organized and existing and in good
standing under the laws of the Commonwealth of Pennsylvania;
(2) It is duly qualified to carry on its business in each
jurisdiction where the nature of its business requires such
qualification, and in the Commonwealth of Pennsylvania;
(3) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;
(4) all requisite corporate proceedings have been taken to authorize
it to enter into and perform its obligations under this Agreement;
(5) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement;
(6) it is in compliance with federal securities law requirements and
in good standing as an administrator and fund accountant; and
B. Representations and Warranties of the Investment Company
The Investment Company represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and in
good standing under the laws of its state of organization;
(2) It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform its obligations under this Agreement;
(3) All corporate proceedings required by said Charter and By-Laws
have been taken to authorize it to enter into and perform its
obligations under this Agreement;
(4) The Investment Company is an open-end investment company
registered under the 1940 Act; and
(5) A registration statement under the 1933 Act will be effective,
and appropriate state securities law filings have been made and
will continue to be made, with respect to all Shares of each Fund
being offered for sale.
Article 23. Standard of Care and Indemnification.
A. Standard of Care
With regard to Sections One, Three and Four, the Company shall be held
to a standard of reasonable care in carrying out the provisions of this
Contract. The Company shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Investment Company) on all
matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice, provided that such action is not in
violation of applicable federal or state laws or regulations, and is in
good faith and without negligence.
B. Indemnification by Investment Company
The Company shall not be responsible for and the Investment Company or
Fund shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents, employees and affiliates,
harmless against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or attributable
to:
(1) The acts or omissions of any Custodian, Adviser, Sub-adviser or
other party contracted by or approved by the Investment Company
or Fund,
(2) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper form which
(a) are received by the Company or its agents or subcontractors
and furnished to it by or on behalf of the Fund, its
Shareholders or investors regarding the purchase, redemption
or transfer of Shares and Shareholder account information;
(b) are received by the Company from independent pricing services
or sources for use in valuing the assets of the Funds; or
(c) are received by the Company or its agents or subcontractors
from Advisers, Sub-advisers or other third parties
contracted by or approved by the Investment Company of Fund
for use in the performance of services under this Agreement;
(d) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the
Investment Company.
(3) The reliance on, or the carrying out by the Company or its agents
or subcontractors of Proper Instructions of the Investment
Company or the Fund.
(4) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws
or regulations of any state that such Shares be registered in
such state or in violation of any stop order or other
determination or ruling by any federal agency or any state with
respect to the offer or sale of such Shares in such state.
Provided, however, that the Company shall not be protected by this
Article 23.B. from liability for any act or omission resulting
from the Company's willful misfeasance, bad faith, negligence or
reckless disregard of its duties or failure to meet the standard
of care set forth in 23.A. above.
C. Reliance
At any time the Company may apply to any officer of the Investment
Company or Fund for instructions, and may consult with legal counsel
with respect to any matter arising in connection with the services to be
performed by the Company under this Agreement, and the Company and its
agents or subcontractors shall not be liable and shall be indemnified by
the Investment Company or the appropriate Fund for any action reasonably
taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel provided such action is not in violation of
applicable federal or state laws or regulations. The Company, its agents
and subcontractors shall be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the Investment Company
or the Fund, and the proper countersignature of any former transfer
agent or registrar, or of a co-transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this Article
23 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification
shall promptly notify the other party of such assertion, and shall keep
the other party advised with respect to all developments concerning such
claim. The party who may be required to indemnify shall have the option
to participate with the party seeking indemnification in the defense of
such claim. The party seeking indemnification shall in no case confess
any claim or make any compromise in any case in which the other party
may be required to indemnify it except with the other party's prior
written consent.
Article 24. Term and Termination of Agreement.
This Agreement shall be effective from March 1, 1996 and shall continue until
February 28, 2003 (`Term"). Thereafter, the Agreement will continue for 18 month
terms. The Agreement can be terminated by either party upon 18 months notice to
be effective as of the end of such 18 month period. In the event, however, of
willful misfeasance, bad faith, negligence or reckless disregard of its duties
by the Company, the Investment Company has the right to terminate the Agreement
upon 60 days written notice, if Company has not cured such willful misfeasance,
bad faith, negligence or reckless disregard of its duties within 60 days. The
termination date for all original or after-added Investment companies which are,
or become, a party to this Agreement. shall be coterminous. Investment Companies
that merge or dissolve during the Term, shall cease to be a party on the
effective date of such merger or dissolution.
