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. ..........................
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Post-Effective Amendment No. 17 .......................... X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 21 ........................................... 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
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notices should be sent to the Agent for Service)
It is proposed that this filing will become effective:
_ immediately upon filing pursuant to paragraph (b)
X on March 31, 1999, 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.
Copies to:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, DC 20037
PROSPECTUS
Prime Cash Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL SHARES
A money market mutual fund seeking to achieve current income consistent with
stability of principal and liquidity.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
MARCH 31, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which
the Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 4
What Do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 5
How to Redeem Shares 6
Account and Share Information 8
Who Manages the Fund? 9
Financial Information 9
Report of Ernst & Young LLP, Independent Auditors 26
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is current income consistent with
stability of principal and liquidity. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
This investment objective may be changed by the Fund's Trustees without
shareholder approval.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high quality fixed income securities maturing
in 13 months or less. The average maturity of the Fund's portfolio will be 90
days or less.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money by investing in the Fund.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares as of the calendar year-end for
each of the last five years. The `y' axis reflects the "% Total Return"
beginning with "0" and increasing in increments of 2% up to 8%. The `x' axis
represents calculation periods from the earliest calendar year end of the Fund's
start of business through the calendar year ended December 31, 1998. The light
gray shaded chart features five distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for the
calendar year stated directly at its base. The calculated total return
percentage for the Institutional Shares for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1994 through
1998. The percentages noted are: 4.29%, 6.08%, 5.41%, 5.57% and 5.56%,
respectively.
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional Shares
total returns on a yearly basis.
The Fund's Institutional Shares are not sold subject to a sales charge (load).
The total returns displayed above are based upon the net asset value.
Within the period shown in the Chart, the Fund's Institutional Shares highest
quarterly return was 1.53% (quarter ended June 30, 1995). Its lowest quarterly
return was 0.81% (quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURN
The following table represents the Fund's Institutional Shares average annual
total return through December 31, 1998.
CALENDAR PERIOD FUND
1 Year 5.56%
5 Years 5.38%
Start of Performance 1 5.05%
1 The Fund's Institutional Shares start of performance date was February 8,
1993.
Investors may call the Fund at 1-800-341-7400 to acquire the current 7-Day Net
Yield.
The Fund's Institutional Shares 7- Day Net Yield as of 12/31/98 was 5.10%.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are the Fund's Fees and Expenses?
PRIME CASH OBLIGATIONS FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds,
as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions)
(as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee 2 0.20%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 0.10%
Total Annual Fund Operating Expenses 0.55%
1 Although not contractually obligated to do so, the adviser and shareholder
services provider waived certain amounts. These are described below along with
the net expenses the Fund's Institutional Shares actually paid for the fiscal
year ended January 31, 1999.
Waiver of Fund Expenses 0.37%
Total Actual Annual Fund Operating Expenses (after waivers) 0.18%
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund's Institutional Shares (after the voluntary waiver) was 0.08% for the year
ended January 31, 1999.
3 The shareholder services fee has been voluntarily reduced. This voluntary
reduction can be terminated at any time. The shareholder services fee paid by
the Fund's Institutional Shares (after the voluntary reduction) was 0.00% for
the year ended January 31, 1999.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Institutional Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Shares
for the time periods indicated and then redeem all of your Shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's Institutional Shares operating expenses are BEFORE
WAIVERS as shown in the table and remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
1 Year $ 56
3 Years $ 176
5 Years $ 307
10 Years $ 689
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high quality fixed income securities maturing
in 13 months or less. The average maturity of the Fund's portfolio will be 90
days or less.
In order to select individual investments, the Fund's investment adviser
(Adviser) performs a fundamental credit analysis to develop an approved list of
issuers and securities that meet the Adviser's minimum credit standards. The
Adviser assesses likely movements in interest rates based upon general economic
and market conditions. Considering this assessment, the Adviser targets an
average portfolio maturity range. The Adviser generally shortens the portfolio's
average maturity when it expects interest rates to rise and extends the maturity
when it expects interest rates to fall. In adjusting the portfolio's average
maturity, the Adviser selects among investments with different maturities
comparing their relative returns.
What are the Principal Securities in Which the Fund Invests?
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must also repay
the principal amount of the security, normally within a specified time. The
following describes the types of fixed income securities in which the Fund
invests:
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures, and commercial paper are the most prevalent types of
corporate debt securities.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of nine months or
less. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must repay upon
demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances.
ASSET BACKED SECURITIES
Asset Backed Securities are payable from pools of debt obligations. Most asset
backed securities involve consumer or commercial debts with maturities of less
than 10 years. However, almost any type of fixed income assets (including other
fixed income securities) may be used to create an asset backed security. Asset
backed securities may take the form of commercial paper, notes, or pass through
certificates.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser usually evaluates the credit risk of a fixed income
security based solely upon its credit enhancement.
REPURCHASE AGREEMENTS
Repurchase Agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction.
INVESTMENT RATINGS
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 or are of comparable quality to securities
having such ratings.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund, the
principal risks of investing in a corporate money market fund are described
below.
BOND MARKET RISKS
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money. Money market funds try to minimize this risk by purchasing
higher quality securities.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the Adviser's credit assessment.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities issued
or credit enhanced by companies in similar businesses or with similar
characteristics. As a result, the Fund will be more susceptible to any economic,
business, political, or other developments which generally affect these issuers.
What Do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined net asset value (NAV). The Fund does not charge
a front-end sales charge. NAV is determined at 12:00 noon and 3:00 p.m. (Eastern
time) and as of the end of regular trading (normally 4:00 p.m. Eastern time)
each day the NYSE is open.
The required minimum initial investment for Fund Shares is $1,000,000. There is
no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $1,000,000 minimum
is reached within one year of opening the account. An institutional investor's
minimum investment is calculated by combining all accounts it maintains with the
Fund. Accounts established through investment professionals may be subject to a
smaller minimum investment amount. Keep in mind that investment professionals
may charge you fees for their services in connection with your Share
transactions.
How is the Fund Sold?
The Fund offers three share classes: Institutional Shares, Institutional Service
Shares and Institutional Capital Shares, each representing interests in a single
portfolio of securities. This prospectus relates only to Institutional Shares.
Each share class has different expenses which affect their performance. Contact
your investment professional or call 1- 800-341-7400 for more information
concerning the other classes.
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity.
The Distributor and its affiliates may pay out of their assets other
amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of
Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 3:00 p.m.
(Eastern time). You will receive that day's dividend if the investment
professional forwards the order to the Fund and the Fund receives payment by
3:00 p.m. (Eastern time). You will become the owner of Shares and receive
dividends when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares after the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY INVEST-BY-PHONE
Once you establish an account, you may use the Fund's Invest-By-Phone privilege
for future Share purchases if you have an account with a bank that is an
Automated Clearing House member. To apply, call the Fund for an authorization
form. You may use Invest-By-Phone to purchase Shares approximately two weeks
from the date you file the form with Federated Shareholder Services Company.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). Investment
professionals are responsible for promptly submitting redemption requests and
providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 3:00 p.m. (Eastern time), your redemption will be wired to
you the same day. You will not receive that day's dividend.
If you call after 3:00 p.m. (Eastern time), your redemption will be wired to you
the following business day. You will receive that day's dividend
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the day
that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
ACCOUNT ACTIVITY
You will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
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 pays any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily dividends. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal, state,
and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.20% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.
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 1999 1998 1997 1996 1 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.06 0.05 0.06 0.04
LESS DISTRIBUTIONS:
Distributions from net investment income (0.05) (0.06) (0.05) (0.06) (0.04)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 2 5.50% 5.61% 5.38% 6.08% 4.52%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.18% 0.18% 0.18% 0.17% 0.12%
Net investment income 5.29% 5.44% 5.25% 5.90% 4.30%
Expense waiver/reimbursement 3 0.37% 0.12% 0.14% 0.08% 0.13%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $1,825,266 $1,100,620 $1,572,912 $3,919,186 $1,538,802
</TABLE>
1 Federated Management became the Fund's investment adviser on November 15,
1996. Prior to November 15, 1996, Lehman Brothers Global Asset Management served
as the Fund's investment adviser.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 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
JANUARY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
SHORT-TERM NOTES-6.7%
BANKING-1.7%
$ 25,000,000 Abbey National Treasury Services, PLC, 4.990%, 1/10/2000 $ 24,993,202
19,000,000 SALTS III Cayman Island Corp., (Guaranteed by Bankers Trust
International, PLC), 5.589%, 3/12/1999 19,000,000
5,000,000 SALTS III Cayman Island Corp., (Guaranteed by Bankers Trust
International, PLC), 5.270%, 4/23/1999 5,000,000
TOTAL 48,993,202
BROKERAGE-2.5%
75,000,000 Goldman Sachs Group, LP, 5.020%, 3/1/1999 75,000,000
FINANCE - AUTOMOTIVE-0.9%
1,309,820 Chase Manhattan Auto Owner Trust 1998-C, Class A-1, 5.588%,
7/9/1999 1,309,757
774,811 Compass Auto Receivables Trust 1998-A, Class A-1, 5.659%,
7/15/1999 774,811
11,500,000 Honda Auto Receivables 1999-1 Owner Trust, Class A-1,
4.974%, 2/15/2000 11,500,000
11,521,783 Premier Auto Trust 1998-5, Class A-1, 5.140%, 7/8/1999 11,519,585
TOTAL 25,104,153
FINANCE - COMMERCIAL-0.8%
25,000,000 2 Beta Finance, Inc., 5.250%, 1/18/2000 25,023,178
FINANCE - EQUIPMENT-0.5%
14,226,091 Newcourt Equipment Trust Securities 1998-2, Class A-1,
5.195%, 1/15/2000 14,226,091
INSURANCE-0.3%
8,284,212 Americredit Automobile Receivables Trust 1998-D, Class A-1,
(Guaranteed by FSA), 5.199%, 11/12/1999 8,284,212
TOTAL SHORT-TERM NOTES 196,630,836
CERTIFICATES OF DEPOSIT-7.7%
BANKING-7.7%
10,500,000 Bankers Trust Co., New York, 5.690% - 5.710%, 2/26/1999 -
4/30/1999 10,500,685
75,000,000 Barclays Bank of Canada, (Guaranteed by Barclays Bank PLC,
London),
5.016% - 5.020%, 1/10/2000 - 1/13/2000 74,975,017
54,000,000 KeyBank, N.A., 5.080%, 4/9/1999 54,000,000
10,000,000 Royal Bank of Canada, Montreal, 5.020%, 1/24/2000 9,996,234
58,000,000 Societe Generale, Paris, 5.720% - 5.835%, 3/2/1999 -
4/27/1999 57,996,018
20,000,000 Toronto-Dominion Bank, 4.930%, 7/14/1999 20,056,494
TOTAL CERTIFICATES OF DEPOSIT 227,524,448
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
COMMERCIAL PAPER-50.2% 1
BANKING-15.5%
$ 50,000,000 Abbey National N.A. Corp., (Guaranteed by Abbey National
Bank PLC, London), 5.003%, 5/4/1999 $ 49,376,445
45,000,000 Canadian Imperial Holdings, Inc., (Guaranteed by Canadian
Imperial Bank of Commerce), 4.962% - 5.079%, 2/22/1999 -
4/1/1999 44,668,772
70,000,000 Cregem North America, Inc., (Guaranteed by Credit Communal
de Belgique, Brussles), 4.943% - 5.635%, 2/3/1999 -
2/23/1999 69,898,722
42,841,000 Fountain Square Commercial Funding Corp., (Fifth Third Bank,
Cincinnati Support Agreement), 5.021% - 5.626%, 2/1/1999 -
4/27/1999 42,758,539
12,000,000 Societe Generale North America, Inc., (Guaranteed by Societe
Generale, Paris), 5.122%, 4/5/1999 11,895,210
25,000,000 SunTrust Banks, Inc., 5.276%, 3/5/1999 24,884,000
85,000,000 UBS Finance (Delaware), Inc., (UBS AG LOC), 4.953% - 5.035%,
3/29/1999 - 4/16/1999 84,227,194
29,000,000 Westpac Banking Corp. Ltd., Sydney, 5.129%, 4/1/1999 28,762,361
90,000,000 Westpac Capital Corp., (Guaranteed by Westpac Banking Corp.
Ltd., Sydney), 5.029% - 5.032%, 4/12/1999 - 5/14/1999 88,965,683
10,000,000 Wood Street Funding Corp., (PNC Bank, N.A. Support
Agreement), 4.889%, 2/19/1999 9,975,650
TOTAL 455,412,576
BROKERAGE-0.8%
25,000,000 Credit Suisse First Boston, Inc., 4.892%, 4/19/1999 24,741,729
FINANCE - AUTOMOTIVE-0.3%
10,000,000 Chrysler Financial Co. L.L.C., 4.940%, 4/12/1999 9,905,111
FINANCE - COMMERCIAL-16.6%
103,000,000 Beta Finance, Inc., 5.106% - 5.444%, 3/8/1999 - 5/28/1999 101,862,687
25,000,000 Corporate Asset Funding Co., Inc. (CAFCO), (Guaranteed by
FGIC), 4.888%, 4/12/1999 24,765,208
90,000,000 General Electric Capital Corp., 5.037% - 5.650%, 2/4/1999 -
3/17/1999 89,738,197
101,100,000 PREFCO-Preferred Receivables Funding Co., (Guaranteed by
AMBAC), 5.164% - 5.405%, 2/9/1999 - 3/8/1999 100,688,588
25,000,000 Receivables Capital Corp., 5.340% - 5.468%, 2/4/1999 -
2/12/1999 24,971,254
149,000,000 Sheffield Receivables Corp., 4.891% - 5.499%, 2/5/1999 -
3/12/1999 148,586,203
TOTAL 490,612,137
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
COMMERCIAL PAPER-continued 1
FINANCE - RETAIL-12.7%
$ 95,000,000 American Express Credit Corp., 4.888% - 5.023%, 4/12/1999 -
4/13/1999 $ 94,095,007
12,000,000 Associates Corp. of North America, 5.401%, 3/9/1999 11,936,880
82,500,000 Associates First Capital B.V., (Guaranteed by Associates
First Capital Corp.), 4.888% - 4.920%, 4/8/1999 - 5/18/1999 81,601,033
63,000,000 Associates First Capital Corp., 5.073% - 5.094%, 5/27/1999 -
5/28/1999 61,997,211
50,000,000 Household Finance Corp., 4.852%, 2/1/1999 50,000,000
75,000,000 Norwest Financial, Inc., 4.888%, 4/13/1999 74,285,563
TOTAL 373,915,694
INSURANCE-3.5%
25,000,000 CXC, Inc., 4.906%, 4/9/1999 24,774,340
80,000,000 Marsh & McLennan Cos., Inc., 5.112% - 5.128%, 5/4/1999 -
5/5/1999 78,968,439
TOTAL 103,742,779
MACHINERY, EQUIPMENT, AUTO-0.8%
25,000,000 Eaton Corp., 5.026% - 5.151%, 5/14/1999 24,645,833
TOTAL COMMERCIAL PAPER 1,482,975,859
LOAN PARTICIPATION-2.1%
ELECTRICAL EQUIPMENT-0.6%
16,700,000 Mt. Vernon Phenol Plant Partnership, (Guaranteed by General
Electric Co.), 5.370%, 5/17/1999 16,700,000
FINANCE - AUTOMOTIVE-0.5%
14,000,000 General Motors Acceptance Corp., Mortgage of PA, (Guaranteed
by General Motors Acceptance Corp.), 5.120%, 2/1/1999 14,000,000
FINANCE - EQUIPMENT-1.0%
31,000,000 Pitney Bowes Credit Corp., 5.046%, 2/10/1999 30,961,056
TOTAL LOAN PARTICIPATION 61,661,056
VARIABLE RATE OBLIGATIONS-20.3% 3
BANKING-13.6%
2,000,000 Albuquerque, NM, Series 1997, El Canto, Inc., (Norwest Bank
Minnesota, N.A. LOC), 5.220%, 2/4/1999 2,000,000
10,000,000 Bankers Trust Co., New York, 4.880%, 6/4/1999 9,997,698
20,000,000 Barclays Bank PLC, London, 5.120%, 2/17/1999 20,000,000
1,925,000 Beech Grove, IN, Series 1997, Poster Display Co, (Bank One,
Indiana, N.A. LOC), 4.910%, 2/4/1999 1,925,000
2,095,000 C. W. Caldwell, Inc, Sweetbriar Assisted Living Facility,
Project, (Huntington National Bank, Columbus, OH LOC),
4.910%, 2/4/1999 2,095,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
VARIABLE RATE OBLIGATIONS-continued 3
BANKING-CONTINUED
$ 7,100,000 Capital One Funding Corp., Series 1993-A, (Bank One, Ohio,
N.A. LOC), 4.910%, 2/4/1999 $ 7,100,000
21,700,000 Capital One Funding Corp., Series 1999-A, (Bank One,
Kentucky LOC), 4.910%, 2/4/1999 21,700,000
2,895,000 Casna Limited Partnership, Series 1997, (Huntington National
Bank, Columbus, OH LOC), 4.910%, 2/4/1999 2,895,000
8,580,000 Cedarville College, Series 1998, (KeyBank, N.A. LOC),
4.910%, 2/4/1999 8,580,000
4,535,000 Chartiers Valley Industrial & Commercial Development
Authority, Woodhaven Convalescent Center, Series 1997-B,
(Bank One, Ohio, N.A. LOC), 4.910%, 2/4/1999 4,535,000
1,470,000 Children's Defense Fund, (First National Bank of Maryland,
Baltimore LOC), 5.100%, 2/2/1999 1,470,000
6,000,000 Colonie, NY IDA, Mechanical Technology, Inc. Project, Series
1998 A, (KeyBank, N.A. LOC), 5.050%, 2/4/1999 6,000,000
10,600,000 Cuyahoga County, OH, Gateway Arena Project, Series 1992-B,
(Canadian Imperial Bank of Commerce LOC), 4.910%, 2/4/1999 10,600,000
3,350,000 Cuyahoga County, OH, Series 1998, Watt Printers Project,
(Bank One, Ohio, N.A. LOC), 4.910%, 2/4/1999 3,350,000
8,650,000 Elsinore Properties, L.P., Series 1998, (Fifth Third Bank,
Cincinnati LOC), 4.975%, 2/4/1999 8,650,000
25,000,000 First Union National Bank, Charlotte, NC, 4.860%, 2/1/1999 25,000,000
1,100,000 Flowform, Inc., (Huntington National Bank, Columbus, OH
LOC), 4.910%, 2/4/1999 1,100,000
6,780,000 Franklin County, OH, Edison Welding, Series 1995,
(Huntington National Bank, Columbus, OH LOC), 4.910%,
2/4/1999 6,780,000
12,135,000 Georgetown, KY Educational Institution, Series 1997-A, (Bank
One, Kentucky LOC), 4.910%, 2/4/1999 12,135,000
1,410,000 Gerald T. Thom, Trustee U.A.D., March 27, 1997, (Huntington
National Bank, Columbus, OH LOC), 4.910%, 2/4/1999 1,410,000
1,600,000 Gettysburg Area Industrial Development Authority, Hanover
Lantern, Inc. Project, Series 1998-B, (First National Bank
of Maryland, Baltimore LOC), 5.000%, 2/3/1999 1,600,000
11,400,000 Healthcare Network Properties, LLC, Series A, (National City
Bank, Michigan/Illinois LOC), 4.890%, 2/4/1999 11,400,000
11,550,000 Heritage at the Falls Assisted Living, Ltd., Series 1997,
(BankBoston, N.A. LOC), 5.020%, 2/4/1999 11,550,000
9,400,000 IT Spring Wire, LLC, Series 1997, (Fifth Third Bank,
Cincinnati LOC), 4.920%, 2/4/1999 9,400,000
4,361,000 International Processing Corp., (Bank One, Kentucky LOC),
4.960%, 2/4/1999 4,361,000
2,000,000 Kit Carson County, CO, Midwest Farms Project, (Norwest Bank
Minnesota, N.A. LOC), 5.350%, 2/3/1999 2,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
VARIABLE RATE OBLIGATIONS-continued 3
BANKING-CONTINUED
$ 6,000,000 Laverne City, IDA, Mobile Tool Intl, Inc. Project, Series
1998-B, (Fleet Bank N.A. LOC), 5.130%, 2/4/1999 $ 6,000,000
63,807,540 2 Liquid Asset Backed Securities Trust, Series 1997-1,
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.000%, 2/16/1999 63,807,540
30,065,000 M/S Land, LLC, (Bank One, Illinois, N.A. LOC), 4.960%,
2/4/1999 30,065,000
5,900,000 MMR Funding I, Series A, (Bayerische Hypotheken-und
Vereinsbank AG LOC), 4.910%, 2/4/1999 5,900,000
4,890,000 Medilodge Group, Meadowbrook Project, (KeyBank, N.A. LOC),
4.960%, 2/4/1999 4,890,000
5,000,000 Medina County, OH, Three D Metals, Inc. Project, Series
1998, (Bank One, Ohio, N.A. LOC), 4.910%, 2/4/1999 5,000,000
10,000,000 Mississippi Business Finance Corp., Kohler Project,
(Wachovia Bank of NC, N.A., Winston-Salem LOC), 5.050%,
2/4/1999 10,000,000
3,100,000 New Berlin, WI, Sunraider LLC, Series 1997B, (Bank One,
Wisconsin, N.A. LOC), 4.910%, 2/4/1999 3,100,000
4,400,000 New Jersey EDA, Morey Organization, Inc. Project, Series
1997, (First Union National Bank, Charlotte, NC LOC),
5.000%, 2/3/1999 4,400,000
2,565,000 New Jersey EDA, Pheonix Realty Partners, (First Union
National Bank, Charlotte, NC LOC), 5.000%, 2/3/1999 2,565,000
3,365,000 Oakwoods Master Ltd. Partnership, Series 1997, (Amsouth Bank
N.A., Birmingham LOC), 4.970%, 2/4/1999 3,365,000
4,600,000 Primex Funding Corp., Series 1997-A, (Bank One, Indiana,
N.A. LOC), 4.910%, 2/4/1999 4,600,000
4,076,373 Rabobank Optional Redemption Trust, Series 1997-101, 5.005%,
4/20/1999 4,076,373
10,000,000 Royal Wine Corp. and KFP International Ltd., Series 1998,
(KeyBank, N.A. LOC), 4.910%, 2/4/1999 10,000,000
22,000,000 Societe Generale, Paris, 4.883%, 8/11/1999 21,992,417
3,975,000 Solon Properties, LLC, (Huntington National Bank, Columbus,
OH LOC), 4.910%, 2/4/1999 3,975,000
2,215,000 Spitzer Group, Series 1998-C, (Bank One, Ohio, N.A. LOC),
4.910%, 2/4/1999 2,215,000
1,155,000 TDB Realty, Ltd., (Huntington National Bank, Columbus, OH
LOC), 4.910%, 2/4/1999 1,155,000
2,485,000 Tallahassee-Leon County Civic Center Authority, Series 1998-
C, (SunTrust Bank, Central Florida LOC), 4.950%, 2/3/1999 2,485,000
3,360,000 Team Rahal of Pittsburgh, Inc., Series 1997, (Huntington
National Bank, Columbus, OH LOC), 4.910%, 2/4/1999 3,360,000
2,255,000 Trap Rock Industries, Inc., Series 1997, (First Union
National Bank, Charlotte, NC LOC), 5.000%, 2/3/1999 2,255,000
5,565,000 VLF, LLC, The Village of Lovejoy, Fountain Project,
(KeyBank, N.A. LOC), 5.040%, 2/4/1999 5,565,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
VARIABLE RATE OBLIGATIONS-continued 3
BANKING-CONTINUED
$ 2,990,000 Van Wyk Enterprises, Inc., (Huntington National Bank,
Columbus, OH LOC), 4.930%, 2/4/1999 $ 2,990,000
TOTAL 401,395,028
FINANCE - RETAIL-0.3%
8,800,000 2 Bishop's Gate Residential Mortgage Trust 1998-2, Class A-1,
5.747%, 2/10/1999 8,800,000
INSURANCE-6.4%
10,000,000 Allstate Life Insurance Co., 5.136%, 4/1/1999 10,000,000
22,000,000 Jackson National Life Insurance Co., 5.040%, 2/22/1999 22,000,000
15,400,000 Jackson National Life Insurance Co., 5.186%, 4/1/1999 15,400,000
25,972,307 Liquid Asset Backed Securities Trust, Series 1997-3, Senior
Notes, (Guaranteed by AMBAC), 5.254%, 3/28/1999 25,972,307
15,000,000 Peoples Security Life Insurance Company, 5.170%, 2/1/1999 15,000,000
20,000,000 Principal Life Insurance Company, 5.410%, 3/1/1999 20,000,000
10,000,000 Security Life of Denver Insurance Co., 5.028%, 4/30/1999 10,000,000
25,000,000 Security Life of Denver Insurance Co., 5.311%, 2/1/1999 25,000,000
25,000,000 Transamerica Life Insurance and Annuity Co., 5.136%, 4/1/1999 25,000,000
10,000,000 Transamerica Occidental Life Insurance Co., 5.525%, 3/6/1999 10,000,000
10,000,000 Travelers Insurance Company, 5.116%, 4/1/1999 10,000,000
TOTAL 188,372,307
TOTAL VARIABLE RATE OBLIGATIONS 598,567,335
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
TIME DEPOSIT-1.7%
BANKING-1.7%
$ 50,000,000 Royal Bank of Canada, Montreal, 4.813%, 2/1/1999 $ 50,000,000
REPURCHASE AGREEMENTS-11.2% 4
50,000,000 Bankers Trust Co., New York, 4.820%, dated 1/29/1999, due
2/1/1999 50,000,000
75,000,000 HSBC Securities, Inc., 4.820%, dated 1/29/1999, due 2/1/1999 75,000,000
100,000,000 Nationsbanc Montgomery Securities, Inc., 4.820%, dated
1/29/1999, due 2/1/1999 100,000,000
50,000,000 Paribas Corp., 4.820%, dated 1/29/1999, due 2/1/1999 50,000,000
24,600,000 Societe Generale Securities Corp., 4.730%, dated 1/29/1999,
due 2/1/1999 24,600,000
30,000,000 Toronto Dominion Securities (USA) Inc., 4.730%, dated
1/29/1999, due 2/1/1999 30,000,000
TOTAL REPURCHASE AGREEMENTS 329,600,000
TOTAL INVESTMENTS (AT AMORTIZED COST) 5 $ 2,946,959,534
</TABLE>
1 Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
2 Denotes a restricted security which is subject to restrictions on resale under
Federal Securities laws. At January 31, 1999, these securities amounted to
$97,630,718 which represents 3.3% of net assets.
3 Current rate and next reset date shown.
4 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.
5 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($2,950,309,702) at January 31, 1999.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation
EDA -Economic Development Authority
FGIC -Financial Guaranty Insurance Company
FSA -Financial Security Assurance
IDA -Industrial Development Authority
LOC -Letter of Credit
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
JANUARY 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 329,600,000
Investments in securities 2,617,359,534
Total investments in securities, at amortized cost and value $ 2,946,959,534
Income receivable 10,646,667
Receivable for shares sold 16,459
TOTAL ASSETS 2,957,622,660
LIABILITIES:
Payable for shares redeemed 20,424
Income distribution payable 6,902,729
Payable to Bank 119,011
Accrued expenses 270,794
TOTAL LIABILITIES 7,312,958
Net assets for 2,950,309,702 shares outstanding $ 2,950,309,702
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$1,825,266,173 / 1,825,266,173 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$894,850,895 / 894,850,895 shares outstanding $1.00
INSTITUTIONAL CAPITAL SHARES:
$230,192,634 / 230,192,634 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 128,409,170
EXPENSES:
Investment advisory fee $ 4,676,382
Administrative personnel and services fee 1,762,996
Custodian fees 151,496
Transfer and dividend disbursing agent fees and expenses 114,299
Directors'/Trustees' fees 15,781
Auditing fees 14,192
Legal fees 11,165
Portfolio accounting fees 232,807
Shareholder services fee-Institutional Shares 3,449,515
Shareholder services fee-Institutional Service Shares 1,803,553
Shareholder services fee-Institutional Capital Shares 592,410
Share registration costs 36,193
Printing and postage 21,921
Insurance premiums 166,534
Miscellaneous 9,204
TOTAL EXPENSES 13,058,448
WAIVERS:
Waiver of investment advisory fee $ (2,853,923)
Waiver of shareholder services fee-Institutional Shares (3,449,515)
Waiver of shareholder services fee-Institutional Capital
Shares (355,446)
TOTAL WAIVERS (6,658,884)
Net expenses 6,399,564
Net investment income $ 122,009,606
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 122,009,606 $ 94,064,903
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (73,059,518) (64,610,393)
Institutional Service Shares (36,684,622) (25,937,194)
Institutional Capital Shares (12,265,466) (3,517,316)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS
TO SHAREHOLDERS (122,009,606) (94,064,903)
SHARE TRANSACTIONS:
Proceeds from sale of shares 33,162,916,740 25,518,721,091
Net asset value of shares issued to shareholders in payment
of distributions declared 55,512,391 45,738,378
Cost of shares redeemed (32,428,562,553) (25,438,600,121)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 789,866,578 125,859,348
Change in net assets 789,866,578 125,859,348
NET ASSETS:
Beginning of period 2,160,443,124 2,034,583,776
End of period $ 2,950,309,702 $ 2,160,443,124
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
JANUARY 31, 1999
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 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 provision for federal taxes is
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 Act.
Additional information on each restricted security held at January 31, 1999 is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Beta Finance, Inc., 5.250%, 1/18/2000 1/15/1999 $25,024,301
Bishop's Gate Residential Mortgage Trust 1998-2, Class A-1,
5.747%, 2/10/1999 12/11/1998 8,800,000
Liquid Assets Backed Securities Trust, Series 1997-1,
5.000%, 2/16/1999 2/19/1997 63,807,540
</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, 1999, capital paid-in aggregated $2,950,309,702.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL SHARES:
Shares sold 23,532,773,371 18,791,341,606
Shares issued to shareholders in payment of distributions
declared 44,134,116 42,611,959
Shares redeemed (22,852,260,827) (19,306,246,896)
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS 724,646,660 (472,293,331)
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Shares sold 7,290,975,466 5,032,974,804
Shares issued to shareholders in payment of distributions
declared 5,275,668 580,621
Shares redeemed (7,070,064,987) (4,777,652,535)
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE
SHARE TRANSACTIONS 226,186,147 255,902,890
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL CAPITAL SHARES:
Shares sold 2,339,167,903 1,694,404,681
Shares issued to shareholders in payment of distributions
declared 6,102,607 2,545,798
Shares redeemed (2,506,236,739) (1,354,700,690)
NET CHANGE RESULTING FROM INSTITUTIONAL CAPITAL
SHARE TRANSACTIONS (160,966,229) 342,249,789
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 789,866,578 125,859,348
</TABLE>
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. Effective March 31, 1999, the Adviser will merge into
Federated Investment Management Company (formerly Federated Advisers). The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser can
modify or terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Report of Ernst & Young LLP, Independent Auditors
TO THE SHAREHOLDERS AND TRUSTEES OF
PRIME CASH OBLIGATIONS FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prime Cash Obligations Fund, a portfolio of
Money Market Obligations Trust II, as of January 31, 1999, 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 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, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Prime
Cash Obligations Fund at January 31, 1999, 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 the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
[Graphic]
Boston, Massachusetts
March 15, 1999
Prime Cash Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's semi-annual report to shareholders
as it becomes available. To obtain the SAI, semi-annual report and other
information without charge, call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
[Graphic]
Prime Cash Obligations Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-7364
Cusip 608912705
G01881-03-IS (3/99)
PROSPECTUS
Prime Cash Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking to achieve current income consistent with
stability of principal and liquidity.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
MARCH 31, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which
the Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 4
What Do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 5
How to Redeem Shares 7
Account and Share Information 8
Who Manages the Fund? 9
Financial Information 9
Report of Ernst & Young LLP, Independent Auditors 25
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is current income consistent with
stability of principal and liquidity. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
This investment objective may be changed by the Fund's Trustees without
shareholder approval.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high quality fixed income securities maturing
in 13 months or less. The average maturity of the Fund's portfolio will be 90
days or less.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money by investing in the Fund.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares as of the calendar year-end
for each of the last five years. The `y' axis reflects the "% Total Return"
beginning with "0" and increasing in increments of 1.5% up to 6%. The `x' axis
represents calculation periods from the earliest calendar year end of the Fund's
start of business through the calendar year ended December 31, 1998. The light
gray shaded chart features five distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for the
calendar year stated directly at its base. The calculated total return
percentage for the Institutional Service Shares for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1994 through
1998. The percentages noted are: 4.03%, 5.82%, 5.15%, 5.31% and 5.29%,
respectively.
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional Service
Shares total returns on a yearly basis.
The Fund's Institutional Service Shares are not sold subject to a sales charge
(load). The total returns displayed above are based upon the net asset value.
Within the period shown in the Chart, the Fund's Institutional Service Shares
highest quarterly return was 1.46% (quarter ended June 30, 1995). Its lowest
quarterly return was 0.75% (quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURN
The following table represents the Fund's Institutional Service Shares average
annual total return through December 31, 1998.
Calendar Period FUND
1 Year 5.29%
5 Years 5.12%
Start of Performance 1 4.98%
1 The Fund's Institutional Service Shares start of performance date was
September 2, 1993.
Investors may call the Fund at 1-800-341-7400 to acquire the current 7-Day Net
Yield.
The Fund's Institutional Service Shares 7-Day Net Yield as of 12/31/98 was
4.85%.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are the Fund's Fees and Expenses?
PRIME CASH OBLIGATIONS FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Service Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as percentage of average net assets)
Management Fee 2 0.20%
Distribution (12b-1) Fee None
Shareholder Services Fee 0.25%
Other Expenses 0.10%
Total Annual Fund Operating Expenses 0.55%
1 Although not contractually obligated to do so, the adviser waived certain
amounts. These are described below along with the net expenses the Fund's
Institutional Service Shares actually paid for the fiscal year ended January 31,
1999.
Waiver of Fund Expenses 0.12%
Total Actual Annual Fund Operating Expenses (after waivers) 0.43%
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund's Institutional Service Shares (after the voluntary waiver) was 0.08% for
the year ended January 31, 1999.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Institutional Service Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Service
Shares for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's Institutional Service Shares operating
expenses are BEFORE WAIVERS as shown in the table and remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
1 Year $ 56
3 Years $ 176
5 Years $ 307
10 Years $ 689
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high quality fixed income securities maturing
in 13 months or less. The average maturity of the Fund's portfolio will be 90
days or less.
In order to select individual investments, the Fund's investment adviser
(Adviser) performs a fundamental credit analysis to develop an approved list of
issuers and securities that meet the Adviser's minimum credit standards. The
Adviser assesses likely movements in interest rates based upon general economic
and market conditions. Considering this assessment, the Adviser targets an
average portfolio maturity range. The Adviser generally shortens the portfolio's
average maturity when it expects interest rates to rise and extends the maturity
when it expects interest rates to fall. In adjusting the portfolio's average
maturity, the Adviser selects among investments with different maturities
comparing their relative returns.
What are the Principal Securities in Which the Fund Invests?
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must also repay
the principal amount of the security, normally within a specified time. The
following describes the types of fixed income securities in which the Fund
invests:
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures, and commercial paper are the most prevalent types of
corporate debt securities.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of nine months or
less. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must repay upon
demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances.
ASSET BACKED SECURITIES
Asset backed securities are payable from pools of debt obligations. Most asset
backed securities involve consumer or commercial debts with maturities of less
than 10 years. However, almost any type of fixed income assets (including other
fixed income securities) may be used to create an asset backed security. Asset
backed securities may take the form of commercial paper, notes, or pass through
certificates.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser usually evaluates the credit risk of a fixed income
security based solely upon its credit enhancement.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction.
INVESTMENT RATINGS
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 or are of comparable quality to securities
having such ratings.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund, the
principal risks of investing in a corporate money market fund are described
below.
BOND MARKET RISKS
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money. Money market funds try to minimize this risk by purchasing
higher quality securities.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the Adviser's credit assessment.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities issued
or credit enhanced by companies in similar businesses or with similar
characteristics. As a result, the Fund will be more susceptible to any economic,
business, political, or other developments which generally affect these issuers.
What Do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined net asset value (NAV). The Fund does not charge
a front-end sales charge. NAV is determined at 12:00 noon and 3:00 p.m. (Eastern
time) and as of the end of regular trading (normally 4:00 p.m. Eastern time)
each day the NYSE is open.
The required minimum initial investment for Fund Shares is $1,000,000. There is
no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $1,000,000 minimum
is reached within one year of opening the account. An institutional investor's
minimum investment is calculated by combining all accounts it maintains with the
Fund. Accounts established through investment professionals may be subject to a
smaller minimum investment amount. Keep in mind that investment professionals
may charge you fees for their services in connection with your Share
transactions.
How is the Fund Sold?
The Fund offers three share classes: Institutional Shares, Institutional Service
Shares and Institutional Capital Shares, each representing interests in a single
portfolio of securities. This prospectus relates only to Institutional Service
Shares. Each share class has different expenses which affect their performance.
Contact your investment professional or call 1-800-341-7400 for more information
concerning the other classes.
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity.
The Distributor and its affiliates may pay out of their assets other
amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of
Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 3:00 p.m.
(Eastern time). You will receive that day's dividend if the investment
professional forwards the order to the Fund and the Fund receives payment by
3:00 p.m. (Eastern time). You will become the owner of Shares and receive
dividends when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares after the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY INVEST-BY-PHONE
Once you establish an account, you may use the Fund's Invest-By-Phone privilege
for future Share purchases if you have an account with a bank that is an
Automated Clearing House member. To apply, call the Fund for an authorization
form. You may use Invest-By-Phone to purchase Shares approximately two weeks
from the date you file the form with Federated Shareholder Services Company.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). Investment
professionals are responsible for promptly submitting redemption requests and
providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 3:00 p.m. (Eastern time) your redemption will be wired to you
the same day. You will not receive that day's dividend.
If you call after 3:00 p.m. (Eastern time) your redemption will be wired to you
the following business day. You will receive that day's dividend.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the day
that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
ACCOUNT ACTIVITY
You will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
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 pays any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state, and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily dividends. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal, state,
and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.20% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.
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 1999 1998 1997 1996 1 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.05 0.05 0.06 0.04
LESS DISTRIBUTIONS:
Distributions from net investment income (0.05) (0.05) (0.05) (0.06) (0.04)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 2 5.23% 5.34% 5.11% 5.83% 4.21%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.43% 0.43% 0.43% 0.42% 0.37%
Net investment income 5.09% 5.29% 5.02% 5.65% 4.05%
Expense waiver/reimbursement 3 0.12% 0.12% 0.14% 0.08% 0.13%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $894,851 $668,665 $412,762 $324,474 $342,673
</TABLE>
1 Federated Management became the Fund's investment adviser on November 15,
1996. Prior to November 15, 1996, Lehman Brothers Global Asset Management served
as the Fund's investment adviser.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 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
JANUARY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
SHORT-TERM NOTES-6.7%
BANKING-1.7%
$ 25,000,000 Abbey National Treasury Services, PLC, 4.990%, 1/10/2000 $ 24,993,202
19,000,000 SALTS III Cayman Island Corp., (Guaranteed by Bankers Trust
International, PLC), 5.589%, 3/12/1999 19,000,000
5,000,000 SALTS III Cayman Island Corp., (Guaranteed by Bankers Trust
International, PLC), 5.270%, 4/23/1999 5,000,000
TOTAL 48,993,202
BROKERAGE-2.5%
75,000,000 Goldman Sachs Group, LP, 5.020%, 3/1/1999 75,000,000
FINANCE - AUTOMOTIVE-0.9%
1,309,820 Chase Manhattan Auto Owner Trust 1998-C, Class A-1, 5.588%,
7/9/1999 1,309,757
774,811 Compass Auto Receivables Trust 1998-A, Class A-1, 5.659%,
7/15/1999 774,811
11,500,000 Honda Auto Receivables 1999-1 Owner Trust, Class A-1,
4.974%, 2/15/2000 11,500,000
11,521,783 Premier Auto Trust 1998-5, Class A-1, 5.140%, 7/8/1999 11,519,585
TOTAL 25,104,153
FINANCE - COMMERCIAL-0.8%
25,000,000 2 Beta Finance, Inc., 5.250%, 1/18/2000 25,023,178
FINANCE - EQUIPMENT-0.5%
14,226,091 Newcourt Equipment Trust Securities 1998-2, Class A-1,
5.195%, 1/15/2000 14,226,091
INSURANCE-0.3%
8,284,212 Americredit Automobile Receivables Trust 1998-D, Class A-1,
(Guaranteed by FSA), 5.199%, 11/12/1999 8,284,212
TOTAL SHORT-TERM NOTES 196,630,836
CERTIFICATES OF DEPOSIT-7.7%
BANKING-7.7%
10,500,000 Bankers Trust Co., New York, 5.690% - 5.710%, 2/26/1999 -
4/30/1999 10,500,685
75,000,000 Barclays Bank of Canada, (Guaranteed by Barclays Bank PLC,
London), 5.016% - 5.020%, 1/10/2000 - 1/13/2000 74,975,017
54,000,000 KeyBank, N.A., 5.080%, 4/9/1999 54,000,000
10,000,000 Royal Bank of Canada, Montreal, 5.020%, 1/24/2000 9,996,234
58,000,000 Societe Generale, Paris, 5.720% - 5.835%, 3/2/1999 -
4/27/1999 57,996,018
20,000,000 Toronto-Dominion Bank, 4.930%, 7/14/1999 20,056,494
TOTAL CERTIFICATES OF DEPOSIT 227,524,448
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
COMMERCIAL PAPER-50.2% 1
BANKING-15.5%
$ 50,000,000 Abbey National N.A. Corp., (Guaranteed by Abbey National
Bank PLC, London), 5.003%, 5/4/1999 $ 49,376,445
45,000,000 Canadian Imperial Holdings, Inc., (Guaranteed by Canadian
Imperial Bank of Commerce), 4.962% - 5.079%, 2/22/1999 -
4/1/1999 44,668,772
70,000,000 Cregem North America, Inc., (Guaranteed by Credit Communal
de Belgique, Brussles), 4.943% - 5.635%, 2/3/1999 - 2/23/1999 69,898,722
42,841,000 Fountain Square Commercial Funding Corp., (Fifth Third Bank,
Cincinnati Support Agreement), 5.021% - 5.626%, 2/1/1999 -
4/27/1999 42,758,539
12,000,000 Societe Generale North America, Inc., (Guaranteed by Societe
Generale, Paris), 5.122%, 4/5/1999 11,895,210
25,000,000 SunTrust Banks, Inc., 5.276%, 3/5/1999 24,884,000
85,000,000 UBS Finance (Delaware), Inc., (UBS AG LOC), 4.953% - 5.035%,
3/29/1999 - 4/16/1999 84,227,194
29,000,000 Westpac Banking Corp. Ltd., Sydney, 5.129%, 4/1/1999 28,762,361
90,000,000 Westpac Capital Corp., (Guaranteed by Westpac Banking Corp.
Ltd., Sydney), 5.029% - 5.032%, 4/12/1999 - 5/14/1999 88,965,683
10,000,000 Wood Street Funding Corp., (PNC Bank, N.A. Support Agreement),
4.889%, 2/19/1999 9,975,650
TOTAL 455,412,576
BROKERAGE-0.8%
25,000,000 Credit Suisse First Boston, Inc., 4.892%, 4/19/1999 24,741,729
FINANCE - AUTOMOTIVE-0.3%
10,000,000 Chrysler Financial Co. L.L.C., 4.940%, 4/12/1999 9,905,111
FINANCE - COMMERCIAL-16.6%
103,000,000 Beta Finance, Inc., 5.106% - 5.444%, 3/8/1999 - 5/28/1999 101,862,687
25,000,000 Corporate Asset Funding Co., Inc. (CAFCO), (Guaranteed by
FGIC), 4.888%, 4/12/1999 24,765,208
90,000,000 General Electric Capital Corp., 5.037% - 5.650%, 2/4/1999 -
3/17/1999 89,738,197
101,100,000 PREFCO-Preferred Receivables Funding Co., (Guaranteed by
AMBAC), 5.164% - 5.405%, 2/9/1999 - 3/8/1999 100,688,588
25,000,000 Receivables Capital Corp., 5.340% - 5.468%, 2/4/1999 -
2/12/1999 24,971,254
149,000,000 Sheffield Receivables Corp., 4.891% - 5.499%, 2/5/1999 -
3/12/1999 148,586,203
TOTAL 490,612,137
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
COMMERCIAL PAPER-continued 1
FINANCE - RETAIL-12.7%
$ 95,000,000 American Express Credit Corp., 4.888% - 5.023%, 4/12/1999 -
4/13/1999 $ 94,095,007
12,000,000 Associates Corp. of North America, 5.401%, 3/9/1999 11,936,880
82,500,000 Associates First Capital B.V., (Guaranteed by Associates
First Capital Corp.), 4.888% - 4.920%, 4/8/1999 - 5/18/1999 81,601,033
63,000,000 Associates First Capital Corp., 5.073% - 5.094%, 5/27/1999 -
5/28/1999 61,997,211
50,000,000 Household Finance Corp., 4.852%, 2/1/1999 50,000,000
75,000,000 Norwest Financial, Inc., 4.888%, 4/13/1999 74,285,563
TOTAL 373,915,694
INSURANCE-3.5%
25,000,000 CXC, Inc., 4.906%, 4/9/1999 24,774,340
80,000,000 Marsh & McLennan Cos., Inc., 5.112% - 5.128%, 5/4/1999 -
5/5/1999 78,968,439
TOTAL 103,742,779
MACHINERY, EQUIPMENT, AUTO-0.8%
25,000,000 Eaton Corp., 5.026% - 5.151%, 5/14/1999 24,645,833
TOTAL COMMERCIAL PAPER 1,482,975,859
LOAN PARTICIPATION-2.1%
ELECTRICAL EQUIPMENT-0.6%
16,700,000 Mt. Vernon Phenol Plant Partnership, (Guaranteed by General
Electric Co.), 5.370%, 5/17/1999 16,700,000
FINANCE - AUTOMOTIVE-0.5%
14,000,000 General Motors Acceptance Corp., Mortgage of PA, (Guaranteed
by General Motors Acceptance Corp.), 5.120%, 2/1/1999 14,000,000
FINANCE - EQUIPMENT-1.0%
31,000,000 Pitney Bowes Credit Corp., 5.046%, 2/10/1999 30,961,056
TOTAL LOAN PARTICIPATION 61,661,056
VARIABLE RATE OBLIGATIONS-20.3% 3
BANKING-13.6%
2,000,000 Albuquerque, NM, Series 1997, El Canto, Inc., (Norwest Bank
Minnesota, N.A. LOC), 5.220%, 2/4/1999 2,000,000
10,000,000 Bankers Trust Co., New York, 4.880%, 6/4/1999 9,997,698
20,000,000 Barclays Bank PLC, London, 5.120%, 2/17/1999 20,000,000
1,925,000 Beech Grove, IN, Series 1997, Poster Display Co, (Bank One,
Indiana, N.A. LOC), 4.910%, 2/4/1999 1,925,000
2,095,000 C. W. Caldwell, Inc, Sweetbriar Assisted Living Facility,
Project, (Huntington National Bank, Columbus, OH LOC),
4.910%, 2/4/1999 2,095,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
VARIABLE RATE OBLIGATIONS-continued 3
BANKING-CONTINUED
$ 7,100,000 Capital One Funding Corp., Series 1993-A, (Bank One, Ohio,
N.A. LOC), 4.910%, 2/4/1999 $ 7,100,000
21,700,000 Capital One Funding Corp., Series 1999-A, (Bank One,
Kentucky LOC), 4.910%, 2/4/1999 21,700,000
2,895,000 Casna Limited Partnership, Series 1997, (Huntington National
Bank, Columbus, OH LOC), 4.910%, 2/4/1999 2,895,000
8,580,000 Cedarville College, Series 1998, (KeyBank, N.A. LOC),
4.910%, 2/4/1999 8,580,000
4,535,000 Chartiers Valley Industrial & Commercial Development
Authority, Woodhaven Convalescent Center, Series 1997-B,
(Bank One, Ohio, N.A. LOC), 4.910%, 2/4/1999 4,535,000
1,470,000 Children's Defense Fund, (First National Bank of Maryland,
Baltimore LOC), 5.100%, 2/2/1999 1,470,000
6,000,000 Colonie, NY IDA, Mechanical Technology, Inc. Project, Series
1998 A, (KeyBank, N.A. LOC), 5.050%, 2/4/1999 6,000,000
10,600,000 Cuyahoga County, OH, Gateway Arena Project, Series 1992-B,
(Canadian Imperial Bank of Commerce LOC), 4.910%, 2/4/1999 10,600,000
3,350,000 Cuyahoga County, OH, Series 1998, Watt Printers Project,
(Bank One, Ohio, N.A. LOC), 4.910%, 2/4/1999 3,350,000
8,650,000 Elsinore Properties, L.P., Series 1998, (Fifth Third Bank,
Cincinnati LOC), 4.975%, 2/4/1999 8,650,000
25,000,000 First Union National Bank, Charlotte, NC, 4.860%, 2/1/1999 25,000,000
1,100,000 Flowform, Inc., (Huntington National Bank, Columbus, OH
LOC), 4.910%, 2/4/1999 1,100,000
6,780,000 Franklin County, OH, Edison Welding, Series 1995,
(Huntington National Bank, Columbus, OH LOC), 4.910%, 2/4/1999 6,780,000
12,135,000 Georgetown, KY Educational Institution, Series 1997-A, (Bank
One, Kentucky LOC), 4.910%, 2/4/1999 12,135,000
1,410,000 Gerald T. Thom, Trustee U.A.D., March 27, 1997, (Huntington
National Bank, Columbus, OH LOC), 4.910%, 2/4/1999 1,410,000
1,600,000 Gettysburg Area Industrial Development Authority, Hanover
Lantern, Inc. Project, Series 1998-B, (First National Bank
of Maryland, Baltimore LOC), 5.000%, 2/3/1999 1,600,000
11,400,000 Healthcare Network Properties, LLC, Series A, (National City
Bank, Michigan/Illinois LOC), 4.890%, 2/4/1999 11,400,000
11,550,000 Heritage at the Falls Assisted Living, Ltd., Series 1997,
(BankBoston, N.A. LOC), 5.020%, 2/4/1999 11,550,000
9,400,000 IT Spring Wire, LLC, Series 1997, (Fifth Third Bank,
Cincinnati LOC), 4.920%, 2/4/1999 9,400,000
4,361,000 International Processing Corp., (Bank One, Kentucky LOC),
4.960%, 2/4/1999 4,361,000
2,000,000 Kit Carson County, CO, Midwest Farms Project, (Norwest Bank
Minnesota, N.A. LOC), 5.350%, 2/3/1999 2,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
VARIABLE RATE OBLIGATIONS-continued 3
BANKING-CONTINUED
$ 6,000,000 Laverne City, IDA, Mobile Tool Intl, Inc. Project, Series
1998-B, (Fleet Bank N.A. LOC), 5.130%, 2/4/1999 $ 6,000,000
63,807,540 2 Liquid Asset Backed Securities Trust, Series 1997-1,
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.000%, 2/16/1999 63,807,540
30,065,000 M/S Land, LLC, (Bank One, Illinois, N.A. LOC), 4.960%,
2/4/1999 30,065,000
5,900,000 MMR Funding I, Series A, (Bayerische Hypotheken-und
Vereinsbank AG LOC), 4.910%, 2/4/1999 5,900,000
4,890,000 Medilodge Group, Meadowbrook Project, (KeyBank, N.A. LOC),
4.960%, 2/4/1999 4,890,000
5,000,000 Medina County, OH, Three D Metals, Inc. Project, Series
1998, (Bank One, Ohio, N.A. LOC), 4.910%, 2/4/1999 5,000,000
10,000,000 Mississippi Business Finance Corp., Kohler Project,
(Wachovia Bank of NC, N.A., Winston-Salem LOC), 5.050%,
2/4/1999 10,000,000
3,100,000 New Berlin, WI, Sunraider LLC, Series 1997B, (Bank One,
Wisconsin, N.A. LOC), 4.910%, 2/4/1999 3,100,000
4,400,000 New Jersey EDA, Morey Organization, Inc. Project, Series
1997, (First Union National Bank, Charlotte, NC LOC),
5.000%, 2/3/1999 4,400,000
2,565,000 New Jersey EDA, Pheonix Realty Partners, (First Union
National Bank, Charlotte, NC LOC), 5.000%, 2/3/1999 2,565,000
3,365,000 Oakwoods Master Ltd. Partnership, Series 1997, (Amsouth Bank
N.A., Birmingham LOC), 4.970%, 2/4/1999 3,365,000
4,600,000 Primex Funding Corp., Series 1997-A, (Bank One, Indiana,
N.A. LOC), 4.910%, 2/4/1999 4,600,000
4,076,373 Rabobank Optional Redemption Trust, Series 1997-101, 5.005%,
4/20/1999 4,076,373
10,000,000 Royal Wine Corp. and KFP International Ltd., Series 1998,
(KeyBank, N.A. LOC), 4.910%, 2/4/1999 10,000,000
22,000,000 Societe Generale, Paris, 4.883%, 8/11/1999 21,992,417
3,975,000 Solon Properties, LLC, (Huntington National Bank, Columbus,
OH LOC), 4.910%, 2/4/1999 3,975,000
2,215,000 Spitzer Group, Series 1998-C, (Bank One, Ohio, N.A. LOC),
4.910%, 2/4/1999 2,215,000
1,155,000 TDB Realty, Ltd., (Huntington National Bank, Columbus, OH
LOC), 4.910%, 2/4/1999 1,155,000
2,485,000 Tallahassee-Leon County Civic Center Authority, Series 1998-
C, (SunTrust Bank, Central Florida LOC), 4.950%, 2/3/1999 2,485,000
3,360,000 Team Rahal of Pittsburgh, Inc., Series 1997, (Huntington
National Bank, Columbus, OH LOC), 4.910%, 2/4/1999 3,360,000
2,255,000 Trap Rock Industries, Inc., Series 1997, (First Union
National Bank, Charlotte, NC LOC), 5.000%, 2/3/1999 2,255,000
5,565,000 VLF, LLC, The Village of Lovejoy, Fountain Project,
(KeyBank, N.A. LOC), 5.040%, 2/4/1999 5,565,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
VARIABLE RATE OBLIGATIONS-continued 3
BANKING-CONTINUED
$ 2,990,000 Van Wyk Enterprises, Inc., (Huntington National Bank,
Columbus, OH LOC), 4.930%, 2/4/1999 $ 2,990,000
TOTAL 401,395,028
FINANCE - RETAIL-0.3%
8,800,000 2 Bishop's Gate Residential Mortgage Trust 1998-2, Class A-1,
5.747%, 2/10/1999 8,800,000
INSURANCE-6.4%
10,000,000 Allstate Life Insurance Co., 5.136%, 4/1/1999 10,000,000
22,000,000 Jackson National Life Insurance Co., 5.040%, 2/22/1999 22,000,000
15,400,000 Jackson National Life Insurance Co., 5.186%, 4/1/1999 15,400,000
25,972,307 Liquid Asset Backed Securities Trust, Series 1997-3, Senior
Notes, (Guaranteed by AMBAC), 5.254%, 3/28/1999 25,972,307
15,000,000 Peoples Security Life Insurance Company, 5.170%, 2/1/1999 15,000,000
20,000,000 Principal Life Insurance Company, 5.410%, 3/1/1999 20,000,000
10,000,000 Security Life of Denver Insurance Co., 5.028%, 4/30/1999 10,000,000
25,000,000 Security Life of Denver Insurance Co., 5.311%, 2/1/1999 25,000,000
25,000,000 Transamerica Life Insurance and Annuity Co., 5.136%, 4/1/1999 25,000,000
10,000,000 Transamerica Occidental Life Insurance Co., 5.525%, 3/6/1999 10,000,000
10,000,000 Travelers Insurance Company, 5.116%, 4/1/1999 10,000,000
TOTAL 188,372,307
TOTAL VARIABLE RATE OBLIGATIONS 598,567,335
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
TIME DEPOSIT-1.7%
BANKING-1.7%
$ 50,000,000 Royal Bank of Canada, Montreal, 4.813%, 2/1/1999 $ 50,000,000
REPURCHASE AGREEMENTS-11.2% 4
50,000,000 Bankers Trust Co., New York, 4.820%, dated 1/29/1999, due
2/1/1999 50,000,000
75,000,000 HSBC Securities, Inc., 4.820%, dated 1/29/1999, due 2/1/1999 75,000,000
100,000,000 Nationsbanc Montgomery Securities, Inc., 4.820%, dated
1/29/1999, due 2/1/1999 100,000,000
50,000,000 Paribas Corp., 4.820%, dated 1/29/1999, due 2/1/1999 50,000,000
24,600,000 Societe Generale Securities Corp., 4.730%, dated 1/29/1999,
due 2/1/1999 24,600,000
30,000,000 Toronto Dominion Securities (USA) Inc., 4.730%, dated
1/29/1999, due 2/1/1999 30,000,000
TOTAL REPURCHASE AGREEMENTS 329,600,000
TOTAL INVESTMENTS (AT AMORTIZED COST) 5 $ 2,946,959,534
</TABLE>
1 Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
2 Denotes a restricted security which is subject to restrictions on resale under
Federal Securities laws. At January 31, 1999, these securities amounted to
$97,630,718 which represents 3.3% of net assets.