Should the Investment Company exercise its rights to terminate, all
out-of-pocket expenses associated with the movement of records and materials
will be borne by the Investment Company or the appropriate Fund. Additionally,
the Company reserves the right to charge for any other reasonable expenses
associated with such termination. The provisions of Articles 10 and 23 shall
survive the termination of this Agreement.
Article 25. Amendment.
This Agreement may be amended or modified by a written agreement executed by
both parties.
Article 26. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Company and the
Investment Company may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Agreement as may in their joint
opinion be consistent with the general tenor of this Agreement. Any such
interpretive or additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such interpretive or
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Charter. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Agreement.
Article 27. Governing Law.
This Agreement shall be construed and the provisions hereof interpreted under
and in accordance with the laws of the Commonwealth of Massachusetts
Article 28. Notices.
Except as otherwise specifically provided herein, Notices and other writings
delivered or mailed postage prepaid to the Investment Company at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the Company at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to such
other address as the Investment Company or the Company may hereafter specify,
shall be deemed to have been properly delivered or given hereunder to the
respective address.
Article 29. Counterparts.
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original. Article 30. Limitations of Liability
of Trustees and Shareholders of the Company.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Company and signed by an authorized officer of the Company,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, and
the obligations of this Agreement are not binding upon any of the Trustees or
Shareholders of the Company, but bind only the appropriate property of the Fund,
or Class, as provided in the Declaration of Trust.
Article 31. Merger of Agreement.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.
Article 32. Successor Agent.
If a successor agent for the Investment Company shall be appointed by the
Investment Company, the Company shall upon termination of this Agreement deliver
to such successor agent at the office of the Company all properties of the
Investment Company held by it hereunder. If no such successor agent shall be
appointed, the Company shall at its office upon receipt of Proper Instructions
deliver such properties in accordance with such instructions.
In the event that no written order designating a successor agent or Proper
Instructions shall have been delivered to the Company on or before the date when
such termination shall become effective, then the Company shall have the right
to deliver to a bank or trust company, which is a "bank" as defined in the 1940
Act, of its own selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than $2,000,000, all
properties held by the Company under this Agreement. Thereafter, such bank or
trust company shall be the successor of the Company under this Agreement.
Article 33. Force Majeure.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Fund as a result of work stoppage, power
or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance.
Article 34. Assignment; Successors.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign all of
or a substantial portion of its business to a successor, or to a party
controlling, controlled by, or under common control with such party. Nothing in
this Article 34 shall prevent the Company from delegating its responsibilities
to another entity to the extent provided herein.
Article 35. Severability.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
Article 36. Limitations of Liability of Trustees and Shareholders of the
Investment Company.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Investment Company and signed by an authorized officer of the
Investment Company, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding upon any of
the Trustees or Shareholders of the Investment Company, but bind only the
property of the Fund, or Class, as provided in the Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
INVESTMENT COMPANIES
(listed on Exhibit 1)
By: /s/ S. Elliott Cohan
S. Elliott Cohan
Assistant Secretary
FEDERATED SERVICES COMPANY
By: /s/ Thomas J. Ward
Thomas J. Ward
Secretary
<PAGE>
EXHIBIT 1
CONTRACT
DATE INVESTMENT COMPANY
Portfolios
Classes
November 15, 1996 Money Market Obligations Trust II
Municipal Obligations Fund
Institutional Shares
Institutional Service Shares
Institutional Capital Shares
Prime Cash Obligations Fund
Institutional Shares
Institutional Service Shares
Institutional Capital Shares
Prime Value Obligations Fund
Institutional Shares
Institutional Service Shares
Institutional Capital Shares
FEDERATED SERVICES COMPANY provides the following services:
Fund Accounting
Administrative
Transfer Agent
Custody Services Procurement
Exhibit 11(c) under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and to the use of our reports dated March 13, 1998, in
Post-Effective Amendment Number 15 to the Registration Statement (Form N-1A No.