3 Current rate and next reset date shown.
4 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.
5 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($2,950,309,702) at January 31, 1999.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation
EDA -Economic Development Authority
FGIC -Financial Guaranty Insurance Company
FSA -Financial Security Assurance
IDA -Industrial Development Authority
LOC -Letter of Credit
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
JANUARY 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 329,600,000
Investments in securities 2,617,359,534
Total investments in securities, at amortized cost and value $ 2,946,959,534
Income receivable 10,646,667
Receivable for shares sold 16,459
TOTAL ASSETS 2,957,622,660
LIABILITIES:
Payable for shares redeemed 20,424
Income distribution payable 6,902,729
Payable to Bank 119,011
Accrued expenses 270,794
TOTAL LIABILITIES 7,312,958
Net assets for 2,950,309,702 shares outstanding $ 2,950,309,702
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$1,825,266,173 / 1,825,266,173 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$894,850,895 / 894,850,895 shares outstanding $1.00
INSTITUTIONAL CAPITAL SHARES:
$230,192,634 / 230,192,634 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 128,409,170
EXPENSES:
Investment advisory fee $ 4,676,382
Administrative personnel and services fee 1,762,996
Custodian fees 151,496
Transfer and dividend disbursing agent fees and expenses 114,299
Directors'/Trustees' fees 15,781
Auditing fees 14,192
Legal fees 11,165
Portfolio accounting fees 232,807
Shareholder services fee-Institutional Shares 3,449,515
Shareholder services fee-Institutional Service Shares 1,803,553
Shareholder services fee-Institutional Capital Shares 592,410
Share registration costs 36,193
Printing and postage 21,921
Insurance premiums 166,534
Miscellaneous 9,204
TOTAL EXPENSES 13,058,448
WAIVERS:
Waiver of investment advisory fee $ (2,853,923)
Waiver of shareholder services fee-Institutional Shares (3,449,515)
Waiver of shareholder services fee-Institutional Capital
Shares (355,446)
TOTAL WAIVERS (6,658,884)
Net expenses 6,399,564
Net investment income $ 122,009,606
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 122,009,606 $ 94,064,903
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (73,059,518) (64,610,393)
Institutional Service Shares (36,684,622) (25,937,194)
Institutional Capital Shares (12,265,466) (3,517,316)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS
TO SHAREHOLDERS (122,009,606) (94,064,903)
SHARE TRANSACTIONS:
Proceeds from sale of shares 33,162,916,740 25,518,721,091
Net asset value of shares issued to shareholders in payment
of distributions declared 55,512,391 45,738,378
Cost of shares redeemed (32,428,562,553) (25,438,600,121)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 789,866,578 125,859,348
Change in net assets 789,866,578 125,859,348
NET ASSETS:
Beginning of period 2,160,443,124 2,034,583,776
End of period $ 2,950,309,702 $ 2,160,443,124
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
JANUARY 31, 1999
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 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 provision for federal taxes is
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 Act.
Additional information on each restricted security held at January 31, 1999 is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Beta Finance, Inc., 5.250%, 1/18/2000 1/15/1999 $25,024,301
Bishop's Gate Residential Mortgage Trust 1998-2, Class A-1,
5.747%, 2/10/1999 12/11/1998 8,800,000
Liquid Assets Backed Securities Trust, Series 1997-1,
5.000%, 2/16/1999 2/19/1997 63,807,540
</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, 1999, capital paid-in aggregated $2,950,309,702.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL SHARES:
Shares sold 23,532,773,371 18,791,341,606
Shares issued to shareholders in payment of distributions
declared 44,134,116 42,611,959
Shares redeemed (22,852,260,827) (19,306,246,896)
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS 724,646,660 (472,293,331)
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Shares sold 7,290,975,466 5,032,974,804
Shares issued to shareholders in payment of distributions
declared 5,275,668 580,621
Shares redeemed (7,070,064,987) (4,777,652,535)
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE SHARE
TRANSACTIONS 226,186,147 255,902,890
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL CAPITAL SHARES:
Shares sold 2,339,167,903 1,694,404,681
Shares issued to shareholders in payment of distributions
declared 6,102,607 2,545,798
Shares redeemed (2,506,236,739) (1,354,700,690)
NET CHANGE RESULTING FROM INSTITUTIONAL CAPITAL SHARE
TRANSACTIONS (160,966,229) 342,249,789
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 789,866,578 125,859,348
</TABLE>
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. Effective March 31, 1999, the Adviser will merge into
Federated Investment Management Company (formerly Federated Advisers). The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser can
modify or terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Report of Ernst & Young LLP, Independent Auditors
TO THE SHAREHOLDERS AND TRUSTEES OF
PRIME CASH OBLIGATIONS FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prime Cash Obligations Fund, a portfolio of
Money Market Obligations Trust II, as of January 31, 1999, 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 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, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Prime
Cash Obligations Fund at January 31, 1999, 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 the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
[Graphic]
Boston, Massachusetts
March 15, 1999
Prime Cash Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL SERVICE SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's semi-annual report to shareholders
as it becomes available. To obtain the SAI, semi-annual report and other
information without charge, call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
[Graphic]
Prime Cash Obligations Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-7364
Cusip 608912804
G01881-04-SS (3/99)
PROSPECTUS
Prime Cash Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL CAPITAL SHARES
A money market mutual fund seeking to achieve current income consistent with
stability of principal and liquidity.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
March 31, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities
in Which the Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 4 What Do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 5
How to Redeem Shares 7
Account and Share Information 8
Who Manages the Fund? 9
Financial Information 10
Report of Ernst & Young LLP, Independent Auditors 26
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is current income consistent with
stability of principal and liquidity. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
This investment objective may be changed by the Fund's Trustees without
shareholder approval.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high quality fixed income securities maturing
in 13 months or less. The average maturity of the Fund's portfolio will be 90
days or less.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money by investing in the Fund.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Capital Shares as of the calendar year-end
for each of the last four years. The `y' axis reflects the "% Total Return"
beginning with "0" and increasing in increments of 2% up to 10%. The `x' axis
represents calculation periods from the earliest calendar year end of the Fund's
start of business through the calendar year ended December 31, 1998. The light
gray shaded chart features four distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for the
calendar year stated directly at its base. The calculated total return
percentage for the Institutional Capital Shares for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1995 through
1998. The percentages noted are: 5.93%, 5.26%, 5.45% and 5.43%, respectively.
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional Capital
Shares total returns on a yearly basis.
The Fund's Institutional Capital Shares are not sold subject to a sales charge
(load). The total returns displayed above are based upon the net asset value.
Within the period shown in the Chart, the Fund's Institutional Capital Shares
highest quarterly return was 1.49% (quarter ended June 30, 1995). Its lowest
quarterly return was 1.27% (quarter ended March 31, 1997).
AVERAGE ANNUAL TOTAL RETURN
The following table represents the Fund's Institutional Capital Shares average
annual total returns through December 31, 1998.
CALENDAR PERIOD FUND
1 Year 5.43%
Start of Performance 1 5.49%
1 The Fund's Institutional Capital Shares start of performance date was October
6, 1994.
Investors may call the Fund at 1-800-341-7400 to acquire the current 7-Day Net
Yield.
The Fund's Institutional Capital Shares 7-Day Net Yield as of 12/31/98 was
4.98%.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are the Fund's Fees and Expenses?
PRIME CASH OBLIGATIONS FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Capital Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From Your Investment Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) None Maximum Deferred Sales Charge
(Load) (as a percentage of original purchase price or redemption proceeds, as
applicable) None Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price) None Redemption
Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1 Expenses That are Deducted
From Fund Assets (as a percentage of average net assets) Management Fee 2 0.20%
Distribution (12b-1) Fee None Shareholder Services Fee 3 0.25% Other Expenses
0.12% Total Annual Fund Operating Expenses 0.57%
1 Although not contractually obligated to do so, the adviser and shareholder
services provider waived certain amounts. These are described below along with
the net expenses the Fund's Institutional Shares actually paid for the fiscal
year ended January 31, 1999. Waiver of Fund Expenses 0.27% Total Actual Annual
Fund Operating Expenses (after waivers) 0.30%
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund's Institutional Capital Shares (after the voluntary waiver) was 0.08% for
the year ended January 31, 1999.
3 The shareholder services fee has been voluntarily reduced. This voluntary
reduction can be terminated at any time. The shareholder services fee paid by
the Fund's Institutional Capital Shares (after the voluntary reduction) was
0.10% for the year ended January 31, 1999. </TABLE> EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Institutional Capital Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Capital
Shares for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's Institutional Capital Shares operating
expenses are BEFORE WAIVERS as shown in the table and remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
1 Year $ 58
3 Years $ 183
5 Years $ 318
10 Years $ 714
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high quality fixed income securities maturing
in 13 months or less. The average maturity of the Fund's portfolio will be 90
days or less.
In order to select individual investments, the Fund's investment adviser
(Adviser) performs a fundamental credit analysis to develop an approved list of
issuers and securities that meet the Adviser's minimum credit standards. The
Adviser assesses likely movements in interest rates based upon general economic
and market conditions. Considering this assessment, the Adviser targets an
average portfolio maturity range. The Adviser generally shortens the portfolio's
average maturity when it expects interest rates to rise and extends the maturity
when it expects interest rates to fall. In adjusting the portfolio's average
maturity, the Adviser selects among investments with different maturities
comparing their relative returns.
What are the Principal Securities in Which the Fund Invests?
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must also repay
the principal amount of the security, normally within a specified time. The
following describes the types of fixed income securities in which the Fund
invests:
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures, and commercial paper are the most prevalent types of
corporate debt securities.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of nine months or
less. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must repay upon
demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances.
ASSET BACKED SECURITIES
Asset backed securities are payable from pools of debt obligations. Most asset
backed securities involve consumer or commercial debts with maturities of less
than 10 years. However, almost any type of fixed income assets (including other
fixed income securities) may be used to create an asset backed security. Asset
backed securities may take the form of commercial paper, notes, or pass through
certificates.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser usually evaluates the credit risk of a fixed income
security based soley upon its credit enhancement.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction.
INVESTMENT RATINGS
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 or are of comparable quality to securities
having such ratings.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund, the
principal risks of investing in a corporate money market fund are described
below.
BOND MARKET RISKS
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money. Money market funds try to minimize this risk by purchasing
higher quality securities.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the Adviser's credit assessment.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities issued
or credit enhanced by companies in similar businesses or with similar
characteristics. As a result, the Fund will be more susceptible to any economic,
business, political, or other developments which generally affect these issuers.
What Do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined net asset value (NAV). The Fund does not charge
a front-end sales charge. NAV is determined at 12:00 noon and 3:00 p.m. (Eastern
time) and as of the end of regular trading (normally 4:00 p.m. Eastern time)
each day the NYSE is open.
The required minimum initial investment for Fund Shares is $1,000,000. There is
no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $1,000,000 minimum
is reached within one year of opening the account. An institutional investor's
minimum investment is calculated by combining all accounts it maintains with the
Fund. Accounts established through investment professionals may be subject to a
smaller minimum investment amount. Keep in mind that investment professionals
may charge you fees for their services in connection with your Share
transactions.
How is the Fund Sold?
The Fund offers three share classes: Institutional Shares, Institutional Service
Shares and Institutional Capital Shares, each representing interests in a single
portfolio of securities. This prospectus relates only to Institutional Capital
Shares. Each share class has different expenses which affect their performance.
Contact your investment professional or call 1-800-341-7400 for more information
concerning the other classes.
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity.
The Distributor and its affiliates may pay out of their assets other
amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of Federated
Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 3:00 p.m.
(Eastern time). You will receive that day's dividend if the investment
professional forwards the order to the Fund and the Fund receives payment by
3:00 p.m. (Eastern time). You will become the owner of Shares and receive
dividends when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New Account
Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares after the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company 1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY INVEST-BY-PHONE
Once you establish an account, you may use the Fund's Invest-By-Phone privilege
for future Share purchases if you have an account with a bank that is an
Automated Clearing House member. To apply, call the Fund for an authorization
form. You may use Invest-By-Phone to purchase Shares approximately two weeks
from the date you file the form with Federated Shareholder Services Company.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). Investment
professionals are responsible for promptly submitting redemption requests and
providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 3:00 p.m. (Eastern time), your redemption will be wired to
you the same day. You will not receive that day's dividend.
If you call after 3:00 p.m. (Eastern time), your redemption will be wired to you
the following business day. You will receive that day's dividend.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the day
that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company 1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of record;
* your redemption will be sent to an address of record that was changed within
the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is an
ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
ACCOUNT ACTIVITY
You will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
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 pays any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily dividends. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal, state,
and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.20% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.
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 1999 1998 1997 1996 1 1995 2
<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 0.05 0.06 0.02
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.05) (0.05) (0.05) (0.06) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 3 5.37% 5.48% 5.23% 5.94% 1.66%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.30% 0.30% 0.32% 0.32% 0.27% 5
Net investment income 5.18% 5.46% 5.00% 5.75% 4.15% 5 Expense
waiver/reimbursement 4 0.27% 0.26% 0.18% 0.08% 0.12% 5 SUPPLEMENTAL DATA: Net
assets, end of period (000 omitted) $230,193 $391,159 $48,910 $11,811 $8,318
</TABLE>
1 Federated Management became the Fund's investment adviser on November 15,
1996. Prior to November 15, 1996, Lehman Brothers Global Asset Management served
as the Fund's investment adviser.