33-55034) and the related Prospectuses of Money Market Obligations Trust II,
(comprising, respectively, Prime Value Obligations Fund, Prime Cash Obligations
Fund, and Municipal Obligations Fund) dated March 31, 1998.
By: /s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
March 23, 1998
Exhibit 15 under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Amended and Restated
SHAREHOLDER SERVICES AGREEMENT
THIS AGREEMENT, amended and restated as of the first day of September,
1995, (originally made and enterered into as of the first day of March, 1994),
by and between those investment companies listed on Exhibit 1, as may be amended
from time to time, having their principal office and place of business at
Federated Investors Tower, Pittsburgh, PA 15222-3779 and who have approved this
form of Agreement (individually referred to herein as a "Fund" and collectively
as "Funds") and Federated Shareholder Services, a Delaware business trust,
having its principal office and place of business at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779 ("FSS").
1. The Funds hereby appoint FSS to render or cause to be rendered personal
services to shareholders of the Funds and/or the maintenance of accounts
of shareholders of the Funds ("Services"). In addition to providing
Services directly to shareholders of the Funds, FSS is hereby appointed
the Funds' agent to select, negotiate and subcontract for the performance
of Services. FSS hereby accepts such appointments. FSS agrees to provide
or cause to be provided Services which, in its best judgment (subject to
supervision and control of the Funds' Boards of Trustees or Directors, as
applicable), are necessary or desirable for shareholders of the Funds. FSS
further agrees to provide the Funds, upon request, a written description
of the Services which FSS is providing hereunder.
2. During the term of this Agreement, each Fund will pay FSS and FSS agrees
to accept as full compensation for its services rendered hereunder a fee
at an annual rate, calculated daily and payable monthly, up to 0.25% of 1%
of average net assets of each Fund.
For the payment period in which this Agreement becomes effective or
terminates with respect to any Fund, there shall be an appropriate
proration of the monthly fee on the basis of the number of days that this
Agreement is in effect with respect to such Fund during the month.
3. This Agreement shall continue in effect for one year from the date of its
execution, and thereafter for successive periods of one year only if the
form of this Agreement is approved at least annually by the Board of each
Fund, including a majority of the members of the Board of the Fund who are
not interested persons of the Fund ("Independent Board Members") cast in
person at a meeting called for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be terminated as follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Independent Board Members of any Fund or by a vote of
a majority of the outstanding voting securities of any Fund as
defined in the Investment Company Act of 1940 on sixty (60) days'
written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as defined in
the Investment Company Act of 1940; and
(c) by any party to the Agreement without cause by giving the other party at
least sixty (60) days' written notice of its intention to terminate.
5. FSS agrees to obtain any taxpayer identification number certification from
each shareholder of the Funds to which it provides Services that is
required under Section 3406 of the Internal Revenue Code, and any
applicable Treasury regulations, and to provide each Fund or its designee
with timely written notice of any failure to obtain such taxpayer
identification number certification in order to enable the implementation
of any required backup withholding.
6. FSS shall not be liable for any error of judgment or mistake of law or for
any loss suffered by any Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement. FSS shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for such Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to
such advice. Any person, even though also an officer, trustee, partner,
employee or agent of FSS, who may be or become a member of such Fund's
Board, officer, employee or agent of any Fund, shall be deemed, when
rendering services to such Fund or acting on any business of such Fund
(other than services or business in connection with the duties of FSS
hereunder) to be rendering such services to or acting solely for such Fund
and not as an officer, trustee, partner, employee or agent or one under the
control or direction of FSS even though paid by FSS.
This Section 6 shall survive termination of this Agreement.
7. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which an enforcement of the change, waiver, discharge or
termination is sought.
8. FSS is expressly put on notice of the limitation of liability as set forth
in the Declaration of Trust of each Fund that is a Massachusetts business
trust and agrees that the obligations assumed by each such Fund pursuant
to this Agreement shall be limited in any case to such Fund and its assets
and that FSS shall not seek satisfaction of any such obligations from the
shareholders of such Fund, the Trustees, Officers, Employees or Agents of
such Fund, or any of them.