2 Reflects operations for the period from October 6, 1994 (date of initial
public investment) to January 31, 1995.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
5 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Portfolio of Investments
JANUARY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM NOTES-6.7%
BANKING-1.7%
$ 25,000,000 Abbey National Treasury Services, PLC, 4.990%, 1/10/2000 $
24,993,202 19,000,000 SALTS III Cayman Island Corp., (Guaranteed by Bankers
Trust International, PLC), 5.589%, 3/12/1999 19,000,000 5,000,000 SALTS III
Cayman Island Corp., (Guaranteed by Bankers Trust
International, PLC), 5.270%, 4/23/1999 5,000,000
TOTAL 48,993,202
BROKERAGE-2.5%
75,000,000 Goldman Sachs Group, LP, 5.020%, 3/1/1999 75,000,000
FINANCE - AUTOMOTIVE-0.9%
1,309,820 Chase Manhattan Auto Owner Trust 1998-C, Class A-1, 5.588%,
7/9/1999 1,309,757
774,811 Compass Auto Receivables Trust 1998-A, Class A-1, 5.659%,
7/15/1999 774,811
11,500,000 Honda Auto Receivables 1999-1 Owner Trust, Class A-1,
4.974%, 2/15/2000 11,500,000
11,521,783 Premier Auto Trust 1998-5, Class A-1, 5.140%, 7/8/1999
11,519,585 TOTAL 25,104,153
FINANCE - COMMERCIAL-0.8%
25,000,000 2 Beta Finance, Inc., 5.250%, 1/18/2000 25,023,178
FINANCE - EQUIPMENT-0.5%
14,226,091 Newcourt Equipment Trust Securities 1998-2, Class A-1,
5.195%, 1/15/2000 14,226,091
INSURANCE-0.3%
8,284,212 Americredit Automobile Receivables Trust 1998-D, Class A-1,
(Guaranteed by FSA), 5.199%, 11/12/1999 8,284,212
TOTAL SHORT-TERM NOTES 196,630,836
CERTIFICATES OF DEPOSIT-7.7%
BANKING-7.7%
10,500,000 Bankers Trust Co., New York, 5.690% - 5.710%, 2/26/1999 -
4/30/1999 10,500,685
75,000,000 Barclays Bank of Canada, (Guaranteed by Barclays Bank
PLC,
London),
5.016% - 5.020%, 1/10/2000 - 1/13/2000 74,975,017
54,000,000 KeyBank, N.A., 5.080%, 4/9/1999 54,000,000 10,000,000 Royal Bank of
Canada, Montreal, 5.020%, 1/24/2000 9,996,234 58,000,000 Societe Generale,
Paris, 5.720% - 5.835%, 3/2/1999 - 4/27/1999 57,996,018 20,000,000
Toronto-Dominion Bank, 4.930%, 7/14/1999 20,056,494 TOTAL CERTIFICATES OF
DEPOSIT 227,524,448 <CAPTION> PRINCIPAL AMOUNT VALUE <C> <S> <C>
COMMERCIAL PAPER-50.2% 1
BANKING-15.5%
$ 50,000,000 Abbey National N.A. Corp., (Guaranteed by Abbey
National
Bank PLC, London), 5.003%, 5/4/1999 $ 49,376,445
45,000,000 Canadian Imperial Holdings, Inc., (Guaranteed by Canadian
Imperial Bank of Commerce), 4.962% - 5.079%, 2/22/1999 -
4/1/1999 44,668,772
70,000,000 Cregem North America, Inc., (Guaranteed by Credit
Communal
de Belgique, Brussles), 4.943% - 5.635%, 2/3/1999 -
2/23/1999 69,898,722
42,841,000 Fountain Square Commercial Funding Corp., (Fifth Third
Bank,
Cincinnati Support Agreement), 5.021% - 5.626%, 2/1/1999 -
4/27/1999 42,758,539
12,000,000 Societe Generale North America, Inc., (Guaranteed by
Societe
Generale, Paris), 5.122%, 4/5/1999 11,895,210
25,000,000 SunTrust Banks, Inc., 5.276%, 3/5/1999 24,884,000 85,000,000 UBS
Finance (Delaware), Inc., (UBS AG LOC), 4.953% - 5.035%, 3/29/1999 - 4/16/1999
84,227,194 29,000,000 Westpac Banking Corp. Ltd., Sydney, 5.129%, 4/1/1999
28,762,361 90,000,000 Westpac Capital Corp., (Guaranteed by Westpac Banking
Corp. Ltd., Sydney), 5.029% - 5.032%, 4/12/1999 - 5/14/1999 88,965,683
10,000,000 Wood Street Funding Corp., (PNC Bank, N.A. Support
Agreement), 4.889%, 2/19/1999 9,975,650
TOTAL 455,412,576
BROKERAGE-0.8%
25,000,000 Credit Suisse First Boston, Inc., 4.892%, 4/19/1999
24,741,729 FINANCE - AUTOMOTIVE-0.3%
10,000,000 Chrysler Financial Co. L.L.C., 4.940%, 4/12/1999
9,905,111 FINANCE - COMMERCIAL-16.6%
103,000,000 Beta Finance, Inc., 5.106% - 5.444%, 3/8/1999 - 5/28/1999
101,862,687 25,000,000 Corporate Asset Funding Co., Inc. (CAFCO), (Guaranteed by
FGIC), 4.888%, 4/12/1999 24,765,208 90,000,000 General Electric Capital Corp.,
5.037% - 5.650%, 2/4/1999 - 3/17/1999 89,738,197 101,100,000 PREFCO-Preferred
Receivables Funding Co., (Guaranteed by AMBAC), 5.164% - 5.405%, 2/9/1999 -
3/8/1999 100,688,588 25,000,000 Receivables Capital Corp., 5.340% - 5.468%,
2/4/1999 - 2/12/1999 24,971,254 149,000,000 Sheffield Receivables Corp., 4.891%
- - 5.499%, 2/5/1999 -
3/12/1999 148,586,203
TOTAL 490,612,137
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COMMERCIAL PAPER-continued 1
FINANCE - RETAIL-12.7%
$ 95,000,000 American Express Credit Corp., 4.888% - 5.023%,
4/12/1999 -
4/13/1999 $ 94,095,007
12,000,000 Associates Corp. of North America, 5.401%, 3/9/1999 11,936,880
82,500,000 Associates First Capital B.V., (Guaranteed by Associates First
Capital Corp.), 4.888% - 4.920%, 4/8/1999 - 5/18/1999 81,601,033 63,000,000
Associates First Capital Corp., 5.073% - 5.094%, 5/27/1999 - 5/28/1999
61,997,211 50,000,000 Household Finance Corp., 4.852%, 2/1/1999 50,000,000
75,000,000 Norwest Financial, Inc., 4.888%, 4/13/1999 74,285,563
TOTAL 373,915,694
INSURANCE-3.5%
25,000,000 CXC, Inc., 4.906%, 4/9/1999 24,774,340 80,000,000 Marsh & McLennan
Cos., Inc., 5.112% - 5.128%, 5/4/1999 -
5/5/1999 78,968,439
TOTAL 103,742,779
MACHINERY, EQUIPMENT, AUTO-0.8%
25,000,000 Eaton Corp., 5.026% - 5.151%, 5/14/1999 24,645,833 TOTAL
COMMERCIAL PAPER 1,482,975,859
LOAN PARTICIPATION-2.1%
ELECTRICAL EQUIPMENT-0.6%
16,700,000 Mt. Vernon Phenol Plant Partnership, (Guaranteed by
General
Electric Co.), 5.370%, 5/17/1999 16,700,000
FINANCE - AUTOMOTIVE-0.5%
14,000,000 General Motors Acceptance Corp., Mortgage of PA,
(Guaranteed
by General Motors Acceptance Corp.), 5.120%, 2/1/1999 14,000,000
FINANCE - EQUIPMENT-1.0%
31,000,000 Pitney Bowes Credit Corp., 5.046%, 2/10/1999 30,961,056
TOTAL LOAN PARTICIPATION 61,661,056
VARIABLE RATE OBLIGATIONS-20.3% 3
BANKING-13.6%
2,000,000 Albuquerque, NM, Series 1997, El Canto, Inc., (Norwest Bank
Minnesota, N.A. LOC), 5.220%, 2/4/1999 2,000,000
10,000,000 Bankers Trust Co., New York, 4.880%, 6/4/1999 9,997,698 20,000,000
Barclays Bank PLC, London, 5.120%, 2/17/1999 20,000,000
1,925,000 Beech Grove, IN, Series 1997, Poster Display Co, (Bank One,
Indiana, N.A. LOC), 4.910%, 2/4/1999 1,925,000
2,095,000 C. W. Caldwell, Inc, Sweetbriar Assisted Living Facility,
Project, (Huntington National Bank, Columbus, OH LOC),
4.910%, 2/4/1999 2,095,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
VARIABLE RATE OBLIGATIONS-continued 3
BANKING-CONTINUED
$ 7,100,000 Capital One Funding Corp., Series 1993-A, (Bank One,
Ohio,
N.A. LOC), 4.910%, 2/4/1999 $ 7,100,000
21,700,000 Capital One Funding Corp., Series 1999-A, (Bank One,
Kentucky LOC), 4.910%, 2/4/1999 21,700,000
2,895,000 Casna Limited Partnership, Series 1997, (Huntington National
Bank, Columbus, OH LOC), 4.910%, 2/4/1999 2,895,000
8,580,000 Cedarville College, Series 1998, (KeyBank, N.A. LOC),
4.910%, 2/4/1999 8,580,000
4,535,000 Chartiers Valley Industrial & Commercial Development
Authority, Woodhaven Convalescent Center, Series 1997-B,
(Bank One, Ohio, N.A. LOC), 4.910%, 2/4/1999 4,535,000
1,470,000 Children's Defense Fund, (First National Bank of Maryland,
Baltimore LOC), 5.100%, 2/2/1999 1,470,000
6,000,000 Colonie, NY IDA, Mechanical Technology, Inc. Project, Series
1998 A, (KeyBank, N.A. LOC), 5.050%, 2/4/1999 6,000,000
10,600,000 Cuyahoga County, OH, Gateway Arena Project, Series
1992-B,
(Canadian Imperial Bank of Commerce LOC), 4.910%, 2/4/1999
10,600,000
3,350,000 Cuyahoga County, OH, Series 1998, Watt Printers Project,
(Bank One, Ohio, N.A. LOC), 4.910%, 2/4/1999 3,350,000
8,650,000 Elsinore Properties, L.P., Series 1998, (Fifth Third Bank,
Cincinnati LOC), 4.975%, 2/4/1999 8,650,000
25,000,000 First Union National Bank, Charlotte, NC, 4.860%, 2/1/1999 25,000,000
1,100,000 Flowform, Inc., (Huntington National Bank, Columbus, OH
LOC), 4.910%, 2/4/1999 1,100,000
6,780,000 Franklin County, OH, Edison Welding, Series 1995,
(Huntington National Bank, Columbus, OH LOC), 4.910%,
2/4/1999 6,780,000
12,135,000 Georgetown, KY Educational Institution, Series 1997-A,
(Bank
One, Kentucky LOC), 4.910%, 2/4/1999 12,135,000
1,410,000 Gerald T. Thom, Trustee U.A.D., March 27, 1997, (Huntington
National Bank, Columbus, OH LOC), 4.910%, 2/4/1999 1,410,000
1,600,000 Gettysburg Area Industrial Development Authority, Hanover
Lantern, Inc. Project, Series 1998-B, (First National Bank
of Maryland, Baltimore LOC), 5.000%, 2/3/1999 1,600,000
11,400,000 Healthcare Network Properties, LLC, Series A, (National
City
Bank, Michigan/Illinois LOC), 4.890%, 2/4/1999 11,400,000
11,550,000 Heritage at the Falls Assisted Living, Ltd., Series 1997,
(BankBoston, N.A. LOC), 5.020%, 2/4/1999 11,550,000
9,400,000 IT Spring Wire, LLC, Series 1997, (Fifth Third Bank,
Cincinnati LOC), 4.920%, 2/4/1999 9,400,000
4,361,000 International Processing Corp., (Bank One, Kentucky LOC),
4.960%, 2/4/1999 4,361,000
2,000,000 Kit Carson County, CO, Midwest Farms Project, (Norwest Bank
Minnesota, N.A. LOC), 5.350%, 2/3/1999 2,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
VARIABLE RATE OBLIGATIONS-continued 3
BANKING-CONTINUED
$ 6,000,000 Laverne City, IDA, Mobile Tool Intl., Inc. Project,
Series
1998-B, (Fleet Bank N.A. LOC), 5.130%, 2/4/1999 $ 6,000,000
63,807,540 2 Liquid Asset Backed Securities Trust, Series 1997-1,
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.000%, 2/16/1999 63,807,540
30,065,000 M/S Land, LLC, (Bank One, Illinois, N.A. LOC), 4.960%,
2/4/1999 30,065,000
5,900,000 MMR Funding I, Series A, (Bayerische Hypotheken-und
Vereinsbank AG LOC), 4.910%, 2/4/1999 5,900,000
4,890,000 Medilodge Group, Meadowbrook Project, (KeyBank, N.A. LOC),
4.960%, 2/4/1999 4,890,000
5,000,000 Medina County, OH, Three D Metals, Inc. Project, Series
1998, (Bank One, Ohio, N.A. LOC), 4.910%, 2/4/1999 5,000,000
10,000,000 Mississippi Business Finance Corp., Kohler Project,
(Wachovia Bank of NC, N.A., Winston-Salem LOC), 5.050%,
2/4/1999 10,000,000
3,100,000 New Berlin, WI, Sunraider LLC, Series 1997B, (Bank One,
Wisconsin, N.A. LOC), 4.910%, 2/4/1999 3,100,000
4,400,000 New Jersey EDA, Morey Organization, Inc. Project, Series
1997, (First Union National Bank, Charlotte, NC LOC),
5.000%, 2/3/1999 4,400,000
2,565,000 New Jersey EDA, Pheonix Realty Partners, (First Union
National Bank, Charlotte, NC LOC), 5.000%, 2/3/1999 2,565,000
3,365,000 Oakwoods Master Ltd. Partnership, Series 1997, (Amsouth Bank
N.A., Birmingham LOC), 4.970%, 2/4/1999 3,365,000
4,600,000 Primex Funding Corp., Series 1997-A, (Bank One, Indiana,
N.A. LOC), 4.910%, 2/4/1999 4,600,000
4,076,373 Rabobank Optional Redemption Trust, Series 1997-101, 5.005%,
4/20/1999 4,076,373
10,000,000 Royal Wine Corp. and KFP International Ltd., Series 1998,
(KeyBank, N.A. LOC), 4.910%, 2/4/1999 10,000,000
22,000,000 Societe Generale, Paris, 4.883%, 8/11/1999 21,992,417 3,975,000 Solon
Properties, LLC, (Huntington National Bank, Columbus,
OH LOC), 4.910%, 2/4/1999 3,975,000
2,215,000 Spitzer Group, Series 1998-C, (Bank One, Ohio, N.A. LOC), 4.910%,
2/4/1999 2,215,000 1,155,000 TDB Realty, Ltd., (Huntington National Bank,
Columbus, OH LOC), 4.910%, 2/4/1999 1,155,000 2,485,000 Tallahassee-Leon County
Civic Center Authority, Series 1998- C, (SunTrust Bank, Central Florida LOC),
4.950%, 2/3/1999 2,485,000 3,360,000 Team Rahal of Pittsburgh, Inc., Series
1997, (Huntington National Bank, Columbus, OH LOC), 4.910%, 2/4/1999 3,360,000
2,255,000 Trap Rock Industries, Inc., Series 1997, (First Union National Bank,
Charlotte, NC LOC), 5.000%, 2/3/1999 2,255,000 5,565,000 VLF, LLC, The Village
of Lovejoy, Fountain Project, (KeyBank, N.A. LOC), 5.040%, 2/4/1999 5,565,000
<CAPTION> PRINCIPAL AMOUNT VALUE <C> <S> <C>
VARIABLE RATE OBLIGATIONS-continued 3
BANKING-CONTINUED
$ 2,990,000 Van Wyk Enterprises, Inc., (Huntington National Bank,
Columbus, OH LOC), 4.930%, 2/4/1999 $ 2,990,000
TOTAL 401,395,028
FINANCE - RETAIL-0.3%
8,800,000 2 Bishop's Gate Residential Mortgage Trust 1998-2, Class A-1,
5.747%, 2/10/1999 8,800,000 INSURANCE-6.4%
10,000,000 Allstate Life Insurance Co., 5.136%, 4/1/1999 10,000,000 22,000,000
Jackson National Life Insurance Co., 5.040%, 2/22/1999 22,000,000 15,400,000
Jackson National Life Insurance Co., 5.186%, 4/1/1999 15,400,000 25,972,307
Liquid Asset Backed Securities Trust, Series 1997-3, Senior Notes, (Guaranteed
by AMBAC), 5.254%, 3/28/1999 25,972,307 15,000,000 Peoples Security Life
Insurance Company, 5.170%, 2/1/1999 15,000,000 20,000,000 Principal Life
Insurance Company, 5.410%, 3/1/1999 20,000,000 10,000,000 Security Life of
Denver Insurance Co., 5.028%, 4/30/1999 10,000,000 25,000,000 Security Life of
Denver Insurance Co., 5.311%, 2/1/1999 25,000,000 25,000,000 Transamerica Life
Insurance and Annuity Co., 5.136%, 4/1/1999 25,000,000 10,000,000 Transamerica
Occidental Life Insurance Co., 5.525%, 3/6/1999 10,000,000 10,000,000 Travelers
Insurance Company, 5.116%, 4/1/1999 10,000,000
TOTAL 188,372,307
TOTAL VARIABLE RATE OBLIGATIONS 598,567,335
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
TIME DEPOSIT-1.7%
BANKING-1.7%
$ 50,000,000 Royal Bank of Canada, Montreal, 4.813%, 2/1/1999 $
50,000,000 REPURCHASE AGREEMENTS-11.2% 4
50,000,000 Bankers Trust Co., New York, 4.820%, dated 1/29/1999, due
2/1/1999 50,000,000
75,000,000 HSBC Securities, Inc., 4.820%, dated 1/29/1999, due 2/1/1999
75,000,000 100,000,000 Nationsbanc Montgomery Securities, Inc., 4.820%, dated
1/29/1999, due 2/1/1999 100,000,000
50,000,000 Paribas Corp., 4.820%, dated 1/29/1999, due 2/1/1999 50,000,000
24,600,000 Societe Generale Securities Corp., 4.730%, dated 1/29/1999, due
2/1/1999 24,600,000 30,000,000 Toronto Dominion Securities (USA) Inc., 4.730%,
dated
1/29/1999, due 2/1/1999 30,000,000
TOTAL REPURCHASE AGREEMENTS 329,600,000
TOTAL INVESTMENTS (AT AMORTIZED COST) 5 $ 2,946,959,534
</TABLE>
1 Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
2 Denotes a restricted security which is subject to restrictions on resale under
Federal Securities laws. At January 31, 1999, these securities amounted to
$97,630,718 which represents 3.3% of net assets.
3 Current rate and next reset date shown.
4 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.
5 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($2,950,309,702) at January 31, 1999.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation EDA -Economic Development
Authority FGIC -Financial Guaranty Insurance Company FSA -Financial Security
Assurance IDA -Industrial Development Authority LOC -Letter of Credit
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
JANUARY 31, 1999
<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 329,600,000
Investments in securities 2,617,359,534
Total investments in securities, at amortized cost and value $ 2,946,959,534
Income receivable 10,646,667 Receivable for shares sold 16,459 TOTAL ASSETS
2,957,622,660 LIABILITIES: Payable for shares redeemed 20,424 Income
distribution payable 6,902,729 Payable to Bank 119,011 Accrued expenses 270,794
TOTAL LIABILITIES 7,312,958 Net assets for 2,950,309,702 shares outstanding $
2,950,309,702 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES: $1,825,266,173 / 1,825,266,173 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES: $894,850,895 / 894,850,895 shares outstanding
$1.00 INSTITUTIONAL CAPITAL SHARES: $230,192,634 / 230,192,634 shares
outstanding $1.00 </TABLE> See Notes which are an integral part of the
Financial Statements
Statement of Operations
YEAR ENDED JANUARY 31, 1999
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 128,409,170 EXPENSES:
Investment advisory fee $ 4,676,382 Administrative personnel and services fee
1,762,996 Custodian fees 151,496 Transfer and dividend disbursing agent fees and
expenses 114,299 Directors'/Trustees' fees 15,781 Auditing fees 14,192 Legal
fees 11,165 Portfolio accounting fees 232,807 Shareholder services
fee-Institutional Shares 3,449,515 Shareholder services fee-Institutional
Service Shares 1,803,553 Shareholder services fee-Institutional Capital Shares
592,410 Share registration costs 36,193 Printing and postage 21,921 Insurance
premiums 166,534 Miscellaneous 9,204 TOTAL EXPENSES 13,058,448 WAIVERS: Waiver
of investment advisory fee $ (2,853,923) Waiver of shareholder services
fee-Institutional Shares (3,449,515) Waiver of shareholder services
fee-Institutional Capital Shares (355,446) TOTAL WAIVERS (6,658,884) Net
expenses 6,399,564 Net investment income $ 122,009,606 </TABLE> See Notes
which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 122,009,606 $ 94,064,903 DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income Institutional Shares (73,059,518)
(64,610,393) Institutional Service Shares (36,684,622) (25,937,194)
Institutional Capital Shares (12,265,466) (3,517,316) CHANGE IN NET ASSETS
RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (122,009,606) (94,064,903) SHARE
TRANSACTIONS: Proceeds from sale of shares 33,162,916,740 25,518,721,091 Net
asset value of shares issued to shareholders in payment of distributions
declared 55,512,391 45,738,378 Cost of shares redeemed (32,428,562,553)
(25,438,600,121) CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS
789,866,578 125,859,348 Change in net assets 789,866,578 125,859,348 NET ASSETS:
Beginning of period 2,160,443,124 2,034,583,776 End of period $ 2,950,309,702 $
2,160,443,124 </TABLE> See Notes which are an integral part of the
Financial Statements
Notes to Financial Statements
JANUARY 31, 1999
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 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 provision for federal taxes is
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 Act.
Additional information on each restricted security held at January 31, 1999, is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Beta Finance, Inc., 5.250%, 1/18/2000 1/15/1999 $25,024,301
Bishop's Gate Residential Mortgage Trust 1998-2, Class A-1,
5.747%, 2/10/1999 12/11/1998 8,800,000 Liquid Assets Backed Securities Trust,
Series 1997-1, 5.000%, 2/16/1999 2/19/1997 63,807,540
</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, 1999, capital paid-in aggregated $2,950,309,702.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL SHARES:
Shares sold 23,532,773,371 18,791,341,606
Shares issued to shareholders in payment
of distributions declared 44,134,116 42,611,959
Shares redeemed (22,852,260,827) (19,306,246,896)
NET CHANGE RESULTING FROM
INSTITUTIONAL SHARE TRANSACTIONS 724,646,660 (472,293,331)
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Shares sold 7,290,975,466 5,032,974,804
Shares issued to shareholders in payment
of distributions declared 5,275,668 580,621
Shares redeemed (7,070,064,987) (4,777,652,535)
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE
SHARE TRANSACTIONS 226,186,147 255,902,890
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL CAPITAL SHARES:
Shares sold 2,339,167,903 1,694,404,681
Shares issued to shareholders in payment
of distributions declared 6,102,607 2,545,798
Shares redeemed (2,506,236,739) (1,354,700,690)
NET CHANGE RESULTING FROM
INSTITUTIONAL CAPITAL SHARE TRANSACTIONS (160,966,229) 342,249,789
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 789,866,578 125,859,348
</TABLE>
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. Effective March 31, 1999, the Adviser will merge into
Federated Investment Management Company (formerly Federated Advisers). The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser can
modify or terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Report of Ernst & Young LLP, Independent Auditors
TO THE SHAREHOLDERS AND TRUSTEES OF PRIME CASH OBLIGATIONS FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prime Cash Obligations Fund, a portfolio of
Money Market Obligations Trust II, as of January 31, 1999, 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 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, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Prime
Cash Obligations Fund at January 31, 1999, 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 the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
[Graphic]
Boston, Massachusetts March 15, 1999
PROSPECTUS
[Graphic]
Prime Cash Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL CAPITAL SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's semi-annual reports to
shareholders as they become available. To obtain the SAI, semi-annual report and
other information without charge, call your investment professional or the Fund
at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
[Graphic]
Prime Cash Obligations Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-7364 Cusip 608912887
G01881-08 (3/99)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Prime Cash Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
INSTITUTIONAL CAPITAL SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Institutional Shares, Institutional
Service Shares and Institutional Capital Shares of Prime Cash Obligations Fund
(Fund), dated March 31, 1999. Obtain the prospectuses without charge by calling
1-800-341-7400.
MARCH 31, 1999
[Graphic]
Prime Cash Obligations Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
G01881-11 (3/99)
CONTENTS
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
What Do Shares Cost? 5
How is the Fund Sold? 5
Subaccounting Services 5
Redemption in Kind 5
Massachusetts Partnership Law 6
Account and Share Information 6
Tax Information 6
Who Manages and Provides Services to the Fund? 7
How Does the Fund Measure Performance? 10
Who is Federated Investors, Inc.? 12
Addresses 13
How is the Fund Organized?
The Fund is a diversified portfolio of Money Market Obligations Trust II
(Trust). The Trust is an open-end, management investment company that was
established under the laws of the Commonwealth of Massachusetts on November 16,
1992. The Trust may offer separate series of shares representing interests in
separate portfolios of securities. On November 15, 1996, the Trust changed its
name from Lehman Brothers Institutional Funds Group Trust to Money Market
Obligations Trust II and the Fund changed its name from Prime Money Market Fund
to Prime Cash Obligations Fund.
The Board of Trustees (the Board) has established three classes of shares of the
Fund, known as Institutional Shares, Institutional Service Shares and
Institutional Capital Shares (Shares). This SAI relates to all classes of the
above-mentioned Shares. The Fund's investment adviser is Federated Investment
Management Company (Adviser). Effective March 31, 1999, Federated Management,
Adviser to the Fund, merged into Federated Investment Management Company
(formerly, Federated Advisers).
Securities in Which the Fund Invests
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher credit risks
generally have higher yields.
The following describes the types of fixed income securities in which the Fund
invests:
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government-sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the market and prepayment risks of these mortgage backed securities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers.
In addition, the credit risk of an issuer's debt security may vary based on its
priority for repayment. For example, higher ranking (senior) debt securities
have a higher priority than lower ranking (subordinated) securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event of
bankruptcy, holders of senior securities may receive amounts otherwise payable
to the holders of subordinated securities. Some subordinated securities, such as
trust preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer any
payment that would reduce its capital below regulatory requirements.
MUNICIPAL SECURITIES
Municipal securities are issued by states, counties, cities and other political
subdivisions and authorities. Although many municipal securities are exempt from
federal income tax, the Fund intends to invest in taxable municipal securities.
MORTGAGE BACKED SECURITIES
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and pre-payments from the underlying mortgages.
As a result, the holders assume all the prepayment risks of the underlying
mortgages.
ASSET BACKED SECURITIES
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than 10 years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities have prepayment
risks.
ZERO COUPON SECURITIES
Zero Coupon Securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the market and credit risks of a zero coupon security.
There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs are
the most common forms of stripped zero coupon securities. In addition, some
securities give the issuer the option to deliver additional securities in place
of cash interest payments, thereby increasing the amount payable at maturity.
These are referred to as pay-in- kind or PIK securities.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of nine months or
less. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default. The short
maturity of commercial paper reduces both the market and credit risks as
compared to other debt securities of the same issuer.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit
and banker's acceptances. Yankee instruments are denominated in
U.S. dollars and issued by U.S. branches of foreign banks. Eurodollar
instruments are denominated in U.S. dollars and issued by non-
U.S. branches of U.S. or foreign banks.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must repay upon
demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year.
INSURANCE CONTRACTS
Insurance contracts include guaranteed investment contracts, funding agreements
and annuities. The Fund treats these contracts as fixed income securities.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing the credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser usually evaluates the credit risk of a fixed income
security based solely upon its credit enhancement.
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to security's
holders. Either form of credit enhancement reduces credit risk by providing
another source of payment for a fixed income security.
FOREIGN SECURITIES
Foreign Securities are securities of issuers based outside the United States. In
addition to the risks normally associated with United States securities of the
same type, foreign securities are subject to country risk and currency risk.
SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS
Repurchase Agreements are transactions in which a Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements with
banks and other recognized financial institutions, such as securities dealers,
which are deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian is required to take possession of the
securities subject to repurchase agreements. The Adviser or subcustodian will
monitor the value of the underlying security each day to ensure that the value
of the security always equals or exceeds the repurchase price.
Repurchase Agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse Repurchase Agreements are repurchase agreements in which a Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
DELAYED DELIVERY TRANSACTIONS
Delayed Delivery Transactions, including when-issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery scheduled for a future time. During the period between purchase and
settlement, no payment is made by the Fund to the issuer and no interest accrues
to the Fund. The Fund records the transaction when it agrees to purchase the
securities and reflects their value in determining the price of its shares.
Settlement dates may be a month or more after entering into these transactions
so that the market values of the securities bought may vary from the purchase
prices. Therefore, delayed delivery transactions create market risks for the
Fund. Delayed delivery transactions also involve credit risks in the event of a
counterparty default.
SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on loaned securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of any cash collateral. Loans are subject to termination at
the option of the Fund or the borrower. The Fund will not have the right to vote
on securities while they are on loan, but it will terminate a loan in
anticipation of any important vote. The Fund may pay administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash collateral to a securities lending agent or broker.
Securities lending activities are subject to market risks and credit risks.
ASSET COVERAGE
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction, or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.
INVESTMENT RATINGS
A nationally recognized rating service's highest rating category is determined
without regard for sub-categories and gradations. For example, securities rated
A-1 or A-1+ by Standard & Poor's, Prime-1 by Moody's Investors Service, Inc.
("Moody's"), or F-1 (+ or -) by Fitch IBCA, Inc. 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 rating service can be
treated as being in the highest short-term rating category; currently, such
securities must be rated by two rating services in their highest rating
category. See "Regulatory Compliance."
INVESTMENT RISKS
BOND MARKET RISKS
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money. Money market funds try to minimize this risk by purchasing
higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the Adviser's credit assessment.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities issued
or credit enhanced by companies in similar businesses or with similar
characteristics. As a result, the Fund will be more susceptible to any economic,
business, political, or other developments which generally affect these issuers.
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 unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
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 SAI, 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 nationally recognized rating services, 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.
DETERMINING MARKET VALUE OF SECURITIES
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.
What Do Shares Cost?
The net asset value (NAV) for each class of Shares may differ due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution- related
or shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
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.
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.
Account and Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of March 4, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Wal-Mart Stores, Inc., Bentonville,
Arkansas, 5.47% of Institutional Shares; Hare & Co., New York, New York, 5.05%
of Institutional Service Shares; Kaw & Co., Charleston, West Virginia, 8.58% of
Institutional Service Shares; Harris Trust and Savings Bank, Chicago, Illinois,
63.13% of Institutional Service Shares; Symbol Technologies Operations,
Holtzville, New York, 5.66% of Institutional Capital Shares; Bottomline
Technologies (DE), Inc. Portsmouth, New Hampshire, 9.96% of Institutional
Capital Shares; PNC Securities Corp., Pittsburgh, Pennsylvania, 15.34% of
Institutional Capital Shares; Var & Co., St. Paul, Minnesota, 16.45% of
Institutional Capital Shares; and Jones Intercable, Inc., Englewood, Colorado,
21.97% of Institutional Capital Shares.
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of three
funds and the Federated Fund Complex is comprised of 54 investment companies,
whose investment advisers are affiliated with the Fund's Adviser.
As of March 4, 1999, the Fund's Board and Officers as a group owned less than 1%
of the Fund's outstanding Institutional, Institutional Service and Institutional
Capital Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+ Chief Executive Officer and Director or Trustee of the $0 $0 for the Trust and
Birth Date: July 28, 1924 Federated Fund Complex; Chairman and Director, Federated 54 other investment
Federated Investors Tower Investors, Inc.; Chairman and Trustee, Federated Investment companies in the
1001 Liberty Avenue Management Company; Chairman and Director, Federated Fund Complex
Pittsburgh, PA Investment Counseling and Federated Global Investment
CHAIRMAN AND TRUSTEE Management Corp.; Chairman, Passport Research, Ltd.
THOMAS G. BIGLEY Director or Trustee of the Federated Fund Complex; Director, $3,092.74 $113,860.22 for the
Birth Date: February 3, 1934 Member of Executive Committee, Children's Hospital of Trust and 54 other
15 Old Timber Trail Pittsburgh; formerly: Senior Partner, Ernst & Young LLP; investment companies
Pittsburgh, PA Director, MED 3000 Group, Inc.; Director, Member of in the Fund Complex
TRUSTEE Executive Committee, University of Pittsburgh.
JOHN T. CONROY, JR. Director or Trustee of the Federated Fund Complex; $3,402.52 $125,264.48 for the
Birth Date: June 23, 1937 President, Investment Properties Corporation; Senior Vice Trust and 54 other
Wood/IPC Commercial Dept. President, John R. Wood and Associates, Inc., Realtors; investment companies
John R. Wood Associates, Inc. in the Fund Complex
Realtors Partner or Trustee in private real estate ventures in
3255 Tamiami Trial North Southwest Florida; formerly: President, Naples Property
Naples, FL Management, Inc. and Northgate Village Development
TRUSTEE Corporation.
NICHOLAS CONSTANTAKIS Director or Trustee of the Federated Fund Complex; formerly: $2,671.50 $47,958.02 for the
Birth Date: September 3, 1939 Partner, Andersen Worldwide SC. Trust and 29 other
175 Woodshire Drive investment companies
Pittsburgh, PA in the Fund Complex
TRUSTEE
WILLIAM J. COPELAND Director or Trustee of the Federated Fund Complex; Director $3,402.52 $125,264.48 for the
Birth Date: July 4, 1918 and Member of the Executive Committee, Michael Baker, Inc.; Trust and 54 other
One PNC Plaza-23rd Floor formerly: Vice Chairman and Director, PNC Bank, N.A. and PNC investment companies
Pittsburgh, PA Bank Corp.; Director, Ryan Homes, Inc. Fund Complex
TRUSTEE Previous Positions: Director, United Refinery; Director,
Forbes Fund; Chairman, Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.
JOHN F. CUNNINGHAM++ Director or Trustee of some of the Federated Funds; $0 $0 for the Trust
Birth Date: March 5, 1943 Chairman, President and Chief Executive Officer, Cunningham and 26 other
353 El Brillo Way & Co., Inc.; Trustee Associate, Boston College; Director, investment companies
Palm Beach, FL EMC Corporation; formerly: Director, Redgate Communications. in the Fund Complex
TRUSTEE Previous Positions: Chairman of the Board and Chief
Executive Officer, Computer Consoles, Inc.;
President and Chief Operating Officer, Wang
Laboratories; Director, First National Bank of
Boston; Director, Apollo Computer, Inc.
J. CHRISTOPHER DONAHUE+* President or Executive Vice President of the Federated Fund $0 $0 for the Trust
Birth Date: April 11, 1949 Complex; Director or Trustee of some of the Funds in the and 16 other
Federated Investors Tower Federated Fund Complex; President and Director, Federated investment companies
1001 Liberty Avenue Investors, Inc.; President and Trustee, Federated Investment in the Fund Complex
Pittsburgh, PA Management Company; President and Director, Federated
PRESIDENT AND TRUSTEE Investment Counseling and Federated Global Investment
Management Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services Company; Director,
Federated Services Company.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund Complex; Professor $3,092.74 $113,860.22 for the
Birth Date: October 11, 1932 of Medicine, University of Pittsburgh; Medical Director, Trust and 54 other
3471 Fifth Avenue University of Pittsburgh Medical Center - Downtown; investment companies
Suite 1111 Hematologist, Oncologist, and Internist, University of in the Fund Complex
Pittsburgh, PA Pittsburgh Medical Center; Member, National Board of
TRUSTEE Trustees, Leukemia Society of America.
PETER E. MADDEN Director or Trustee of the Federated Fund Complex; formerly: $3,092.74 $113,860.22 for the
Birth Date: March 16, 1942 Representative, Commonwealth of Massachusetts General Court; Trust and 54 other
One Royal Palm Way President, State Street Bank and Trust Company and State investment companies
100 Royal Palm Way Street Corporation. in the Fund Complex
Palm Beach, FL Previous Positions: Director, VISA USA and VISA
TRUSTEE International; Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation.
CHARLES F. MANSFIELD, JR. ++ Director or Trustee of some of the Federated Funds; $0 $0 for the Trust
Birth Date: April 10, 1945 Management Consultant. and 26 other
80 South Road Previous Positions: Chief Executive Officer, PBTC investment companies
Westhampton Beach, NY International Bank; Chief Financial Officer of Retail in the Fund Complex
TRUSTEE Banking Sector, Chase Manhattan Bank; Senior Vice President,
Marine Midland Bank; Vice President, Citibank; Assistant
Professor of Banking and Finance, Frank G. Zarb School of
Business, Hofstra University.
JOHN E. MURRAY, JR., J.D., S.J.D. Director or Trustee of the Federated Fund Complex; $3,092.74 $113,860.22 for the
Birth Date: December 20, 1932 President, Law Professor, Duquesne University; Consulting Trust and 54 other
President, Duquesne University Partner, Mollica & Murray. investment companies
Pittsburgh, PA Previous Positions: Dean and Professor of Law, University of in the Fund Complex
TRUSTEE Pittsburgh School of Law; Dean and Professor of Law,
Villanova University School of Law.
MARJORIE P. SMUTS Director or Trustee of the Federated Fund Complex; Public $3,092.74 $113,860.22 for the
Birth Date: June 21, 1935 Relations/Marketing/Conference Planning. Trust and 54 other
4905 Bayard Street Previous Positions: National Spokesperson, Aluminum Company investment companies
Pittsburgh, PA of America; business owner. in the Fund Complex
TRUSTEE
JOHN S. WALSH++ Director or Trustee of some of the Federated Funds; $0 $0 for the Trust
Birth Date: November 28, 1957 President and Director, Heat Wagon, Inc.; President and and 23 other
2007 Sherwood Drive Director, Manufacturers Products, Inc.; President, Portable investment companies
Valparaiso, IN Heater Parts, a division of Manufacturers Products, Inc.; in the Fund Complex
TRUSTEE Director, Walsh & Kelly, Inc.; formerly: Vice President,
Walsh & Kelly, Inc.
EDWARD C. GONZALES Trustee or Director of some of the Funds in the Federated $0 $0 for the Trust
Birth Date: October 22, 1930 Fund Complex; President, Executive Vice President and and 1 other
Federated Investors Tower Treasurer of some of the Funds in the Federated Fund Complex; investment company
1001 Liberty Avenue Vice Chairman, Federated Investors, Inc.; Vice President, in the Fund Complex
Pittsburgh, PA Federated Investment Management Company, Federated
EXECUTIVE VICE PRESIDENT Investment Counseling, Federated Global Investment
Management Corp., and Passport Research, Ltd.;
Executive Vice President and Director,
Federated Securities Corp.; Trustee, Federated
Shareholder Services Company.
JOHN W. MCGONIGLE Executive Vice President and Secretary of the Federated Fund $0 $0 for the Trust
Birth Date: October 26, 1938 Complex; Executive Vice President, Secretary, and Director, and 54 other
Federated Investors Tower Federated Investors, Inc.; Trustee, Federated Investment investment companies
1001 Liberty Avenue Management Company; Director, Federated Investment in the Fund Complex
Pittsburgh, PA Counseling and Federated Global Investment Management Corp.;
EXECUTIVE VICE PRESIDENT Director, Federated Services Company; Director, Federated
AND SECRETARY Securities Corp.
RICHARD B. FISHER President or Vice President of some of the Funds in the $0 $0 for the Trust
Birth Date: May 17, 1923 Federated Fund Complex; Director or Trustee of some of the and 6 other
Federated Investors Tower Funds in the Federated Fund Complex; Executive Vice investment companies
1001 Liberty Avenue President, Federated Investors, Inc.; Chairman and Director, in the Fund Complex
Pittsburgh, PA Federated Securities Corp.
VICE PRESIDENT
RICHARD J. THOMAS Treasurer of the Federated Fund Complex; Vice President - $0 $0 for the Trust
Birth Date: June 17, 1954 Funds Financial Services Division, Federated Investors, and 54 other
Federated Investors Tower Inc.; formerly: various management positions within Funds investment companies
1001 Liberty Avenue Financial Services Division of Federated Investors, Inc. in the Fund Complex
Pittsburgh, PA
TREASURER
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
WILLIAM D. DAWSON, III Chief Investment Officer of this Fund and various other $0 $0 for the Trust
Birth Date: March 3, 1949 Funds in the Federated Fund Complex; Executive Vice and 41 other
Federated Investors Tower President, Federated Investment Counseling, Federated Global investment companies
1001 Liberty Avenue Investment Management Corp., Federated Investment Management in the Fund Complex
Pittsburgh, PA Company, and Passport Research, Ltd.; Registered
CHIEF INVESTMENT OFFICER Representative, Federated Securities Corp.; Portfolio
Manager, Federated Administrative Services;
Vice President, Federated Investors, Inc.;
formerly: Executive Vice President and Senior
Vice President, Federated Investment
Counseling Institutional Portfolio Management
Services Division; Senior Vice President,
Federated Investment Management Counseling and
Passport Research, Ltd.
DEBORAH A. CUNNINGHAM Deborah A. Cunningham is Vice President of the Trust. $0 $0 for the Trust
Birth Date: September 15, 1959 Ms. Cunningham joined Federated in 1981 and has been a and 6 other
Federated Investors Tower Senior Portfolio Manager and a Senior Vice President of the investment companies
1001 Liberty Avenue Fund's Adviser since 1997. Ms. Cunningham served as a in the Fund Complex
Pittsburgh, PA Portfolio Manager and a Vice President of the Adviser from
VICE PRESIDENT 1993 until 1996. Ms. Cunningham is a Chartered Financial
Analyst and received her M.S.B.A. in Finance from Robert
Morris College.
MARY JO OCHSON Mary Jo Ochson is Vice President of the Trust. Ms. Ochson $0 $0 for the Trust
Birth Date: September 12, 1953 joined Federated in 1982 and has been a Senior Portfolio and 7 other
Federated Investors Tower Manager and a Senior Vice President of the Fund's Adviser investment companies
1001 Liberty Avenue since 1996. From 1988 through 1995, Ms. Ochson served as a in the Fund Complex
Pittsburgh, PA Portfolio Manager and a Vice President of the Fund's
VICE PRESIDENT Adviser. Ms. Ochson is a Chartered Financial Analyst and
received her M.B.A. in Finance from the University of
Pittsburgh.
</TABLE>
+ Mr. Donahue is the father of J. Christopher Donahue, President and
Trustee of the Trust.
++ Messrs. Cunningham, Mansfield and Walsh became members of the Board on
January 1, 1999. They did not earn any fees for serving the Fund Complex since
these fees are reported as of the end of the last calendar year. They did not
receive any fees as of the fiscal year end of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust or any Fund shareholder 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 (former
adviser), New York, New York, served as the Fund's adviser.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED
FUNDS 0.150 of 1% on the first $250 million 0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million 0.075 of 1% 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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
Prior to November 15, 1996, FDISG (former administrator), a subsidiary of First
Data Corporation, Boston, Massachusetts, served as the Fund's
administrator.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by
shareholders.
INDEPENDENT AUDITORS
Ernst & Young LLP is the independent auditor for the Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR THE YEAR ENDED JANUARY 31 1999 1998 1997 1
Advisory Fee Earned 2 $4,676,382 $3,485,448 $911,504
Advisory Fee Reduction 2,853,923 2,107,753 505,519
Administrative Fee 3 1,762,996 1,315,415 30,284
SHAREHOLDER SERVICES FEE:
Institutional Shares 0 - -
Institutional Service Shares 1,803,553 - -
Institutional Capital Shares 236,964 - -
</TABLE>
1 For the period from November 15, 1996 to January 31, 1997.
2 For the period from February 1, 1996 to November 14, 1996, the former adviser
earned $4,814,270.
3 For the period from February 1, 1996 to November 14, 1996, the former
administrator earned $2,380,339.
Fees are allocated among classes based on their pro rata share of Fund assets,
except for shareholder services fees, which are borne only by the applicable
class of Shares.
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year, five-year and the start of performance
periods ended January 31, 1999.
Yield and Effective Yield given for the 7-day period ended January 31, 1999.
<TABLE>
<CAPTION>
START OF
7-DAY PERFORMANCE ON
SHARE CLASS PERIOD 1 YEAR 5 YEARS FEBRUARY 8, 1993
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES:
Total Return - 5.50% 5.41% 5.05%
Yield 4.94% - - -
Effective Yield 5.06% - - -
<CAPTION>
START OF
7-DAY PERFORMANCE ON
SHARE CLASS PERIOD 1 YEAR 5 YEARS SEPTEMBER 2, 1993
<S> <C> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Total Return - 5.23% 5.15% 4.98%
Yield 4.69% - - -
Effective Yield 4.80% - - -
<CAPTION>
START OF
7-DAY PERFORMANCE ON
SHARE CLASS PERIOD 1 YEAR OCTOBER 6, 1994
<S> <C> <C> <C> <C>
INSTITUTIONAL CAPITAL SHARES:
Total Return - 5.37% 5.48%
Yield 4.82% - -
Effective Yield 4.93% - -
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares 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 NAV 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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. The effective yield is calculated by compounding the unannualized
base-period return by: adding one to the base-period return, raising the sum to
the 365/7th power; and subtracting one from the result.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
* charts, graphs, and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
* information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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.
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
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
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
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 10
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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index, and sector (i.e. utility) styles. Federated's value- oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/agency, and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion, and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. govern-ment bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated 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,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime, and 23 municipal with assets
approximating $41.6 billion, $22.8 billion, and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.
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 $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, 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 advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include 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,
Broker/Dealer Sales Division, Federated Securities Corp.
Addresses
PRIME CASH OBLIGATIONS FUND
Institutional Shares
Institutional Service Shares
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 Investment Management Company
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
200 Clarendon Street
Boston, MA 02116-5072
Prime Value Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL SHARES
A money market mutual fund seeking to achieve current income consistent with
stability of principal and liquidity.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
MARCH 31, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which
the Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 5
What Do Shares Cost? 5
How is the Fund Sold? 6
How to Purchase Shares 6
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 9
Financial Information 10
Report of Ernst & Young LLP, Independent Auditors 26
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is current income consistent with
stability of principal and liquidity. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
This investment objective may be changed by the Fund's Trustees without
shareholder approval.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high quality fixed income securities maturing
in 13 months or less. The average maturity of the Fund's portfolio will be 90
days or less.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money by investing in the Fund.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares as of the calendar year-end for
each of the last five years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 1% up to 7%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features five distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Institutional Shares for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1994
through 1998. The percentages noted are: 4.30%, 6.10%, 5.44%, 5.65% and 5.58%,
respectively.
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional Shares
total returns on a yearly basis.
The Fund's Institutional Shares are not sold subject to a sales charge (load).
The total returns displayed above are based upon the net asset value.
Within the period shown in the Chart, the Fund's Institutional Shares highest
quarterly return was 1.53% (quarter ended June 30, 1995). Its lowest quarterly
return was 0.82% (quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURN
The following table represents the Fund's Institutional Shares Average Annual
Total Return through December 31, 1998.
CALENDAR PERIOD FUND
1 Year 5.58%
5 Years 5.41%
Start of Performance 1 5.08%
1 The Fund's Institutional Shares start of performance date was February 8,
1993.
Investors may call the Fund at 1-800-341-7400 to acquire the current 7-Day Net
Yield.
The Fund's Institutional Shares 7-Day Net Yield as of 12/31/98 was 5.15%.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are the Fund's Fees and Expenses?
PRIME VALUE OBLIGATIONS FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as applicable) None Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price) None Redemption
Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1 Expenses That are Deducted
From Fund Assets (as percentage of average net assets)
Management Fee 2 0.20% Distribution (12b-1) Fee None Shareholder Services Fee 3
0.25% Other Expenses 0.11% Total Annual Fund Operating Expenses 0.56% 1 Although
not contractually obligated to do so, the adviser and shareholder services
provider waived certain amounts. These are described below along with the net
expenses the Fund's Institutional Shares actually paid for the fiscal year ended
January 31, 1999.
Waiver of Fund Expenses 0.40%
Total Actual Annual Fund Operating Expenses (after waivers) 0.16%
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund's Institutional Shares (after the voluntary waiver) was 0.05% for the year
ended January 31, 1999. 3 The shareholder services fee has been voluntarily
reduced. This voluntary reduction can be terminated at any time. The shareholder
services fee paid by the Fund's Institutional Shares (after the voluntary
reduction) was 0.00% for the year ended January 31, 1999.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Institutional Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Shares
for the time periods indicated and then redeem all of your Shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's Institutional Shares operating expenses are BEFORE
WAIVERS as shown in the table and remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
1 Year $ 57
3 Years $ 179
5 Years $ 313
10 Years $ 701
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high quality fixed income securities maturing
in 13 months or less. The average maturity of the Fund's portfolio will be 90
days or less.
In order to select individual investments, the Fund's investment adviser
(Adviser) performs a fundamental credit analysis to develop an approved list of
issuers and securities that meet the Adviser's minimum credit standards. The
Adviser assesses likely movements in interest rates based upon general economic
and market conditions. Considering this assessment, the Adviser targets an
average portfolio maturity range. The Adviser generally shortens the portfolio's
average maturity when it expects interest rates to rise and extends the maturity
when it expects interest rates to fall. In adjusting the portfolio's average
maturity, the Adviser selects among investments with different maturities
comparing their relative returns.
INDUSTRY CONCENTRATION
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.
What are the Principal Securities in Which the Fund Invests?
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must also repay
the principal amount of the security, normally within a specified time.
The following describes the types of fixed income securities in which the Fund
invests:
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures, and commercial paper are the most prevalent types of
corporate debt securities.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of nine months or
less. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must repay upon
demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances.
ASSET BACKED SECURITIES
Asset backed securities are payable from pools of debt obligations. Most asset
backed securities involve consumer or commercial debts with maturities of less
than 10 years. However, almost any type of fixed income assets (including other
fixed income securities) may be used to create an asset backed security. Asset
backed securities may take the form of commercial paper, notes, or pass through
certificates.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser usually evaluates the credit risk of a fixed income
security based solely upon its credit enhancement.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund, the
principal risks of investing in a corporate money market fund are described
below.
BOND MARKET RISKS
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money. Money market funds try to minimize this risk by purchasing
higher quality securities.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the Adviser's credit assessment.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities issued
or credit enhanced by companies in similar businesses or with similar
characteristics. As a result, the Fund will be more susceptible to any economic,
business, political, or other developments which generally affect these issuers.
What Do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined net asset value (NAV). The Fund does not charge
a front-end sales charge. NAV is determined at 12:00 noon and 3:00 p.m. (Eastern
time) and as of the end of regular trading (normally 4:00 p.m. Eastern time)
each day the NYSE is open.
The required minimum initial investment for Fund Shares is $1,000,000. There is
no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $1,000,000 minimum
is reached within one year of opening the account. An institutional investor's
minimum investment is calculated by combining all accounts it maintains with the
Fund. Accounts established through investment professionals may be subject to a
smaller minimum investment amount. Keep in mind that investment professionals
may charge you fees for their services in connection with your Share
transactions.
How is the Fund Sold?
The Fund offers three share classes: Institutional Shares, Institutional Service
Shares and Institutional Capital Shares, each representing interests in a single
portfolio of securities. This prospectus relates only to Institutional Shares.
Each share class has different expenses, which affect their performance. Contact
your investment professional or call 1- 800-341-7400 for more information
concerning the other classes.
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity.
The Distributor and its affiliates may pay out of their assets other
amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of
Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 3:00 p.m.
(Eastern time). You will receive that day's dividend if the investment
professional forwards the order to the Fund and the Fund receives payment by
3:00 p.m. (Eastern time). You will become the owner of Shares and receive
dividends when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares after the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY INVEST-BY-PHONE
Once you establish an account, you may use the Fund's Invest-By-Phone privilege
for future Share purchases if you have an account with a bank that is an
Automated Clearing House member. To apply, call the Fund for an authorization
form. You may use Invest-By-Phone to purchase Shares approximately two weeks
from the date you file the form with Federated Shareholder Services Company.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). Investment
professionals are responsible for promptly submitting redemption requests and
providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 3:00 p.m. (Eastern time), your redemption will be wired to
you the same day. You will not receive that day's dividend.
If you call after 3:00 p.m. (Eastern time), your redemption will be wired to you
the following business day. You will receive that day's dividend.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the day
that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
ACCOUNT ACTIVITY
You will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
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 pays any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily dividends. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal, state,
and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.20% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.
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 1999 1998 1997 1996 1 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.06 0.05 0.06 0.04
LESS DISTRIBUTIONS:
Distributions from net investment income (0.05) (0.06) (0.05) (0.06) (0.04)
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 2 5.53% 5.68% 5.41% 6.10% 4.51%
RATIOS TO AVERAGE
NET ASSETS:
Expenses 0.16% 0.14% 0.16% 0.17% 0.09%
Net investment income 5.37% 5.59% 5.29% 5.93% 4.20%
Expense waiver/reimbursement 3 0.40% 0.18% 0.15% 0.08% 0.16%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $1,474,123 $865,742 $387,994 $2,754,390 $1,470,317
</TABLE>
1 Federated Management became the Fund's investment adviser on November 15,
1996. Prior to November 15, 1996, Lehman Brothers Global Asset Management served
as the Fund's investment adviser.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 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
JANUARY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM NOTES-7.6%
BANKING-3.5%
$ 55,000,000 Abbey National Treasury Services, PLC, 4.990% - 5.500%,
2/2/1999 - 1/13/2000 $ 54,988,009
10,000,000 SALTS III Cayman Island Corp., (Guaranteed by Bankers Trust
International, PLC), 5.270%, 4/23/1999 10,000,000
10,000,000 SALTS III Cayman Island Corp., (Guaranteed by Bankers Trust
International, PLC), 5.571%, 3/18/1999 10,000,000
TOTAL 74,988,009
BROKERAGE-0.9%
20,000,000 Goldman Sachs Group, LP, 5.020%, 3/1/1999 20,000,000
FINANCE - AUTOMOTIVE-0.8%
1,047,856 Chase Manhattan Auto Owner Trust 1998-C, Class A1, 5.588%,
7/9/1999 1,047,806
664,124 Compass Auto Receivables Trust 1998-A, Class A-1, 5.659%,
7/15/1999 664,124
9,500,000 Honda Auto Receivables 1999-1 Owner Trust, Class A-1,
4.974%, 2/15/2000 9,500,000
6,347,406 MMCA Auto Owner Trust 1998-1, Class A-1, 5.621%, 8/16/1999 6,347,406
TOTAL 17,559,336
FINANCE - COMMERCIAL-1.4%
30,000,000 2 Beta Finance, Inc., 5.000% - 5.010%, 1/25/2000 - 2/1/2000 30,000,000
FINANCE - EQUIPMENT-0.6%
1,746,227 Case Equipment Receivables Trust 1998-B, Class A-1, 5.608%,
9/15/1999 1,746,227
10,669,568 Newcourt Equipment Trust Securities 1998-2, Class A-1,
5.195%, 1/15/2000 10,669,568
TOTAL 12,415,795
INSURANCE-0.4%
9,000,000 WFS Financial 1998-C Owner Trust, Class A1, (Guaranteed by
FSA), 5.395%, 11/20/1999 9,000,000
TOTAL SHORT-TERM NOTES 163,963,140
CERTIFICATES OF DEPOSIT-10.0%
BANKING-10.0%
10,000,000 Bankers Trust Co., New York, 5.645%, 2/26/1999 9,999,770
25,000,000 Canadian Imperial Bank of Commerce, 5.030%, 1/27/2000 24,992,864
45,000,000 Deutsche Bank, AG, 5.310%, 5/3/1999 45,042,905
10,000,000 First National Bank of Maryland, Baltimore, 5.020%,
1/25/2000 9,997,161
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CERTIFICATES OF DEPOSIT-continued
BANKING-CONTINUED
$ 15,000,000 KeyBank, N.A., 5.080%, 4/9/1999 $ 15,000,000
20,000,000 Societe Generale, Paris, 5.645%, 2/26/1999 19,999,540
18,000,000 Svenska Handelsbanken, Stockholm, 5.705% - 5.800%, 4/6/1999
- 5/14/1999 17,999,991
75,000,000 Toronto-Dominion Bank, 5.020%, 1/10/2000 74,972,808
TOTAL CERTIFICATES OF DEPOSIT 218,005,039
COMMERCIAL PAPER-50.5% 1
AEROSPACE/AUTO-2.6%
57,000,000 Johnson Controls, Inc., 5.379% - 5.502%, 2/5/1999 - 3/5/1999 56,910,469
BANKING-24.2%
47,500,000 Aspen Funding Corp., (Guaranteed by MBIA, Guaranteed by
Deutsche Bank, AG), 5.110% - 5.641%, 2/22/1999 - 2/25/1999 47,355,528
8,000,000 Bankers Trust Corp., 5.656%, 2/3/1999 7,997,556
50,000,000 Canadian Imperial Holdings, Inc., (Guaranteed by Canadian
Imperial Bank of Commerce), 4.984%, 2/22/1999 49,857,083
9,000,000 Cregem North America, Inc., (Guaranteed by Credit Communal
de Belgique, Brussles), 4.943%, 2/23/1999 8,973,270
56,459,000 Fountain Square Commercial Funding Corp., (Fifth Third Bank,
Cincinnati, Support Agreement), 4.981% - 5.372%, 2/1/1999 -
7/6/1999 56,036,007
105,130,000 2 Gotham Funding Corp., 5.103% - 5.122%, 2/10/1999 - 2/16/1999 104,977,782
30,000,000 Greenwich Funding Corp., 4.889%, 4/15/1999 29,706,175
100,000,000 J.P. Morgan & Co., Inc., 4.905%, 4/15/1999 99,017,542
78,000,000 Lloyds Bank PLC, London, 5.060%, 2/25/1999 77,742,080
10,000,000 PEMEX Capital, Inc., (Societe Generale, Paris LOC), 4.897%,
4/22/1999 9,892,444
25,000,000 Westpac Capital Corp., (Guaranteed by Westpac Banking Corp.