9. The execution and delivery of this Agreement have been authorized by the
Trustees of FSS and signed by an authorized officer of FSS, acting as
such, and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally,
and the obligations of this Agreement are not binding upon any of the
Trustees or shareholders of FSS, but bind only the trust property of FSS
as provided in the Declaration of Trust of FSS.
10. Notices of any kind to be given hereunder shall be in writing (including
facsimile communication) and shall be duly given if delivered to any Fund
and to such Fund at the following address: Federated Investors Tower,
Pittsburgh, PA 15222-3779, Attention: President and if delivered to FSS at
Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President.
11. This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held
or made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Sections 3 and 4, hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective successors and shall be governed by Pennsylvania law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or
regulation promulgated by the Securities and Exchange Commission
thereunder.
12. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the
same instrument.
13. This Agreement shall not be assigned by any party without the prior
written consent of FSS in the case of assignment by any Fund, or of the
Funds in the case of assignment by FSS, except that any party may assign
to a successor all of or a substantial portion of its business to a party
controlling, controlled by, or under common control with such party.
Nothing in this Section 14 shall prevent FSS from delegating its
responsibilities to another entity to the extent provided herein.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
Attest: Investment Companies (listed on Exhibit 1)
/s/ John W. McGonigle By:/s/ John F. Donahue
John W. McGonigle John F. Donahue
Secretary Chairman
Attest: Federated Shareholder Services
/s/ Joseph M. Huber By: /s/ John W. McGonigle
Joseph M. Huber John W. McGonigle
Secretary President
<PAGE>
EXHIBIT 1
Automated Government Money Trust
Cash Trust Series, Inc.:
Government Cash Series
Municipal Cash Series
Prime Cash Series
Treasury Cash Series
Federated Adjustable Rate U.S. Government Fund, Inc.
Federated American Leaders Fund, Inc.
Class A Shares
Class C Shares
Class F Shares
Federated ARMs Fund
Institutional Service Shares
Institutional Shares
Federated Core Trust:
High Yield Bond Portfolio
Federated Equity Funds:
Federated Aggressive Growth Fund
Class A Shares
Class C Shares
Federated Capital Appreciation Fund
Class A Shares
Class C Shares
Federated Growth Strategies Fund
Class A Shares
Class C Shares
Federated Small Cap Strategies Fund
Class A Shares
Class C Shares
Federated Equity Income Fund, Inc.
Class A Shares
Class C Shares
Class F Shares
Federated Fund for U.S. Government Securities, Inc.
Class A Shares
Class C Shares
Federated GNMA Trust
Institutional Service Shares
Institutional Shares
Federated Government Income Securities, Inc.
Class A Shares
Class C Shares
Class F Shares
Federated Government Trust"
Automated Government Cash Reserves
Automated Treasury Cash Reserves
U.S. Treasury Cash Reserves
Institutional Service Shares
Institutional Shares
<PAGE>
Federated High Income Bond Fund, Inc.
Class A Shares
Class C Shares
Federated High Yield Trust
Federated Income Securities Trust:
Federated Short-Term Income Fund
Institutional Service Shares
Institutional Shares
Federated Intermediate Income Fund
Institutional Service Shares
Institutional Shares
Federated Income Trust
Institutional Service Shares
Institutional Shares
Federated Index Trust:
Federated Max-Cap Fund
Class C Shares
Institutional Service Shares
Institutional Shares
Federated Mid-Cap Fund
Federated Mini-Cap Fund
Class C Shares
Institutional Shares
Federated Institutional Trust:
Federated Institutional Short-Term Government Fund
Institutional Service Shares
Institutional Shares
Federated Investment Trust:
Federated Bond Index Fund
Institutional Shares
Institutional Service Shares
Federated Master Trust
Federated Municipal Opportunities Fund, Inc.
Class A Shares
Class C Shares
Class F Shares
Federated Municipal Securities Fund, Inc.