Ltd., Sydney), 5.029%, 5/14/1999 24,654,333
9,193,000 Wood Street Funding Corp., (PNC Bank, N.A. Support
Agreement), 4.889%, 2/19/1999 9,170,615
TOTAL 525,380,415
CHEMICALS-1.2%
25,045,000 IMC Global, Inc., 5.020% - 6.295%, 2/12/1999 - 2/24/1999 24,965,936
FINANCE - AUTOMOTIVE-1.2%
25,000,000 Ford Motor Credit Corp., 5.138%, 2/5/1999 24,985,972
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COMMERCIAL PAPER-continued 1
FINANCE - COMMERCIAL-13.6%
$ 56,000,000 Beta Finance, Inc., 4.997% - 5.634%, 2/5/1999 - 3/8/1999 $ 55,808,430
60,000,000 Falcon Asset Securitization Corp., (Guaranteed by AMBAC),
5.321% - 5.331%, 2/11/1999 - 2/25/1999 59,851,083
50,000,000 General Electric Capital Corp., 5.037% - 5.455%, 2/12/1999 -
3/17/1999 49,744,703
10,000,000 Receivables Capital Corp., 5.450%, 2/12/1999 9,983,531
119,000,000 Sheffield Receivables Corp., 4.891% - 5.499%, 2/5/1999 -
3/23/1999 118,466,096
TOTAL 293,853,843
FINANCE - EQUIPMENT-0.4%
9,350,000 Comdisco, Inc., 5.015% - 5.031%, 2/10/1999 - 3/10/1999 9,332,576
FINANCE - RETAIL-4.5%
3,000,000 American Express Credit Corp., 5.023%, 4/12/1999 2,971,417
17,000,000 Associates Corp. of North America, 4.931% - 5.401%, 3/9/1999
- 3/22/1999 16,890,868
49,000,000 Associates First Capital B.V., (Guaranteed by Associates
First Capital Corp.), 4.888% - 4.908%, 4/20/1999 - 5/18/1999 48,393,298
30,000,000 Associates First Capital Corp., 5.094%, 5/28/1999 29,519,567
TOTAL 97,775,150
FOREST PRODUCTS-0.4%
9,398,000 Temple-Inland, Inc., 5.000% - 5.018%, 2/16/1999 - 2/26/1999 9,368,249
INSURANCE-1.5%
22,001,000 CNA Financial Corp., 5.015% - 5.022%, 2/10/1999 - 4/26/1999 21,851,053
10,000,000 CXC, Inc., (Guaranteed by FGIC, Guaranteed by AMBAC,
Guaranteed by MBIA, Guaranteed by Export-Import Bank),
5.161%, 5/17/1999 9,853,292
TOTAL 31,704,345
MACHINERY, EQUIPMENT, AUTO-0.4%
8,000,000 Eaton Corp., 5.649%, 5/21/1999 7,868,716
OIL & OIL FINANCE-0.1%
2,731,000 Occidental Petroleum Corp., 5.755%, 2/19/1999 2,723,217
TELECOMMUNICATIONS-0.2%
4,920,000 MCI Worldcom, Inc., 5.063%, 4/7/1999 4,875,583
TRANSPORTATION-0.2%
5,112,000 FDX Corp., 6.211% - 6.246%, 2/10/1999 - 2/11/1999 5,103,860
TOTAL COMMERCIAL PAPER 1,094,848,331
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
NOTES - VARIABLE-18.1% 3
BANKING-11.9%
$ 9,505,000 500 South Front St. L.P., Series A, (Huntington National
Bank, Columbus, OH LOC), 4.910%, 2/4/1999 $ 9,505,000
5,645,000 500 South Front St. L.P., Series B, (Huntington National
Bank, Columbus, OH LOC), 4.910%, 2/4/1999 5,645,000
1,335,000 Alabama State IDA, (Nichols Research Corp.), (SouthTrust
Bank of Alabama, Birmingham LOC), 5.020%, 2/5/1999 1,335,000
3,150,000 Associated Materials, Inc., (KeyBank, N.A. LOC), 4.930%,
2/5/1999 3,150,000
1,805,000 Athens-Clarke County, GA IDA, Barrett Project, Series 1995,
(Columbus Bank and Trust Co., GA LOC), 5.080%, 2/4/1999 1,805,000
10,000,000 Bankers Trust Co., New York, 4.880%, 6/4/1999 9,997,698
16,400,000 2 Bankers Trust Corp., 144A, 4.960%, 2/1/1999 16,400,000
20,000,000 2 Bankers Trust Corp., 4.960%, 2/1/1999 20,000,000
16,900,000 Beverly California Corp., (PNC Bank, N.A. LOC), 4.938%,
2/1/1999 16,900,000
16,860,000 Beverly Hills Nursing Center, Inc., Medilodge Project,
Series 1996, (KeyBank, N.A. LOC), 4.960%, 2/4/1999 16,860,000
1,945,000 Bissett,William K. and Sheryl B., Multi-Option Adjustable
Rate Notes, (Huntington National Bank, Columbus, OH LOC),
4.910%, 2/4/1999 1,945,000
6,715,000 Briarwood L.P. Project, Series 1999, (Bank One, Ohio, N.A.
LOC), 4.970%, 2/4/1999 6,715,000
640,000 Carmel, IN, Telamon Corp, Series 1996-C, (Huntington
National Bank, Columbus, OH LOC), 5.010%, 2/4/1999 640,000
965,000 Carmel, IN, Telamon Corp, Series A, (Huntington National
Bank, Columbus, OH LOC), 5.010%, 2/4/1999 965,000
1,055,000 Carmel, IN, Telamon Corp, Series B, (Huntington National
Bank, Columbus, OH LOC), 5.010%, 2/4/1999 1,055,000
2,020,000 Continental Downtown Properties, (Huntington National Bank,
Columbus, OH LOC), 4.910%, 2/4/1999 2,020,000
5,900,000 Dellridge Care Center L.P., Series 1997, (First National
Bank of Maryland,
Baltimore LOC), 5.000%, 2/3/1999 5,900,000
3,605,000 Denver Urban Renewal Authority, Series 1992-B, (Paribas,
Paris LOC), 5.020%, 2/4/1999 3,605,000
9,820,000 ERC Real Estate LLC, (KeyBank, N.A. LOC), 4.910%, 2/4/1999 9,820,000
5,000,000 Industrial Dimensions, Inc., Series 1999, (Fifth Third Bank
of Northwestern OH LOC), 5.000%, 2/4/1999 5,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
NOTES - VARIABLE-continued 3
BANKING-CONTINUED
$ 9,139,000 International Processing Corp, (Bank One, Kentucky LOC),
4.960%, 2/4/1999 $ 9,139,000
2,250,000 Jeffersonville, IN, Series 1997-B, Wayne Steel, Inc., (Bank
One, Ohio, N.A. LOC), 4.910%, 2/4/1999 2,250,000
4,000,000 Lake Sherwood Senior Living Center, LLC, (Union Planters NB,
Memphis, TN LOC), 5.220%, 2/4/1999 4,000,000
2,000,000 Liquid Asset Backed Securities Trust, Series 1996-3,
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.020%, 2/16/1999 2,000,000
11,260,154 2 Liquid Asset Backed Securities Trust, Series 1997-1,
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.000%, 2/16/1999 11,260,154
4,100,000 Melberger, Clifford K. and Ruth B., (PNC Bank, N.A. LOC),
4.938%, 2/1/1999 4,100,000
6,860,000 Pine Ridge Associates, LTD., (Mellon Bank N.A., Pittsburgh
LOC), 5.000%, 2/3/1999 6,860,000
2,300,000 Poly Foam International, Inc., (National City Bank, Ohio
LOC), 4.920%, 2/4/1999 2,300,000
7,335,000 Rubloff- Rockford, LLC, Series 1997, (National City Bank,
Michigan/Illinois LOC), 5.000%, 2/3/1999 7,335,000
17,100,000 Scranton Times, L.P., Series 1997, (PNC Bank, N.A. LOC),
4.938%, 2/1/1999 17,100,000
17,000,000 Societe Generale, Paris, 4.883%, 8/11/1999 16,994,140
2,785,000 Solon, OH, Schneps, (Bank One, Ohio, N.A. LOC), 4.910%,
2/4/1999 2,785,000
645,000 Southeast Regional Holdings, LLC, Series 1995-A, (Columbus
Bank and Trust Co., GA LOC), 5.170%, 2/4/1999 645,000
8,560,000 Southern Coil Processing, Inc. Notes, (Amsouth Bank N.A.,
Birmingham LOC), 5.000%, 2/4/1999 8,560,000
4,300,000 Spencer County, IN, American Oxide Co. Project, (Bank of
Tokyo-Mitsubishi Ltd. LOC), 5.540%, 2/4/1999 4,300,000
1,680,000 Team Rahal of Mechanicsburg, Inc., Series 1997, (Huntington
National Bank, Columbus, OH LOC), 4.910%, 2/4/1999 1,680,000
1,840,000 Team Rahal, Inc., Series 1997, (Huntington National Bank,
Columbus, OH LOC), 4.910%, 2/4/1999 1,840,000
7,300,000 Tift County, GA Development Authority, Chickasha of Georgia
Project, Series 1997, (Bank of Tokyo-Mitsubishi Ltd. LOC),
5.040%, 2/3/1999 7,300,000
1,700,000 Village Green Finance Co., LLC, Series 1997, (Wachovia Bank
of NC, N.A., Winston-Salem LOC), 4.940%, 2/3/1999 1,700,000
1,463,000 Vista Funding Corp., Series 1995-A, (Star Bank, N.A.,
Cincinnati LOC), 5.040%, 2/4/1999 1,463,000
6,040,000 Westcourt, (Bank One, Texas N.A. LOC), 4.960%, 2/4/1999 6,040,000
TOTAL 258,913,992
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
NOTES - VARIABLE-continued 3
FINANCE - EQUIPMENT-0.5%
$ 10,000,000 2 Comdisco, Inc., 144A Notes, 5.350%, 2/26/1999 $ 10,000,000
FINANCE - RETAIL-0.6%
7,000,000 AFS Insurance Premium Receivables Trust, Series 1994-A,
5.556%, 2/16/1999 7,000,000
6,000,000 2 Bishop's Gate Residential Mortgage Trust 1998-2, Class A-1,
5.747%, 2/10/1999 6,000,000
TOTAL 13,000,000
INSURANCE-5.1%
15,000,000 Jackson National Life Insurance Co., 5.040%, 2/22/1999 15,000,000
5,000,000 Jackson National Life Insurance Co., 5.289%, 2/1/1999 5,000,000
10,000,000 Jackson National Life Insurance Co., 5.310%, 2/1/1999 10,000,000
15,583,393 Liquid Asset Backed Securities Trust, Series 1997-3 Senior
Notes, (Guaranteed by AMBAC), 5.254%, 3/28/1999 15,583,393
25,000,000 Peoples Security Life Insurance Company, 5.390%, 2/12/1999 25,000,000
15,000,000 Principal Life Insurance Company, 5.410%, 3/1/1999 15,000,000
15,000,000 Security Life of Denver Insurance Co., 5.028%, 2/28/1999 15,000,000
5,000,000 Transamerica Life Insurance and Annuity Co., 5.136%,
4/1/1999 5,000,000
5,000,000 Transamerica Occidental Life Insurance Co., 5.525%, 3/6/1999 5,000,000
TOTAL 110,583,393
TOTAL NOTES - VARIABLE 392,497,385
LOAN PARTICIPATION-4.5%
ELECTRICAL EQUIPMENT-0.6%
12,100,000 Mt. Vernon Phenol Plant Partnership, (Guaranteed by General
Electric Co.), 5.370%, 5/17/1999 12,100,000
FINANCE - AUTOMOTIVE-1.8%
40,000,000 General Motors Acceptance Corp., Mortgage of PA, (Guaranteed
by General Motors Acceptance Corp.), 5.120%, 2/1/1999 40,000,000
FINANCE - EQUIPMENT-2.1%
46,000,000 Pitney Bowes Credit Corp., 5.046%, 2/10/1999 45,942,213
TOTAL LOAN PARTICIPATION 98,042,213
SHORT-TERM MUNICIPALS-0.0%
BANKING-0.0%
935,000 Colorado Health Facilities Authority, Series B, (Bank One,
Colorado LOC), 4.960%, 2/4/1999 935,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
REPURCHASE AGREEMENTS-9.5% 4
$ 50,000,000 Bankers Trust Co., New York, 4.820%, dated 1/29/1999, due
2/1/1999 $ 50,000,000
6,550,000 Bear, Stearns and Co., 4.820%, dated 1/29/1999, due 2/1/1999 6,550,000
50,000,000 Nationsbanc Montgomery Securities, Inc., 4.820%, dated
1/29/1999, due 2/1/1999 50,000,000
50,000,000 Paribas Corp., 4.820%, dated 1/29/1999, due 2/1/1999 50,000,000
23,900,000 Societe Generale Securities Corp., 4.730%, dated 1/29/1999,
due 2/1/1999 23,900,000
25,000,000 Toronto Dominion Securities (USA) Inc., 4.730%, dated
1/29/1999, due 2/1/1999 25,000,000
TOTAL REPURCHASE AGREEMENTS 205,450,000
TOTAL INVESTMENTS (AT AMORTIZED COST) 5 $ 2,173,741,108
</TABLE>
1 Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
2 Denotes a restricted security which is subject to restrictions on resale under
Federal Securities laws. At January 31, 1999, these securities amounted to
$198,637,936 which represents 9.2% of net assets.
3 Current rate and next reset date shown.
4 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.
5 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($2,169,392,901) at January 31, 1999.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation FGIC -Financial Guaranty
Insurance Company FSA -Financial Security Assurance IDA -Industrial Development
Authority LOC -Letter of Credit MBIA -Municipal Bond Investors Assurance
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
JANUARY 31, 1999
<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 205,450,000
Investments in securities 1,968,291,108
Total investments in securities, at amortized cost and value $ 2,173,741,108
Cash 12,042
Income receivable 8,695,808
TOTAL ASSETS 2,182,448,958
LIABILITIES:
Payable for investments purchased 10,000,000
Payable for shares redeemed 295,068
Income distribution payable 2,579,579
Accrued expenses 181,410
TOTAL LIABILITIES 13,056,057
Net assets for 2,169,392,901 shares outstanding $ 2,169,392,901
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$1,474,123,184 / 1,474,123,184 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$495,172,173 / 495,172,173 shares outstanding $1.00
INSTITUTIONAL CAPITAL SHARES:
$200,097,544 / 200,097,544 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED JANUARY 31, 1999
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 90,324,831
EXPENSES:
Investment advisory fee $ 3,264,534
Administrative personnel and services fee 1,230,729
Custodian fees 117,892
Transfer and dividend disbursing agent fees and expenses 113,679
Directors'/Trustees' fees 11,486
Auditing fees 14,192
Legal fees 11,491
Portfolio accounting fees 184,121
Shareholder services fee-Institutional Shares 2,826,910
Shareholder services fee-Institutional Service Shares 960,721
Shareholder services fee-Institutional Capital Shares 292,774
Share registration costs 40,925
Printing and postage 18,818
Insurance premiums 107,792
Miscellaneous 11,466
TOTAL EXPENSES 9,207,530
WAIVERS:
Waiver of investment advisory fee $ (2,420,288)
Waiver of shareholder services fee-Institutional Shares (2,826,910)
Waiver of shareholder services fee-Institutional Capital
Shares (175,665)
TOTAL WAIVERS (5,422,863)
Net expenses 3,784,667
Net investment income $ 86,540,164
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 86,540,164 $ 50,489,449
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (60,707,164) (40,931,344)
Institutional Service Shares (19,716,305) (8,059,884)
Institutional Capital Shares (6,116,695) (1,498,221)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS
TO SHAREHOLDERS (86,540,164) (50,489,449)
SHARE TRANSACTIONS:
Proceeds from sale of shares 26,516,611,802 15,976,645,016
Net asset value of shares issued to shareholders in payment
of distributions declared 51,764,190 33,029,994
Cost of shares redeemed (25,657,179,044) (15,177,894,329)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 911,196,948 831,780,681
Change in net assets 911,196,948 831,780,681
NET ASSETS:
Beginning of period 1,258,195,953 426,415,272
End of period $ 2,169,392,901 $ 1,258,195,953
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
JANUARY 31, 1999
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 provision for federal taxes is
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 Act.
Additional information on each restricted security held at January 31, 1999 is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Bankers Trust Corp. 144A, 4.960%, 2/1/1999 8/7/1998 $ 16,400,000
Bankers Trust Corp., 4.960%, 2/1/1999 2/3/1998 20,000,000
Beta Finance, Inc., 5.000% - 5.010%, 1/25/2000 - 2/1/2000 1/25/1999 - 2/1/1999 30,000,000
Bishop's Gate Residential Mortgage Trust, 5.747%, 2/10/1999 12/11/1998 6,000,000
Comdisco, Inc., 144A Notes, 5.350%, 2/26/1999 8/26/1998 10,000,000
Gotham Funding Corp., 5.103% - 5.122%, 2/10/1999 - 2/16/1999 1/11, 1/13, 1/14, 1/15 - 1/19/1999 104,695,064
Liquid Asset Backed Securities Trust, Series 1997-1, 5.000%,
2/16/1999 2/19/1997 11,260,154
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
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, 1999, capital paid-in aggregated $2,169,392,901.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL SHARES
Shares sold 19,781,464,858 13,256,360,968
Shares issued to shareholders in payment of distributions
declared 34,346,178 26,084,298
Shares redeemed (19,207,430,021) (12,804,697,557)
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS 608,381,015 477,747,709
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
Shares sold 5,129,107,787 1,999,938,515
Shares issued to shareholders in payment of distributions
declared 12,725,748 5,524,975
Shares redeemed (4,972,051,133) (1,698,488,527)
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE
SHARE TRANSACTIONS 169,782,402 306,974,963
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL CAPITAL SHARES
Shares sold 1,606,039,157 720,345,533
Shares issued to shareholders in payment of distributions
declared 4,692,264 1,420,721
Shares redeemed (1,477,697,890) (674,708,245)
NET CHANGE RESULTING FROM INSTITUTIONAL CAPITAL
SHARE TRANSACTIONS 133,033,531 47,058,009
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 911,196,948 831,780,681
</TABLE>
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. Effective March 31, 1999, the Adviser will merge into
Federated Investment Management Company (formerly Federated Advisers). The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser can
modify or terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended January 31, 1999, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $324,480,000 and $320,920,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
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, 1999, 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, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, 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, 1999, 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 the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
[Graphic]
Boston, Massachusetts
March 15, 1999
Prime Value Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's semi-annual report to shareholders
as it becomes available. To obtain the SAI, semi-annual report and other
information without charge, call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
[Graphic]
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-7364
Cusip 608912408
G01881-01-IS (3/99)
[Graphic]
Prime Value Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking to achieve current income consistent with
stability of principal and liquidity.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
MARCH 31, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which
the Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 5
What Do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 6
How to Redeem Shares 7
Account and Share Information 8
Who Manages the Fund? 9
Financial Information 10
Report of Ernst & Young LLP, Independent Auditors 26
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is current income consistent with
stability of principal and liquidity. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
This investment objective may be changed by the Fund's Trustees without
shareholder approval.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high quality fixed income securities maturing
in 13 months or less. The average maturity of the Fund's portfolio will be 90
days or less.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money by investing in the Fund.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares as of the calendar year-end
for each of the last five years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 1% up to 6%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features five distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Institutional Service Shares for each calendar
year is stated directly at the top of each respective bar, for the calendar
years 1994 through 1998. The percentages noted are: 4.04%, 5.84%, 5.18%, 5.38%
and 5.32%, respectively.
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional Service
Shares total returns on a yearly basis.
The Fund's Institutional Service Shares are not sold subject to a sales charge
(load). The total returns displayed above are based upon the net asset value.
Within the period shown in the Chart, the Fund's Institutional Service Shares
highest quarterly return was 1.47% (quarter ended June 30, 1995). Its lowest
quarterly return was 0.76% (quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURN
The following table represents the Fund's Institutional Service Shares Average
Annual Total Return through December 31, 1998.
CALENDAR PERIOD FUND
1 Year 5.32%
5 Years 5.15%
Start of Performance 1 5.02%
1 The Fund's Institutional Service Shares start of performance date was
September 1, 1993.
Investors may call the Fund at 1-800-341-7400 to acquire the current 7-Day Net
Yield.
The Fund's Institutional Service Shares 7-Day Net Yield as of 12/31/98 was
4.90%.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are the Fund's Fees and Expenses?
PRIME VALUE OBLIGATIONS FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Service Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as percentage
of average net assets)
Management Fee 2 0.20%
Distribution (12b-1) Fee None
Shareholder Services Fee 0.25%
Other Expenses 0.11%
Total Annual Fund Operating Expenses 0.56%
1 Although not contractually obligated to do so, the adviser
waived certain amounts. These are described below along with
the net expenses the Fund's Institutional Service Shares
actually paid for the fiscal year ended January 31, 1999.
Waiver of Fund Expenses 0.15%
Total Actual Annual Fund Operating Expenses (after waivers) 0.41%
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund's Institutional Service Shares (after the voluntary waiver) was 0.05% for
the year ended January 31, 1999.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Institutional Service Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Service
Shares for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's Institutional Service Shares operating
expenses are BEFORE WAIVERS as shown in the table and remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
1 Year $ 57
3 Years $ 179
5 Years $ 313
10 Years $ 701
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high quality fixed income securities maturing
in 13 months or less. The average maturity of the Fund's portfolio will be 90
days or less.
In order to select individual investments, the Fund's investment adviser
(Adviser) performs a fundamental credit analysis to develop an approved list of
issuers and securities that meet the Adviser's minimum credit standards. The
Adviser assesses likely movements in interest rates based upon general economic
and market conditions. Considering this assessment, the Adviser targets an
average portfolio maturity range. The Adviser generally shortens the portfolio's
average maturity when it expects interest rates to rise and extends the maturity
when it expects interest rates to fall. In adjusting the portfolio's average
maturity, the Adviser selects among investments with different maturities
comparing their relative returns.
INDUSTRY CONCENTRATION
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.
What are the Principal Securities in Which the Fund Invests?
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must also repay
the principal amount of the security, normally within a specified time.
The following describes the types of fixed income securities in which the Fund
invests:
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures, and commercial paper are the most prevalent types of
corporate debt securities that the Fund purchases.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of nine months or
less. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must repay upon
demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances.
ASSET BACKED SECURITIES
Asset backed securities are payable from pools of debt obligations. Most asset
backed securities involve consumer or commercial debts with maturities of less
than 10 years. However, almost any type of fixed income assets (including other
fixed income securities) may be used to create an asset backed security. Asset
backed securities may take the form of commercial paper, notes, or pass through
certificates.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser usually evaluates the credit risk of a fixed income
security based solely upon its credit enhancement.
REPURCHASE AGREEMENTS
Repurchase Agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund, the
principal risks of investing in a corporate money market fund are described
below.
BOND MARKET RISKS
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money. Money market funds try to minimize this risk by purchasing
higher quality securities.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the Adviser's credit assessment.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities issued
or credit enhanced by companies in similar businesses or with similar
characteristics. As a result, the Fund will be more susceptible to any economic,
business, political, or other developments which generally affect these issuers.
What Do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined net asset value (NAV). The Fund does not charge
a front-end sales charge. NAV is determined at 12:00 noon and 3:00 p.m. (Eastern
time) and as of the end of regular trading (normally 4:00 p.m. Eastern time)
each day the NYSE is open.
The required minimum initial investment for Fund Shares is $1,000,000. There is
no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $1,000,000 minimum
is reached within one year of opening the account. An institutional investor's
minimum investment is calculated by combining all accounts it maintains with the
Fund. Accounts established through investment professionals may be subject to a
smaller minimum investment amount. Keep in mind that investment professionals
may charge you fees for their services in connection with your Share
transactions.
How is the Fund Sold?
The Fund offers three share classes: Institutional Shares, Institutional Service
Shares and Institutional Capital Shares, each representing interests in a single
portfolio of securities. This prospectus relates only to Institutional Service
Shares. Each share class has different expenses which affect their performance.
Contact your investment professional or call 1-800-341-7400 for more information
concerning the other classes.
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity.
The Distributor and its affiliates may pay out of their assets other
amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of
Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 3:00 p.m.
(Eastern time). You will receive that day's dividend if the investment
professional forwards the order to the Fund and the Fund receives payment by
3:00 p.m. (Eastern time). You will become the owner of Shares and receive
dividends when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares after the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY INVEST-BY-PHONE
Once you establish an account, you may use the Fund's Invest-By-Phone privilege
for future Share purchases if you have an account with a bank that is an
Automated Clearing House member. To apply, call the Fund for an authorization
form. You may use Invest-By-Phone to purchase Shares approximately two weeks
from the date you file the form with Federated Shareholder Services Company.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). Investment
professionals are responsible for promptly submitting redemption requests and
providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 3:00 p.m. (Eastern time) your redemption will be wired to you
the same day. You will not receive that day's dividend.