Class A Shares
Class C Shares
Federated Municipal Trust:
Alabama Municipal Cash Trust
Arizona Municipal Cash Trust
Institutional Service Shares
California Municipal Cash Trust
Institutional Service Shares
Institutional Shares
Connecticut Municipal Cash Trust
Institutional Service Shares
Florida Municipal Cash Trust
Cash II Shares
Institutional Shares
Georgia Municipal Cash Trust
Maryland Municipal Cash Trust
Massachusetts Municipal Cash Trust
Institutional Service Shares
Boston 1784 Funds Shares
Michigan Municipal Cash Trust
Institutional Service Shares
Institutional Shares
Minnesota Municipal Cash Trust
Cash Series Shares
Institutional Shares
New Jersey Municipal Cash Trust
Institutional Service Shares
Institutional Shares
New York Municipal Cash Trust
Cash II Shares
Institutional Service Shares
North Carolina Municipal Cash Trust
Ohio Municipal Cash Trust
Cash II Shares
Institutional Shares
Institutional Service Shares
Pennsylvania Municipal Cash Trust
Cash Series Shares
Institutional Service Shares
Institutional Shares
Tennessee Municipal Cash Trust
Institutional Shares
Institutional Service Shares
Virginia Municipal Cash Trust
Institutional Service Shares
Institutional Shares
Federated Short-Term Municipal Trust
Institutional Service Shares
Institutional Shares
Federated Short-Term U.S. Government Trust
Federated Stock and Bond Fund, Inc.
Class A Shares
Class C Shares
Federated Stock Trust
Class A Shares
Class C Shares
Federated Tax-Free Trust
Federated U.S. Government Bond Fund
Federated U.S. Government Securities Fund: 1-3 Years
Institutional Service Shares
Institutional Shares
Federated U.S. Government Securities Fund: 2-5 Years
Institutional Service Shares
Institutional Shares
<PAGE>
Federated U. S. Government Securities Fund: 5-10 Years
Institutional Service Shares
Institutional Shares
Fixed Income Securities, Inc.:
Federated Limited Term Fund
Class A Shares
Class F Shares
Federated Limited Term Municipal Fund
Class A Shares
Class F Shares
Federated Strategic Income Fund
Class A Shares
Class C Shares
Class F Shares
Federated Total Return Series, Inc.:
Federated Limited Duration Government Fund
Institutional Shares
Institutional Service Shares
Federated Total Return Bond Fund
Institutional Shares
Institutional Service Shares
Federated Total Return Government Fund
Institutional Shares
Institutional Service Shares
Federated Total Return Limited Duration Fund
Institutional Shares
Institutional Service Shares
Federated Utility Fund, Inc.
Class A Shares
Class C Shares
Class F Shares
Intermediate Municipal Trust:
Federated Intermediate Municipal Trust
Federated Pennsylvania Intermediate Municipal Trust
International Series, Inc.:
Federated International Equity Fund
Class A Shares
Class C Shares
Federated International Income Fund
Class A Shares
Class C Shares
Investment Series Funds, Inc.:
Federated Bond Fund
Class A Shares
Class C Shares
Class F Shares
Edward D. Jones & Co. Daily Passport Cash Trust
Liberty Term Trust, Inc. -- 1999
Liberty U.S. Government Money Market Trust
Class A Shares
Liquid Cash Trust
Managed Series Trust:
Federated Aggressive Growth Fund
Institutional Shares
Select Shares
Federated Managed Growth and Income Fund
Institutional Shares
Select Shares
Federated Managed Growth Fund
Institutional Shares
Select Shares
Federated Managed Income Fund
Institutional Shares
Select Shares
Money Market Management, Inc.