If you call after 3:00 p.m. (Eastern time) your redemption will be wired to you
the following business day. You will receive that day's dividend.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the day
that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
ACCOUNT ACTIVITY
You will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
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 pays any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state, and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily dividends. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal, state,
and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and private accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.20% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.
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 1999 1998 1997 1996 1 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.05 0.05 0.06 0.04
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.05) (0.05) (0.05) (0.06) (0.04)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 2 5.27% 5.41% 5.15% 5.84% 4.26%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.41% 0.39% 0.41% 0.42% 0.34%
Net investment income 5.13% 5.32% 5.05% 5.68% 3.95%
Expense waiver/reimbursement 3 0.15% 0.17% 0.16% 0.08% 0.16%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $495,172 $325,390 $18,415 $20,372 $21,739
</TABLE>
1 Federated Management became the Fund's investment adviser on November 15,
1996. Prior to November 15, 1996, Lehman Brothers Global Asset Management served
as the Fund's investment adviser.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 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
JANUARY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM NOTES-7.6%
BANKING-3.5%
$ 55,000,000 Abbey National Treasury Services, PLC, 4.990% - 5.500%,
2/2/1999 - 1/13/2000 $ 54,988,009
10,000,000 SALTS III Cayman Island Corp., (Guaranteed by Bankers Trust
International, PLC), 5.270%, 4/23/1999 10,000,000
10,000,000 SALTS III Cayman Island Corp., (Guaranteed by Bankers Trust
International, PLC), 5.571%, 3/18/1999 10,000,000
TOTAL 74,988,009
BROKERAGE-0.9%
20,000,000 Goldman Sachs Group, LP, 5.020%, 3/1/1999 20,000,000
FINANCE - AUTOMOTIVE-0.8%
1,047,856 Chase Manhattan Auto Owner Trust 1998-C, Class A1, 5.588%,
7/9/1999 1,047,806
664,124 Compass Auto Receivables Trust 1998-A, Class A-1, 5.659%,
7/15/1999 664,124
9,500,000 Honda Auto Receivables 1999-1 Owner Trust, Class A-1,
4.974%, 2/15/2000 9,500,000
6,347,406 MMCA Auto Owner Trust 1998-1, Class A-1, 5.621%, 8/16/1999 6,347,406
TOTAL 17,559,336
FINANCE - COMMERCIAL-1.4%
30,000,000 2 Beta Finance, Inc., 5.000% - 5.010%, 1/25/2000 - 2/1/2000 30,000,000
FINANCE - EQUIPMENT-0.6%
1,746,227 Case Equipment Receivables Trust 1998-B, Class A-1, 5.608%,
9/15/1999 1,746,227
10,669,568 Newcourt Equipment Trust Securities 1998-2, Class A-1,
5.195%, 1/15/2000 10,669,568
TOTAL 12,415,795
INSURANCE-0.4%
9,000,000 WFS Financial 1998-C Owner Trust, Class A1, (Guaranteed by
FSA), 5.395%, 11/20/1999 9,000,000
TOTAL SHORT-TERM NOTES 163,963,140
CERTIFICATES OF DEPOSIT-10.0%
BANKING-10.0%
10,000,000 Bankers Trust Co., New York, 5.645%, 2/26/1999 9,999,770
25,000,000 Canadian Imperial Bank of Commerce, 5.030%, 1/27/2000 24,992,864
45,000,000 Deutsche Bank, AG, 5.310%, 5/3/1999 45,042,905
10,000,000 First National Bank of Maryland, Baltimore, 5.020%,
1/25/2000 9,997,161
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CERTIFICATES OF DEPOSIT-continued
BANKING-CONTINUED
$ 15,000,000 KeyBank, N.A., 5.080%, 4/9/1999 $ 15,000,000
20,000,000 Societe Generale, Paris, 5.645%, 2/26/1999 19,999,540
18,000,000 Svenska Handelsbanken, Stockholm, 5.705% - 5.800%, 4/6/1999
- 5/14/1999 17,999,991
75,000,000 Toronto-Dominion Bank, 5.020%, 1/10/2000 74,972,808
TOTAL CERTIFICATES OF DEPOSIT 218,005,039
COMMERCIAL PAPER -50.5% 1
AEROSPACE/AUTO-2.6%
57,000,000 Johnson Controls, Inc., 5.379% - 5.502%, 2/5/1999 - 3/5/1999 56,910,469
BANKING-24.2%
47,500,000 Aspen Funding Corp., (Guaranteed by MBIA, Guaranteed by
Deutsche Bank, AG), 5.110% - 5.641%, 2/22/1999 - 2/25/1999 47,355,528
8,000,000 Bankers Trust Corp., 5.656%, 2/3/1999 7,997,556
50,000,000 Canadian Imperial Holdings, Inc., (Guaranteed by Canadian
Imperial Bank of Commerce), 4.984%, 2/22/1999 49,857,083
9,000,000 Cregem North America, Inc., (Guaranteed by Credit Communal
de Belgique, Brussles), 4.943%, 2/23/1999 8,973,270
56,459,000 Fountain Square Commercial Funding Corp., (Fifth Third Bank,
Cincinnati, Support Agreement), 4.981% - 5.372%, 2/1/1999 -
7/6/1999 56,036,007
105,130,000 2 Gotham Funding Corp., 5.103% - 5.122%, 2/10/1999 - 2/16/1999 104,977,782
30,000,000 Greenwich Funding Corp., 4.889%, 4/15/1999 29,706,175
100,000,000 J.P. Morgan & Co., Inc., 4.905%, 4/15/1999 99,017,542
78,000,000 Lloyds Bank PLC, London, 5.060%, 2/25/1999 77,742,080
10,000,000 PEMEX Capital, Inc., (Societe Generale, Paris LOC), 4.897%,
4/22/1999 9,892,444
25,000,000 Westpac Capital Corp., (Guaranteed by Westpac Banking Corp.
Ltd., Sydney), 5.029%, 5/14/1999 24,654,333
9,193,000 Wood Street Funding Corp., (PNC Bank, N.A. Support
Agreement), 4.889%, 2/19/1999 9,170,615
TOTAL 525,380,415
CHEMICALS-1.2%
25,045,000 IMC Global, Inc., 5.020% - 6.295%, 2/12/1999 - 2/24/1999 24,965,936
FINANCE - AUTOMOTIVE-1.2%
25,000,000 Ford Motor Credit Corp., 5.138%, 2/5/1999 24,985,972
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COMMERCIAL PAPER-continued 1
FINANCE - COMMERCIAL-13.6%
$ 56,000,000 Beta Finance, Inc., 4.997% - 5.634%, 2/5/1999 - 3/8/1999 $ 55,808,430
60,000,000 Falcon Asset Securitization Corp., (Guaranteed by AMBAC),
5.321% - 5.331%, 2/11/1999 - 2/25/1999 59,851,083
50,000,000 General Electric Capital Corp., 5.037% - 5.455%, 2/12/1999 -
3/17/1999 49,744,703
10,000,000 Receivables Capital Corp., 5.450%, 2/12/1999 9,983,531
119,000,000 Sheffield Receivables Corp., 4.891% - 5.499%, 2/5/1999 -
3/23/1999 118,466,096
TOTAL 293,853,843
FINANCE - EQUIPMENT-0.4%
9,350,000 Comdisco, Inc., 5.015% - 5.031%, 2/10/1999 - 3/10/1999 9,332,576
FINANCE - RETAIL-4.5%
3,000,000 American Express Credit Corp., 5.023%, 4/12/1999 2,971,417
17,000,000 Associates Corp. of North America, 4.931% - 5.401%, 3/9/1999
- 3/22/1999 16,890,868
49,000,000 Associates First Capital B.V., (Guaranteed by Associates
First Capital Corp.), 4.888% - 4.908%, 4/20/1999 - 5/18/1999 48,393,298
30,000,000 Associates First Capital Corp., 5.094%, 5/28/1999 29,519,567
TOTAL 97,775,150
FOREST PRODUCTS-0.4%
9,398,000 Temple-Inland, Inc., 5.000% - 5.018%, 2/16/1999 - 2/26/1999 9,368,249
INSURANCE-1.5%
22,001,000 CNA Financial Corp., 5.015% - 5.022%, 2/10/1999 - 4/26/1999 21,851,053
10,000,000 CXC, Inc., (Guaranteed by FGIC, Guaranteed by AMBAC,
Guaranteed by MBIA, Guaranteed by Export-Import Bank),
5.161%, 5/17/1999 9,853,292
TOTAL 31,704,345
MACHINERY, EQUIPMENT, AUTO-0.4%
8,000,000 Eaton Corp., 5.649%, 5/21/1999 7,868,716
OIL & OIL FINANCE-0.1%
2,731,000 Occidental Petroleum Corp., 5.755%, 2/19/1999 2,723,217
TELECOMMUNICATIONS-0.2%
4,920,000 MCI Worldcom, Inc., 5.063%, 4/7/1999 4,875,583
TRANSPORTATION-0.2%
5,112,000 FDX Corp., 6.211% - 6.246%, 2/10/1999 - 2/11/1999 5,103,860
TOTAL COMMERCIAL PAPER 1,094,848,331
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
NOTES - VARIABLE-18.1% 3
BANKING-11.9%
$ 9,505,000 500 South Front St. L.P., Series A, (Huntington National
Bank, Columbus, OH LOC), 4.910%, 2/4/1999 $ 9,505,000
5,645,000 500 South Front St. L.P., Series B, (Huntington National
Bank, Columbus, OH LOC), 4.910%, 2/4/1999 5,645,000
1,335,000 Alabama State IDA, (Nichols Research Corp.), (SouthTrust
Bank of Alabama, Birmingham LOC), 5.020%, 2/5/1999 1,335,000
3,150,000 Associated Materials, Inc., (KeyBank, N.A. LOC), 4.930%,
2/5/1999 3,150,000
1,805,000 Athens-Clarke County, GA IDA, Barrett Project, Series 1995,
(Columbus Bank and Trust Co., GA LOC), 5.080%, 2/4/1999 1,805,000
10,000,000 Bankers Trust Co., New York, 4.880%, 6/4/1999 9,997,698
16,400,000 2 Bankers Trust Corp., 144A, 4.960%, 2/1/1999 16,400,000
20,000,000 2 Bankers Trust Corp., 4.960%, 2/1/1999 20,000,000
16,900,000 Beverly California Corp., (PNC Bank, N.A. LOC), 4.938%,
2/1/1999 16,900,000
16,860,000 Beverly Hills Nursing Center, Inc., Medilodge Project,
Series 1996, (KeyBank, N.A. LOC), 4.960%, 2/4/1999 16,860,000
1,945,000 Bissett,William K. and Sheryl B., Multi-Option Adjustable
Rate Notes, (Huntington National Bank, Columbus, OH LOC),
4.910%, 2/4/1999 1,945,000
6,715,000 Briarwood L.P. Project, Series 1999, (Bank One, Ohio, N.A.
LOC), 4.970%, 2/4/1999 6,715,000
640,000 Carmel, IN, Telamon Corp, Series 1996-C, (Huntington
National Bank, Columbus, OH LOC), 5.010%, 2/4/1999 640,000
965,000 Carmel, IN, Telamon Corp, Series A, (Huntington National
Bank, Columbus, OH LOC), 5.010%, 2/4/1999 965,000
1,055,000 Carmel, IN, Telamon Corp, Series B, (Huntington National
Bank, Columbus, OH LOC), 5.010%, 2/4/1999 1,055,000
2,020,000 Continental Downtown Properties, (Huntington National Bank,
Columbus, OH LOC), 4.910%, 2/4/1999 2,020,000
5,900,000 Dellridge Care Center L.P., Series 1997, (First National
Bank of Maryland, Baltimore LOC), 5.000%, 2/3/1999 5,900,000
3,605,000 Denver Urban Renewal Authority, Series 1992-B, (Paribas,
Paris LOC), 5.020%, 2/4/1999 3,605,000
9,820,000 ERC Real Estate LLC, (KeyBank, N.A. LOC), 4.910%, 2/4/1999 9,820,000
5,000,000 Industrial Dimensions, Inc., Series 1999, (Fifth Third Bank
of Northwestern OH LOC), 5.000%, 2/4/1999 5,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
NOTES - VARIABLE-continued 3
BANKING-CONTINUED
$ 9,139,000 International Processing Corp, (Bank One, Kentucky LOC),
4.960%, 2/4/1999 $ 9,139,000
2,250,000 Jeffersonville, IN, Series 1997-B, Wayne Steel, Inc., (Bank
One, Ohio, N.A. LOC), 4.910%, 2/4/1999 2,250,000
4,000,000 Lake Sherwood Senior Living Center, LLC, (Union Planters NB,
Memphis, TN LOC), 5.220%, 2/4/1999 4,000,000
2,000,000 Liquid Asset Backed Securities Trust, Series 1996-3,
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.020%, 2/16/1999 2,000,000
11,260,154 2 Liquid Asset Backed Securities Trust, Series 1997-1,
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.000%, 2/16/1999 11,260,154
4,100,000 Melberger, Clifford K. and Ruth B., (PNC Bank, N.A. LOC),
4.938%, 2/1/1999 4,100,000
6,860,000 Pine Ridge Associates, LTD., (Mellon Bank N.A., Pittsburgh
LOC), 5.000%, 2/3/1999 6,860,000
2,300,000 Poly Foam International, Inc., (National City Bank, Ohio
LOC), 4.920%, 2/4/1999 2,300,000
7,335,000 Rubloff- Rockford, LLC, Series 1997, (National City Bank,
Michigan/Illinois LOC), 5.000%, 2/3/1999 7,335,000
17,100,000 Scranton Times, L.P., Series 1997, (PNC Bank, N.A. LOC),
4.938%, 2/1/1999 17,100,000
17,000,000 Societe Generale, Paris, 4.883%, 8/11/1999 16,994,140
2,785,000 Solon, OH, Schneps, (Bank One, Ohio, N.A. LOC), 4.910%,
2/4/1999 2,785,000
645,000 Southeast Regional Holdings, LLC, Series 1995-A, (Columbus
Bank and Trust Co., GA LOC), 5.170%, 2/4/1999 645,000
8,560,000 Southern Coil Processing, Inc. Notes, (Amsouth Bank N.A.,
Birmingham LOC), 5.000%, 2/4/1999 8,560,000
4,300,000 Spencer County, IN, American Oxide Co. Project, (Bank of
Tokyo-Mitsubishi Ltd. LOC), 5.540%, 2/4/1999 4,300,000
1,680,000 Team Rahal of Mechanicsburg, Inc., Series 1997, (Huntington
National Bank, Columbus, OH LOC), 4.910%, 2/4/1999 1,680,000
1,840,000 Team Rahal, Inc., Series 1997, (Huntington National Bank,
Columbus, OH LOC), 4.910%, 2/4/1999 1,840,000
7,300,000 Tift County, GA Development Authority, Chickasha of Georgia
Project, Series 1997, (Bank of Tokyo-Mitsubishi Ltd. LOC),
5.040%, 2/3/1999 7,300,000
1,700,000 Village Green Finance Co., LLC, Series 1997, (Wachovia Bank
of NC, N.A., Winston-Salem LOC), 4.940%, 2/3/1999 1,700,000
1,463,000 Vista Funding Corp., Series 1995-A, (Star Bank, N.A.,
Cincinnati LOC), 5.040%, 2/4/1999 1,463,000
6,040,000 Westcourt, (Bank One, Texas N.A. LOC), 4.960%, 2/4/1999 6,040,000
TOTAL 258,913,992
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
NOTES - VARIABLE-continued 3
FINANCE - EQUIPMENT-0.5%
$ 10,000,000 2 Comdisco, Inc., 144A Notes, 5.350%, 2/26/1999 $ 10,000,000
FINANCE - RETAIL-0.6%
7,000,000 AFS Insurance Premium Receivables Trust, Series 1994-A,
5.556%, 2/16/1999 7,000,000
6,000,000 2 Bishop's Gate Residential Mortgage Trust 1998-2, Class A-1,
5.747%, 2/10/1999 6,000,000
TOTAL 13,000,000
INSURANCE-5.1%
15,000,000 Jackson National Life Insurance Co., 5.040%, 2/22/1999 15,000,000
5,000,000 Jackson National Life Insurance Co., 5.289%, 2/1/1999 5,000,000
10,000,000 Jackson National Life Insurance Co., 5.310%, 2/1/1999 10,000,000
15,583,393 Liquid Asset Backed Securities Trust, Series 1997-3 Senior
Notes, (Guaranteed by AMBAC), 5.254%, 3/28/1999 15,583,393
25,000,000 Peoples Security Life Insurance Company, 5.390%, 2/12/1999 25,000,000
15,000,000 Principal Life Insurance Company, 5.410%, 3/1/1999 15,000,000
15,000,000 Security Life of Denver Insurance Co., 5.028%, 2/28/1999 15,000,000
5,000,000 Transamerica Life Insurance and Annuity Co., 5.136%,
4/1/1999 5,000,000
5,000,000 Transamerica Occidental Life Insurance Co., 5.525%, 3/6/1999 5,000,000
TOTAL 110,583,393
TOTAL NOTES - VARIABLE 392,497,385
LOAN PARTICIPATION-4.5%
ELECTRICAL EQUIPMENT-0.6%
12,100,000 Mt. Vernon Phenol Plant Partnership, (Guaranteed by General
Electric Co.), 5.370%, 5/17/1999 12,100,000
FINANCE - AUTOMOTIVE-1.8%
40,000,000 General Motors Acceptance Corp., Mortgage of PA, (Guaranteed
by General Motors Acceptance Corp.), 5.120%, 2/1/1999 40,000,000
FINANCE - EQUIPMENT-2.1%
46,000,000 Pitney Bowes Credit Corp., 5.046%, 2/10/1999 45,942,213
TOTAL LOAN PARTICIPATION 98,042,213
SHORT-TERM MUNICIPALS-0.0%
BANKING-0.0%
935,000 Colorado Health Facilities Authority, Series B, (Bank One,
Colorado LOC), 4.960%, 2/4/1999 935,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
REPURCHASE AGREEMENTS-9.5% 4
$ 50,000,000 Bankers Trust Co., New York, 4.820%, dated 1/29/1999, due
2/1/1999 $ 50,000,000
6,550,000 Bear, Stearns and Co., 4.820%, dated 1/29/1999, due 2/1/1999 6,550,000
50,000,000 Nationsbanc Montgomery Securities, Inc., 4.820%, dated
1/29/1999, due 2/1/1999 50,000,000
50,000,000 Paribas Corp., 4.820%, dated 1/29/1999, due 2/1/1999 50,000,000
23,900,000 Societe Generale Securities Corp., 4.730%, dated 1/29/1999,
due 2/1/1999 23,900,000
25,000,000 Toronto Dominion Securities (USA) Inc., 4.730%, dated
1/29/1999, due 2/1/1999 25,000,000
TOTAL REPURCHASE AGREEMENTS 205,450,000
TOTAL INVESTMENTS (AT AMORTIZED COST) 5 $ 2,173,741,108
</TABLE>
1 Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
2 Denotes a restricted security which is subject to restrictions on resale under
Federal Securities laws. At January 31, 1999, these securities amounted to
$198,637,936 which represents 9.2% of net assets.
3 Current rate and next reset date shown.
4 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.
5 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($2,169,392,901) at January 31, 1999.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation FGIC -Financial Guaranty
Insurance Company FSA -Financial Security Assurance IDA -Industrial Development
Authority LOC -Letter of Credit MBIA -Municipal Bond Investors Assurance
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
JANUARY 31, 1999
<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 205,450,000
Investments in securities 1,968,291,108
Total investments in securities, at amortized cost and value $ 2,173,741,108
Cash 12,042
Income receivable 8,695,808
TOTAL ASSETS 2,182,448,958
LIABILITIES:
Payable for investments purchased 10,000,000
Payable for shares redeemed 295,068
Income distribution payable 2,579,579
Accrued expenses 181,410
TOTAL LIABILITIES 13,056,057
Net assets for 2,169,392,901 shares outstanding $ 2,169,392,901
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$1,474,123,184 / 1,474,123,184 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$495,172,173 / 495,172,173 shares outstanding $1.00
INSTITUTIONAL CAPITAL SHARES:
$200,097,544 / 200,097,544 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED JANUARY 31, 1999
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 90,324,831
EXPENSES:
Investment advisory fee $ 3,264,534
Administrative personnel and services fee 1,230,729
Custodian fees 117,892
Transfer and dividend disbursing agent fees and expenses 113,679
Directors'/Trustees' fees 11,486
Auditing fees 14,192
Legal fees 11,491
Portfolio accounting fees 184,121
Shareholder services fee-Institutional Shares 2,826,910
Shareholder services fee-Institutional Service Shares 960,721
Shareholder services fee-Institutional Capital Shares 292,774
Share registration costs 40,925
Printing and postage 18,818
Insurance premiums 107,792
Miscellaneous 11,466
TOTAL EXPENSES 9,207,530
WAIVERS:
Waiver of investment advisory fee $ (2,420,288)
Waiver of shareholder services fee-Institutional Shares (2,826,910)
Waiver of shareholder services fee-Institutional Capital
Shares (175,665)
TOTAL WAIVERS (5,422,863)
Net expenses 3,784,667
Net investment income $ 86,540,164
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 86,540,164 $ 50,489,449
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (60,707,164) (40,931,344)
Institutional Service Shares (19,716,305) (8,059,884)
Institutional Capital Shares (6,116,695) (1,498,221)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS
TO SHAREHOLDERS (86,540,164) (50,489,449)
SHARE TRANSACTIONS:
Proceeds from sale of shares 26,516,611,802 15,976,645,016
Net asset value of shares issued to shareholders in payment
of distributions declared 51,764,190 33,029,994
Cost of shares redeemed (25,657,179,044) (15,177,894,329)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 911,196,948 831,780,681
Change in net assets 911,196,948 831,780,681
NET ASSETS:
Beginning of period 1,258,195,953 426,415,272
End of period $ 2,169,392,901 $ 1,258,195,953
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
JANUARY 31, 1999
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 provision for federal taxes is
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 Act.
Additional information on each restricted security held at January 31, 1999 is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Bankers Trust Corp. 144A, 4.960%, 2/1/1999 8/7/1998 $ 16,400,000
Bankers Trust Corp., 4.960%, 2/1/1999 2/3/1998 20,000,000
Beta Finance, Inc., 5.000% - 5.010%, 1/25/2000 - 2/1/2000 1/25/1999 - 2/1/1999 30,000,000
Bishop's Gate Residential Mortgage Trust, 5.747%, 2/10/1999 12/11/1998 6,000,000
Comdisco, Inc., 144A Notes, 5.350%, 2/26/1999 8/26/1998 10,000,000
Gotham Funding Corp., 5.103% - 5.122%, 2/10/1999 - 2/16/1999 1/11, 1/13, 1/14, 1/15 - 1/19/1999 104,695,064
Liquid Asset Backed Securities Trust, Series 1997-1, 5.000%,
2/16/1999 2/19/1997 11,260,154
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
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, 1999, capital paid-in aggregated $2,169,392,201.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL SHARES
Shares sold 19,781,464,858 13,256,360,968
Shares issued to shareholders in payment of distributions
declared 34,346,178 26,084,298
Shares redeemed (19,207,430,021) (12,804,697,557)
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS 608,381,015 477,747,709
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
Shares sold 5,129,107,787 1,999,938,515
Shares issued to shareholders in payment of distributions
declared 12,725,748 5,524,975
Shares redeemed (4,972,051,133) (1,698,488,527)
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE
SHARE TRANSACTIONS 169,782,402 306,974,963
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL CAPITAL SHARES
Shares sold 1,606,039,157 720,345,533
Shares issued to shareholders in payment of distributions
declared 4,692,264 1,420,721
Shares redeemed (1,477,697,890) (674,708,245)
NET CHANGE RESULTING FROM INSTITUTIONAL CAPITAL
SHARE TRANSACTIONS 133,033,531 47,058,009
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 911,196,948 831,780,681
</TABLE>
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. Effective March 31, 1999, the Adviser will merge into
Federated Investment Management Company (formerly Federated Advisers). The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser can
modify or terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended January 31, 1999, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $324,480,000 and $320,920,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
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, 1999, 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, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, 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, 1999, 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 the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
[Graphic]
Boston, Massachusetts
March 15, 1999
Prime Value Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL SERVICE SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's semi-annual report to shareholders
as it becomes available. To obtain the SAI, semi-annual report and other
information without charge, call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
[Graphic]
Prime Value Obligations Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 7364
Cusip 608912507
G01881-02-SS (3/99)
[Graphic]
PROSPECTUS
Prime Value Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL CAPITAL SHARES
A money market mutual fund seeking to achieve current income consistent with
stability of principal and liquidity.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
MARCH 31, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in
Which the Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 5
What Do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 6
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 9
Financial Information 10
Report of Ernst & Young LLP, Independent Auditors 26
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is current income consistent with
stability of principal and liquidity. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by following the
strategies and policies described in this prospectus.
This investment objective may be changed by the Fund's Trustees without
shareholder approval.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high quality fixed income securities maturing
in 13 months or less. The average maturity of the Fund's portfolio will be 90
days or less.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money by investing in the Fund.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Capital Shares as of the calendar year-end
for each of the last five years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 1% up to 6%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features five distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Institutional Capital Shares for each calendar
year is stated directly at the top of each respective bar, for the calendar
years 1994 through 1998. The percentages noted are: 4.14%, 5.95%, 5.29%, 5.52%
and 5.46%, respectively.
Historically, the Fund has maintained a constant $1.00 net asset value. The bar
chart shows the variability of the Fund's Institutional Capital Shares total
returns on a yearly basis.
The Fund's Institutional Capital Shares are not sold subject to a sales charge
(load). The total returns displayed above are based upon the net asset value.