Money Market Obligations Trust:
Automated Cash Management Trust
Cash II Shares
Institutional Shares
Government Obligations Fund
Institutional Shares
Institutional Service Shares
Government Obligations Tax-Managed Fund
Institutional Shares
Institutional Service Shares
Prime Obligations Fund
Institutional Shares
Institutional Service Shares
Tax-Free Obligations Fund
Institutional Shares
Institutional Service Shares
Treasury Obligations Fund
Institutional Capital Shares
Institutional Shares
Institutional Service Shares
Money Market Obligations Trust II:
Municipal Obligations Fund
Institutional Capital Shares
Institutional Service Shares
Institutional Shares
Prime Cash Obligations Fund
Institutional Capital Shares
Institutional Service Shares
Institutional Shares
Prime Value Obligations Fund
Institutional Capital Shares
Institutional Service Shares
Institutional Shares
Money Market Trust
<PAGE>
Municipal Securities Income Trust:
Federated California Municipal Income Fund
Class F Shares
Federated Michigan IntermediateMunicipal Trust
Federated New York Municipal Income Fund
Class F Shares
Federated Ohio Municipal Income Fund
Class F Shares
Federated Pennsylvania Municipal Income Fund
Class A Shares
Tax-Free Instruments Trust
Institutional Service Shares
Investment Shares
Trust for Government Cash Reserves
Trust for Short-Term U.S. Government Securities
Trust for U.S. Treasury Obligations
World Investment Series, Inc.:
Federated Asia Pacific Growth Fund
Class A Shares
Class C Shares
Federated Emerging Markets Fund
Class A Shares
Class C Shares
Federated European Growth Fund
Class A Shares
Class C Shares
Federated Global Equity Income Fund
Class A Shares
Class C Shares
Federated International Growth Fund
Class A Shares
Class C Shares
Federated International High Income Fund
Class A Shares
Class C Shares
Federated International Small Company Fund
Class A Shares
Class C Shares
Federated Latin American Growth Fund
Class A Shares
Class C Shares
Federated World Utility Fund
Class A Shares
Class C Shares
Class F Shares
Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of MONEY MARKET OBLIGATIONS TRUST II and
the Deputy General Counsel of Federated Services Company, and each of them,
their true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for them and in their names, place and stead, in
any and all capacities, to sign any and all documents to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, the
Securities Exchange Act of 1934 and the Investment Company Act of 1940, by means
of the Securities and Exchange Commission's electronic disclosure system known
as EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as each of them
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/John F. Donahue Chairman and Trustee March 6, 1998
- ---------------------------------
John F. Donahue (Chief Executive Officer)
/s/J. Christopher Donahue President and Trustee March 6, 1998
- ---------------------------------
J. Christopher Donahue
/s/John W. McGonigle Treasurer, Executive March 6, 1998
John W. McGonigle Vice President and Secretary
(Principal Financial and
Accounting Officer)
/s/Thomas G. Bigley Trustee March 6, 1998
Thomas G. Bigley
/s/John T. Conroy, Jr. Trustee March 6, 1998
- ---------------------------------
John T. Conroy, Jr.
<PAGE>
SIGNATURES TITLE DATE
/s/Nicholas P. Constantakis Trustee March 6, 1998
Nicholas P. Constantakis
/s/William J. Copeland Trustee March 6, 1998
William J. Copeland
/s/James E. Dowd Trustee March 6, 1998
James E. Dowd
/s/Lawrece D. Ellis, M.D. Trustee March 6, 1998
Lawrence D. Ellis, M.D.
/s/Edward L. Flaherty, Jr. Trustee March 6, 1998
- ---------------------------------
Edward L. Flaherty, Jr.
/s/Peter E. Madden Trustee March 6, 1998
Peter E. Madden
/s/John E. Murray, Jr. Trustee March 6, 1998
- ---------------------------------
John E. Murray, Jr.
/s/Wesley W. Posvar Trustee March 6, 1998
Wesley W. Posvar
/s/Marjorie P. Smuts Trustee March 6, 1998
Marjorie P. Smuts
Sworn to and subscribed before me this 6th day of March, 1998
/s/Cheri S. Good
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 083
<NAME> Money Market Obligations
Trust II
Municipal Obligations
Fund
Institutional Capital
Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Jan-31-1998
<PERIOD-END> Jan-31-1998
<INVESTMENTS-AT-COST> 267,585,377
<INVESTMENTS-AT-VALUE> 267,585,377
<RECEIVABLES> 2,380,946
<ASSETS-OTHER> 7,415,239
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 277,381,562
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 626,187
<TOTAL-LIABILITIES> 626,187
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 17,700,299
<SHARES-COMMON-PRIOR> 299
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 17,701,094
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,444,196
<OTHER-INCOME> 0
<EXPENSES-NET> 459,535
<NET-INVESTMENT-INCOME> 7,984,661
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,984,661
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 472,939
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 418,598,905
<NUMBER-OF-SHARES-REDEEMED> 401,033,987
<SHARES-REINVESTED> 135,082
<NET-CHANGE-IN-ASSETS> 117,193,597
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 447,960
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 993,183
<AVERAGE-NET-ASSETS> 206,343,641
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.040
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 081
<NAME> Money Market Obligations
Trust II
Municipal Obligations Fund
Institutional Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Jan-31-1998
<PERIOD-END> Jan-31-1998
<INVESTMENTS-AT-COST> 267,585,377
<INVESTMENTS-AT-VALUE> 267,585,377
<RECEIVABLES> 2,380,946
<ASSETS-OTHER> 7,415,239
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 277,381,562
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 626,187
<TOTAL-LIABILITIES> 626,187
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 217,815,662
<SHARES-COMMON-PRIOR> 159,536,851
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 217,838,217
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,444,196
<OTHER-INCOME> 0
<EXPENSES-NET> 459,535
<NET-INVESTMENT-INCOME> 7,984,661
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,984,661
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,088,218
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,591,948,985
<NUMBER-OF-SHARES-REDEEMED> 3,535,649,749
<SHARES-REINVESTED> 1,979,575
<NET-CHANGE-IN-ASSETS> 117,193,597
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 447,960
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 993,183
<AVERAGE-NET-ASSETS> 206,343,641
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.040
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 082
<NAME> Money Market Obligations Trust
II
Municipal Obligations Fund
Institutional Services Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Jan-31-1998
<PERIOD-END> Jan-31-1998
<INVESTMENTS-AT-COST> 267,585,377
<INVESTMENTS-AT-VALUE> 267,585,377
<RECEIVABLES> 2,380,946
<ASSETS-OTHER> 7,415,239
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 277,381,562
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 626,187
<TOTAL-LIABILITIES> 626,187
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 41,216,085
<SHARES-COMMON-PRIOR> 299
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 41,216,064
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,444,196
<OTHER-INCOME> 0
<EXPENSES-NET> 459,535
<NET-INVESTMENT-INCOME> 7,984,661
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,984,661
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 424,504
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 251,107,687
<NUMBER-OF-SHARES-REDEEMED> 210,231,259
<SHARES-REINVESTED> 339,358
<NET-CHANGE-IN-ASSETS> 117,193,597
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 447,960
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 993,183
<AVERAGE-NET-ASSETS> 206,343,641
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.030
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> Money Market Obligations Trust
II
Prime Cash Obligations Fund
Institutional Capital Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Jan-31-1998
<PERIOD-END> Jan-31-1998
<INVESTMENTS-AT-COST> 2,158,910,034
<INVESTMENTS-AT-VALUE> 2,158,910,034
<RECEIVABLES> 7,222,948
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,166,132,982
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,689,858
<TOTAL-LIABILITIES> 5,689,858
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,160,443,124
<SHARES-COMMON-STOCK> 391,158,863
<SHARES-COMMON-PRIOR> 48,909,075
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 391,158,863
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 98,581,162
<OTHER-INCOME> 0
<EXPENSES-NET> 4,516,259
<NET-INVESTMENT-INCOME> 94,064,903
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 94,064,903
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,517,316
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,694,404,681
<NUMBER-OF-SHARES-REDEEMED> 1,354,700,690
<SHARES-REINVESTED> 2,545,798
<NET-CHANGE-IN-ASSETS> 125,859,348
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,485,448
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,720,715
<AVERAGE-NET-ASSETS> 1,742,724,118
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> Money Market Obligations
Trust II
Prime Cash Obligations Fund
Institutional Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Jan-31-1998
<PERIOD-END> Jan-31-1998
<INVESTMENTS-AT-COST> 2,158,910,034
<INVESTMENTS-AT-VALUE> 2,158,910,034
<RECEIVABLES> 7,222,948
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,166,132,982
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,689,858
<TOTAL-LIABILITIES> 5,689,858
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,160,443,124
<SHARES-COMMON-STOCK> 1,100,619,513
<SHARES-COMMON-PRIOR> 1,572,912,843
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,100,619,513
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 98,581,162
<OTHER-INCOME> 0
<EXPENSES-NET> 4,516,259
<NET-INVESTMENT-INCOME> 94,064,903
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 94,064,903
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 64,610,393
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,791,341,606
<NUMBER-OF-SHARES-REDEEMED> 19,306,246,896
<SHARES-REINVESTED> 42,611,959
<NET-CHANGE-IN-ASSETS> 125,859,348
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,485,448
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,720,715
<AVERAGE-NET-ASSETS> 1,742,724,118
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.060
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.060
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> Money Market Obligations Trust II
Prime Cash Obligations Fund
Institutional Service Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Jan-31-1998
<PERIOD-END> Jan-31-1998
<INVESTMENTS-AT-COST> 2,158,910,034
<INVESTMENTS-AT-VALUE> 2,158,910,034
<RECEIVABLES> 7,222,948
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,166,132,982
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,689,858
<TOTAL-LIABILITIES> 5,689,858
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,160,443,124
<SHARES-COMMON-STOCK> 668,664,748
<SHARES-COMMON-PRIOR> 412,761,858
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 668,664,748
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 98,581,162
<OTHER-INCOME> 0
<EXPENSES-NET> 4,516,259
<NET-INVESTMENT-INCOME> 94,064,903
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 94,064,903
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25,937,194
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,032,974,804
<NUMBER-OF-SHARES-REDEEMED> 4,777,652,535
<SHARES-REINVESTED> 580,621
<NET-CHANGE-IN-ASSETS> 125,859,348
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,485,448
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,720,715
<AVERAGE-NET-ASSETS> 1,742,724,118
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 023
<NAME> Money Market Obligations Trust II
Prime Value Obligations Fund
Institutional Capital Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Jan-31-1998
<PERIOD-END> Jan-31-1998
<INVESTMENTS-AT-COST> 1,278,313,325
<INVESTMENTS-AT-VALUE> 1,278,313,325
<RECEIVABLES> 4,864,276
<ASSETS-OTHER> 274,674
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,283,452,275
<PAYABLE-FOR-SECURITIES> 20,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,256,322
<TOTAL-LIABILITIES> 25,256,322
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 67,064,013
<SHARES-COMMON-PRIOR> 20,006,004
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 67,064,013
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 52,156,915
<OTHER-INCOME> 0
<EXPENSES-NET> 1,667,466
<NET-INVESTMENT-INCOME> 50,489,449
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 50,489,449
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,498,221
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 720,345,533
<NUMBER-OF-SHARES-REDEEMED> 674,708,245
<SHARES-REINVESTED> 1,420,721
<NET-CHANGE-IN-ASSETS> 831,780,681
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,821,778
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,338,460
<AVERAGE-NET-ASSETS> 793,964,426
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> Money Market Obligations
Trust II
Prime Value Obligations Fund
Institutional Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Jan-31-1998
<PERIOD-END> Jan-31-1998
<INVESTMENTS-AT-COST> 1,278,313,325
<INVESTMENTS-AT-VALUE> 1,278,313,325
<RECEIVABLES> 4,864,276
<ASSETS-OTHER> 274,674
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,283,452,275
<PAYABLE-FOR-SECURITIES> 20,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,256,322
<TOTAL-LIABILITIES> 25,256,322
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 865,742,169
<SHARES-COMMON-PRIOR> 387,994,460
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 865,742,169
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 52,156,915
<OTHER-INCOME> 0
<EXPENSES-NET> 1,667,466
<NET-INVESTMENT-INCOME> 50,489,449
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 50,489,449
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 40,931,344
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,256,360,968
<NUMBER-OF-SHARES-REDEEMED> 12,804,697,557
<SHARES-REINVESTED> 26,084,298
<NET-CHANGE-IN-ASSETS> 831,780,681
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,821,778
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,338,460
<AVERAGE-NET-ASSETS> 793,964,426
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.060
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.060
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> Money Market Obligations
Trust II
Prime Value Obligations Fund
Institutional Service Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Jan-31-1998
<PERIOD-END> Jan-31-1998
<INVESTMENTS-AT-COST> 1,278,313,325
<INVESTMENTS-AT-VALUE> 1,278,313,325
<RECEIVABLES> 4,864,276
<ASSETS-OTHER> 274,674
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,283,452,275
<PAYABLE-FOR-SECURITIES> 20,000,000
<SENIOR-LONG-TERM-DEBT> 0
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