Within the period shown in the Chart, the Fund's Institutional Capital Shares
highest quarterly return was 1.49% (quarter ended June 30, 1995). Its lowest
quarterly return was 0.78% (quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURN
The following table represents the Fund's Institutional Capital Shares Average
Annual Total Return through December 31, 1998.
CALENDAR PERIOD FUND
1 Year 5.46%
5 Years 5.27%
Start of Performance 1 4.94%
1 The Fund's Institutional Capital Shares start of performance date was February
8, 1993.
Investors may call the Fund at 1-800-341-7400 to acquire the current 7-Day Net
Yield .
The Fund's Institutional Capital Shares 7- Day Net Yield as of 12/31/98 was
5.03%.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are the Fund's Fees and Expenses?
PRIME VALUE OBLIGATIONS FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Capital Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or
redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
<CAPTION>
<S> <C> ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1 Expenses That are
Deducted From Fund Assets (as a percentage of average net assets) Management Fee
2 0.20% Distribution (12b-1) Fee None Shareholder Services Fee 3 0.25% Other
Expenses 0.13% Total Annual Fund Operating Expenses 0.58% 1 Although not
contractually obligated to do so, the adviser and shareholder services provider
waived certain amounts. These are described below along with the net expenses
the Fund's Institutional Capital Shares actually paid for the fiscal year ended
January 31, 1999.
Waiver of Fund Expenses 0.30%
Total Actual Annual Fund Operating Expenses (after waivers) 0.28%
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund's Institutional Capital Shares (after the voluntary waiver) was 0.05% for
the year ended January 31, 1999. 3 The shareholder services fee has been
voluntarily reduced. This voluntary reduction can be terminated at any time. The
shareholder services fee paid by the Fund's Institutional Capital Shares (after
the voluntary reduction) was 0.10% for the year ended January 31, 1999.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Institutional Capital Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Capital
Shares for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's Institutional Capital Shares operating
expenses are BEFORE WAIVERS as shown in the table and remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
1 Year $ 59
3 Years $ 186
5 Years $ 324
10 Years $ 726
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high quality fixed income securities maturing
in 13 months or less. The average maturity of the Fund's portfolio will be 90
days or less.
In order to select individual investments, the Fund's investment adviser
(Adviser) performs a fundamental credit analysis to develop an approved list of
issuers and securities that meet the Adviser's minimum credit standards. The
Adviser assesses likely movements in interest rates based upon general economic
and market conditions. Considering this assessment, the Adviser targets an
average portfolio maturity range. The Adviser generally shortens the portfolio's
average maturity when it expects interest rates to rise and extends the maturity
when it expects interest rates to fall. In adjusting the portfolio's average
maturity, the Adviser selects among investments with different maturities
comparing their relative returns.
INDUSTRY CONCENTRATION
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.
What are the Principal Securities in Which the Fund Invests?
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must also repay
the principal amount of the security, normally within a specified time.
The following describes the types of fixed income securities in which the Fund
invests:
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures, and commercial paper are the most prevalent types of
corporate debt securities.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of nine months or
less. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must repay upon
demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances.
ASSET BACKED SECURITIES
Asset Backed Securities are payable from pools of debt obligations. Most asset
backed securities involve consumer or commercial debts with maturities of less
than 10 years. However, almost any type of fixed income assets (including other
fixed income securities) may be used to create an asset backed security. Asset
backed securities may take the form of commercial paper, notes, or pass-through
certificates.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser usually evaluates the credit risk of a fixed income
security based solely upon its credit enhancement.
REPURCHASE AGREEMENTS
Repurchase Agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund, the
principal risks of investing in a corporate money market fund are described
below.
BOND MARKET RISKS
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money. Money market funds try to minimize this risk by purchasing
higher quality securities.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the Adviser's credit assessment.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities issued
or credit enhanced by companies in similiar businesses or with similiar
characteristics. As a result, the Fund will be more susceptible to any economic,
business, political, or other developments which generally affect these issuers.
What Do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next calculated net asset value (NAV). The Fund does not charge
a front-end sales charge. NAV is determined at 12:00 noon and 3:00 p.m. (Eastern
time) and as of the end of regular trading (normally 4:00 p.m. Eastern time)
each day the NYSE is open.
The required minimum initial investment for Fund Shares is $1,000,000. There is
no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $1,000,000 minimum
is reached within one year of opening the account. An institutional investor's
minimum investment is calculated by combining all accounts it maintains with the
Fund. Accounts established through investment professionals may be subject to a
smaller minimum investment amount. Keep in mind that investment professionals
may charge you fees for their services in connection with your Share
transactions.
How is the Fund Sold?
The Fund offers three share classes: Institutional Shares, Institutional Service
Shares and Institutional Capital Shares, each representing interests in a single
portfolio of securities. This prospectus relates only to Institutional Capital
Shares. Each share class has different expenses, which affect their performance.
Contact your investment professional or call 1-800-341-7400 for more information
concerning the other classes.
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity. The Distributor and its
affiliates may pay out of their assets other amounts (including items of
material value) to investment professionals for marketing and servicing Shares.
The Distributor is a subsidiary of Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 3:00 p.m.
(Eastern time). You will receive that day's dividend if the investment
professional forwards the order to the Fund and the Fund receives payment by
3:00 p.m. (Eastern time). You will become the owner of Shares and receive
dividends when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares after the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check BY A PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY INVEST-BY-PHONE
Once you establish an account, you may use the Fund's Invest-By-Phone privilege
for future Share purchases if you have an account with a bank that is an
Automated Clearing House member. To apply, call the Fund for an authorization
form. You may use Invest-By-Phone to purchase Shares approximately two weeks
from the date you file the form with Federated Shareholder Services Company.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). Investment
professionals are responsible for promptly submitting redemption requests and
providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 3:00 p.m. (Eastern time) your redemption will be wired to you
the same day. You will not receive that day's dividend.
If you call after 3:00 p.m. (Eastern time) your redemption will be wired to you
the following business day. You will receive that day's dividend.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the day
that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests BY PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
ACCOUNT ACTIVITY
You will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
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 pays any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily dividends. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal, state,
and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.20% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.
Financial Highlights-Institutional Capital Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Yound LLP, Independent Auditors on
page 26.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998 1997
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.05 0.05
LESS DISTRIBUTIONS:
Distributions from net investment income (0.05) (0.05) (0.05)
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 5.40% 5.55% 5.26%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.28% 0.27% 0.28%
Net investment income 5.23% 5.61% 5.17%
Expense waiver/reimbursement 2 0.30% 0.32% 0.31%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $200,098 $67,064 $20,006
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
JANUARY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> < C>
SHORT-TERM NOTES-7.6%
BANKING-3.5%
$ 55,000,000 Abbey National Treasury Services, PLC, 4.990% - 5.500%,
2/2/1999 - 1/13/2000 $ 54,988,009
10,000,000 SALTS III Cayman Island Corp., (Guaranteed by Bankers Trust
International, PLC), 5.270%, 4/23/1999 10,000,000
10,000,000 SALTS III Cayman Island Corp., (Guaranteed by Bankers Trust
International, PLC), 5.571%, 3/18/1999 10,000,000
TOTAL 74,988,009
BROKERAGE-0.9%
20,000,000 Goldman Sachs Group, LP, 5.020%, 3/1/1999 20,000,000
FINANCE - AUTOMOTIVE-0.8%
1,047,856 Chase Manhattan Auto Owner Trust 1998-C, Class A1, 5.588%,
7/9/1999 1,047,806
664,124 Compass Auto Receivables Trust 1998-A, Class A-1, 5.659%,
7/15/1999 664,124
9,500,000 Honda Auto Receivables 1999-1 Owner Trust, Class A-1,
4.974%, 2/15/2000 9,500,000
6,347,406 MMCA Auto Owner Trust 1998-1, Class A-1, 5.621%, 8/16/1999 6,347,406
TOTAL 17,559,336
FINANCE - COMMERCIAL-1.4%
30,000,000 2 Beta Finance, Inc., 5.000% - 5.010%, 1/25/2000 - 2/1/2000 30,000,000
FINANCE - EQUIPMENT-0.6%
1,746,227 Case Equipment Receivables Trust 1998-B, Class A-1, 5.608%,
9/15/1999 1,746,227
10,669,568 Newcourt Equipment Trust Securities 1998-2, Class A-1,
5.195%, 1/15/2000 10,669,568
TOTAL 12,415,795
INSURANCE-0.4%
9,000,000 WFS Financial 1998-C Owner Trust, Class A1, (Guaranteed by
FSA), 5.395%, 11/20/1999 9,000,000
TOTAL SHORT-TERM NOTES 163,963,140
CERTIFICATES OF DEPOSIT-10.0%
BANKING-10.0%
10,000,000 Bankers Trust Co., New York, 5.645%, 2/26/1999 9,999,770
25,000,000 Canadian Imperial Bank of Commerce, 5.030%, 1/27/2000 24,992,864
45,000,000 Deutsche Bank, AG, 5.310%, 5/3/1999 45,042,905
10,000,000 First National Bank of Maryland, Baltimore, 5.020%,
1/25/2000 9,997,161
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CERTIFICATES OF DEPOSIT-continued
BANKING-CONTINUED
$ 15,000,000 KeyBank, N.A., 5.080%, 4/9/1999 $ 15,000,000
20,000,000 Societe Generale, Paris, 5.645%, 2/26/1999 19,999,540
18,000,000 Svenska Handelsbanken, Stockholm, 5.705% - 5.800%, 4/6/1999
- 5/14/1999 17,999,991
75,000,000 Toronto-Dominion Bank, 5.020%, 1/10/2000 74,972,808
TOTAL CERTIFICATES OF DEPOSIT 218,005,039
COMMERCIAL PAPER -50.5% 1
AEROSPACE/AUTO-2.6%
57,000,000 Johnson Controls, Inc., 5.379% - 5.502%, 2/5/1999 - 3/5/1999 56,910,469
BANKING-24.2%
47,500,000 Aspen Funding Corp., (Guaranteed by MBIA, Guaranteed by
Deutsche Bank, AG), 5.110% - 5.641%, 2/22/1999 - 2/25/1999 47,355,528
8,000,000 Bankers Trust Corp., 5.656%, 2/3/1999 7,997,556
50,000,000 Canadian Imperial Holdings, Inc., (Guaranteed by Canadian
Imperial Bank of Commerce), 4.984%, 2/22/1999 49,857,083
9,000,000 Cregem North America, Inc., (Guaranteed by Credit Communal
de Belgique, Brussles), 4.943%, 2/23/1999 8,973,270
56,459,000 Fountain Square Commercial Funding Corp., (Fifth Third Bank,
Cincinnati, Support Agreement), 4.981% - 5.372%, 2/1/1999 -
7/6/1999 56,036,007
105,130,000 2 Gotham Funding Corp., 5.103% - 5.122%, 2/10/1999 - 2/16/1999 104,977,782
30,000,000 Greenwich Funding Corp., 4.889%, 4/15/1999 29,706,175
100,000,000 J.P. Morgan & Co., Inc., 4.905%, 4/15/1999 99,017,542
78,000,000 Lloyds Bank PLC, London, 5.060%, 2/25/1999 77,742,080
10,000,000 PEMEX Capital, Inc., (Societe Generale, Paris LOC), 4.897%,
4/22/1999 9,892,444
25,000,000 Westpac Capital Corp., (Guaranteed by Westpac Banking Corp.
Ltd., Sydney), 5.029%, 5/14/1999 24,654,333
9,193,000 Wood Street Funding Corp., (PNC Bank, N.A. Support
Agreement), 4.889%, 2/19/1999 9,170,615
TOTAL 525,380,415
CHEMICALS-1.2%
25,045,000 IMC Global, Inc., 5.020% - 6.295%, 2/12/1999 - 2/24/1999 24,965,936
FINANCE - AUTOMOTIVE-1.2%
25,000,000 Ford Motor Credit Corp., 5.138%, 2/5/1999 24,985,972
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COMMERCIAL PAPER-continued 1
FINANCE - COMMERCIAL-13.6%
$ 56,000,000 Beta Finance, Inc., 4.997% - 5.634%, 2/5/1999 - 3/8/1999 $ 55,808,430
60,000,000 Falcon Asset Securitization Corp., (Guaranteed by AMBAC),
5.321% - 5.331%, 2/11/1999 - 2/25/1999 59,851,083
50,000,000 General Electric Capital Corp., 5.037% - 5.455%, 2/12/1999 -
3/17/1999 49,744,703
10,000,000 Receivables Capital Corp., 5.450%, 2/12/1999 9,983,531
119,000,000 Sheffield Receivables Corp., 4.891% - 5.499%, 2/5/1999 -
3/23/1999 118,466,096
TOTAL 293,853,843
FINANCE - EQUIPMENT-0.4%
9,350,000 Comdisco, Inc., 5.015% - 5.031%, 2/10/1999 - 3/10/1999 9,332,576
FINANCE - RETAIL-4.5%
3,000,000 American Express Credit Corp., 5.023%, 4/12/1999 2,971,417
17,000,000 Associates Corp. of North America, 4.931% - 5.401%, 3/9/1999
- 3/22/1999 16,890,868
49,000,000 Associates First Capital B.V., (Guaranteed by Associates
First Capital Corp.), 4.888% - 4.908%, 4/20/1999 - 5/18/1999 48,393,298
30,000,000 Associates First Capital Corp., 5.094%, 5/28/1999 29,519,567
TOTAL 97,775,150
FOREST PRODUCTS-0.4%
9,398,000 Temple-Inland, Inc., 5.000% - 5.018%, 2/16/1999 - 2/26/1999 9,368,249
INSURANCE-1.5%
22,001,000 CNA Financial Corp., 5.015% - 5.022%, 2/10/1999 - 4/26/1999 21,851,053
10,000,000 CXC, Inc., (Guaranteed by FGIC, Guaranteed by AMBAC,
Guaranteed by MBIA, Guaranteed by Export-Import Bank),
5.161%, 5/17/1999 9,853,292
TOTAL 31,704,345
MACHINERY, EQUIPMENT, AUTO-0.4%
8,000,000 Eaton Corp., 5.649%, 5/21/1999 7,868,716
OIL & OIL FINANCE-0.1%
2,731,000 Occidental Petroleum Corp., 5.755%, 2/19/1999 2,723,217
TELECOMMUNICATIONS-0.2%
4,920,000 MCI Worldcom, Inc., 5.063%, 4/7/1999 4,875,583
TRANSPORTATION-0.2%
5,112,000 FDX Corp., 6.211% - 6.246%, 2/10/1999 - 2/11/1999 5,103,860
TOTAL COMMERCIAL PAPER 1,094,848,331
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
NOTES - VARIABLE-18.1% 3
BANKING-11.9%
$ 9,505,000 500 South Front St. L.P., Series A, (Huntington National
Bank, Columbus, OH LOC), 4.910%, 2/4/1999 $ 9,505,000
5,645,000 500 South Front St. L.P., Series B, (Huntington National
Bank, Columbus, OH LOC), 4.910%, 2/4/1999 5,645,000
1,335,000 Alabama State IDA, (Nichols Research Corp.), (SouthTrust
Bank of Alabama, Birmingham LOC), 5.020%, 2/5/1999 1,335,000
3,150,000 Associated Materials, Inc., (KeyBank, N.A. LOC), 4.930%,
2/5/1999 3,150,000
1,805,000 Athens-Clarke County, GA IDA, Barrett Project, Series 1995,
(Columbus Bank and Trust Co., GA LOC), 5.080%, 2/4/1999 1,805,000
10,000,000 Bankers Trust Co., New York, 4.880%, 6/4/1999 9,997,698
16,400,000 2 Bankers Trust Corp., 144A, 4.960%, 2/1/1999 16,400,000
20,000,000 2 Bankers Trust Corp., 4.960%, 2/1/1999 20,000,000
16,900,000 Beverly California Corp., (PNC Bank, N.A. LOC), 4.938%,
2/1/1999 16,900,000
16,860,000 Beverly Hills Nursing Center, Inc., Medilodge Project,
Series 1996, (KeyBank, N.A. LOC), 4.960%, 2/4/1999 16,860,000
1,945,000 Bissett,William K. and Sheryl B., Multi-Option Adjustable
Rate Notes, (Huntington National Bank, Columbus, OH LOC),
4.910%, 2/4/1999 1,945,000
6,715,000 Briarwood L.P. Project, Series 1999, (Bank One, Ohio, N.A.
LOC), 4.970%, 2/4/1999 6,715,000
640,000 Carmel, IN, Telamon Corp, Series 1996-C, (Huntington
National Bank, Columbus, OH LOC), 5.010%, 2/4/1999 640,000
965,000 Carmel, IN, Telamon Corp, Series A, (Huntington National
Bank, Columbus, OH LOC), 5.010%, 2/4/1999 965,000
1,055,000 Carmel, IN, Telamon Corp, Series B, (Huntington National
Bank, Columbus, OH LOC), 5.010%, 2/4/1999 1,055,000
2,020,000 Continental Downtown Properties, (Huntington National Bank,
Columbus, OH LOC), 4.910%, 2/4/1999 2,020,000
5,900,000 Dellridge Care Center L.P., Series 1997, (First National
Bank of Maryland, Baltimore LOC), 5.000%, 2/3/1999 5,900,000
3,605,000 Denver Urban Renewal Authority, Series 1992-B, (Paribas,
Paris LOC), 5.020%, 2/4/1999 3,605,000
9,820,000 ERC Real Estate LLC, (KeyBank, N.A. LOC), 4.910%, 2/4/1999 9,820,000
5,000,000 Industrial Dimensions, Inc., Series 1999, (Fifth Third Bank
of Northwestern OH LOC), 5.000%, 2/4/1999 5,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
NOTES - VARIABLE-continued 3
BANKING-CONTINUED
$ 9,139,000 International Processing Corp, (Bank One, Kentucky LOC),
4.960%, 2/4/1999 $ 9,139,000
2,250,000 Jeffersonville, IN, Series 1997-B, Wayne Steel, Inc., (Bank
One, Ohio, N.A. LOC), 4.910%, 2/4/1999 2,250,000
4,000,000 Lake Sherwood Senior Living Center, LLC, (Union Planters NB,
Memphis, TN LOC), 5.220%, 2/4/1999 4,000,000
2,000,000 Liquid Asset Backed Securities Trust, Series 1996-3,
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.020%, 2/16/1999 2,000,000
11,260,154 2 Liquid Asset Backed Securities Trust, Series 1997-1,
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.000%, 2/16/1999 11,260,154
4,100,000 Melberger, Clifford K. and Ruth B., (PNC Bank, N.A. LOC),
4.938%, 2/1/1999 4,100,000
6,860,000 Pine Ridge Associates, LTD., (Mellon Bank N.A., Pittsburgh
LOC), 5.000%, 2/3/1999 6,860,000
2,300,000 Poly Foam International, Inc., (National City Bank, Ohio
LOC), 4.920%, 2/4/1999 2,300,000
7,335,000 Rubloff- Rockford, LLC, Series 1997, (National City Bank,
Michigan/Illinois LOC), 5.000%, 2/3/1999 7,335,000
17,100,000 Scranton Times, L.P., Series 1997, (PNC Bank, N.A. LOC),
4.938%, 2/1/1999 17,100,000
17,000,000 Societe Generale, Paris, 4.883%, 8/11/1999 16,994,140
2,785,000 Solon, OH, Schneps, (Bank One, Ohio, N.A. LOC), 4.910%,
2/4/1999 2,785,000
645,000 Southeast Regional Holdings, LLC, Series 1995-A, (Columbus
Bank and Trust Co., GA LOC), 5.170%, 2/4/1999 645,000
8,560,000 Southern Coil Processing, Inc. Notes, (Amsouth Bank N.A.,
Birmingham LOC), 5.000%, 2/4/1999 8,560,000
4,300,000 Spencer County, IN, American Oxide Co. Project, (Bank of
Tokyo-Mitsubishi Ltd. LOC), 5.540%, 2/4/1999 4,300,000
1,680,000 Team Rahal of Mechanicsburg, Inc., Series 1997, (Huntington
National Bank, Columbus, OH LOC), 4.910%, 2/4/1999 1,680,000
1,840,000 Team Rahal, Inc., Series 1997, (Huntington National Bank,
Columbus, OH LOC), 4.910%, 2/4/1999 1,840,000
7,300,000 Tift County, GA Development Authority, Chickasha of Georgia
Project, Series 1997, (Bank of Tokyo-Mitsubishi Ltd. LOC),
5.040%, 2/3/1999 7,300,000
1,700,000 Village Green Finance Co., LLC, Series 1997, (Wachovia Bank
of NC, N.A., Winston-Salem LOC), 4.940%, 2/3/1999 1,700,000
1,463,000 Vista Funding Corp., Series 1995-A, (Star Bank, N.A.,
Cincinnati LOC), 5.040%, 2/4/1999 1,463,000
6,040,000 Westcourt, (Bank One, Texas N.A. LOC), 4.960%, 2/4/1999 6,040,000
TOTAL 258,913,992
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
NOTES - VARIABLE-continued 3
FINANCE - EQUIPMENT-0.5%
$ 10,000,000 2 Comdisco, Inc., 144A Notes, 5.350%, 2/26/1999 $ 10,000,000
FINANCE - RETAIL-0.6%
7,000,000 AFS Insurance Premium Receivables Trust, Series 1994-A,
5.556%, 2/16/1999 7,000,000
6,000,000 2 Bishop's Gate Residential Mortgage Trust 1998-2, Class A-1,
5.747%, 2/10/1999 6,000,000
TOTAL 13,000,000
INSURANCE-5.1%
15,000,000 Jackson National Life Insurance Co., 5.040%, 2/22/1999 15,000,000
5,000,000 Jackson National Life Insurance Co., 5.289%, 2/1/1999 5,000,000
10,000,000 Jackson National Life Insurance Co., 5.310%, 2/1/1999 10,000,000
15,583,393 Liquid Asset Backed Securities Trust, Series 1997-3 Senior
Notes, (Guaranteed by AMBAC), 5.254%, 3/28/1999 15,583,393
25,000,000 Peoples Security Life Insurance Company, 5.390%, 2/12/1999 25,000,000
15,000,000 Principal Life Insurance Company, 5.410%, 3/1/1999 15,000,000
15,000,000 Security Life of Denver Insurance Co., 5.028%, 2/28/1999 15,000,000
5,000,000 Transamerica Life Insurance and Annuity Co., 5.136%,
4/1/1999 5,000,000
5,000,000 Transamerica Occidental Life Insurance Co., 5.525%, 3/6/1999 5,000,000
TOTAL 110,583,393
TOTAL NOTES - VARIABLE 392,497,385
LOAN PARTICIPATION-4.5%
ELECTRICAL EQUIPMENT-0.6%
12,100,000 Mt. Vernon Phenol Plant Partnership, (Guaranteed by General
Electric Co.), 5.370%, 5/17/1999 12,100,000
FINANCE - AUTOMOTIVE-1.8%
40,000,000 General Motors Acceptance Corp., Mortgage of PA, (Guaranteed
by General Motors Acceptance Corp.), 5.120%, 2/1/1999 40,000,000
FINANCE - EQUIPMENT-2.1%
46,000,000 Pitney Bowes Credit Corp., 5.046%, 2/10/1999 45,942,213
TOTAL LOAN PARTICIPATION 98,042,213
SHORT-TERM MUNICIPALS-0.0%
BANKING-0.0%
935,000 Colorado Health Facilities Authority, Series B, (Bank One,
Colorado LOC), 4.960%, 2/4/1999 935,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> C>
REPURCHASE AGREEMENTS-9.5% 4
$ 50,000,000 Bankers Trust Co., New York, 4.820%, dated 1/29/1999, due
2/1/1999 $ 50,000,000
6,550,000 Bear, Stearns and Co., 4.820%, dated 1/29/1999, due 2/1/1999 6,550,000
50,000,000 Nationsbanc Montgomery Securities, Inc., 4.820%, dated
1/29/1999, due 2/1/1999 50,000,000
50,000,000 Paribas Corp., 4.820%, dated 1/29/1999, due 2/1/1999 50,000,000
23,900,000 Societe Generale Securities Corp., 4.730%, dated 1/29/1999,
due 2/1/1999 23,900,000
25,000,000 Toronto Dominion Securities (USA) Inc., 4.730%, dated
1/29/1999, due 2/1/1999 25,000,000
TOTAL REPURCHASE AGREEMENTS 205,450,000
TOTAL INVESTMENTS (AT AMORTIZED COST) 5 $ 2,173,741,108
</TABLE>
1 Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
2 Denotes a restricted security which is subject to restrictions on resale under
Federal Securities laws. At January 31, 1999, these securities amounted to
$198,637,936 which represents 9.2% of net assets.
3 Current rate and next reset date shown.
4 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.
5 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($2,169,392,901) at January 31, 1999.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation FGIC -Financial Guaranty
Insurance Company FSA -Financial Security Assurance IDA -Industrial Development
Authority LOC -Letter of Credit MBIA -Municipal Bond Investors Assurance
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
JANUARY 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 205,450,000
Investments in securities 1,968,291,108
Total investments in securities, at amortized cost and value $ 2,173,741,108
Cash 12,042
Income receivable 8,695,808
TOTAL ASSETS 2,182,448,958
LIABILITIES:
Payable for investments purchased 10,000,000
Payable for shares redeemed 295,068
Income distribution payable 2,579,579
Accrued expenses 181,410
TOTAL LIABILITIES 13,056,057
Net assets for 2,169,392,901 shares outstanding $ 2,169,392,901
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$1,474,123,184 / 1,474,123,184 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$495,172,173 / 495,172,173 shares outstanding $1.00
INSTITUTIONAL CAPITAL SHARES:
$200,097,544 / 200,097,544 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED JANUARY 31, 1999
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 90,324,831
EXPENSES:
Investment advisory fee $ 3,264,534
Administrative personnel and services fee 1,230,729
Custodian fees 117,892
Transfer and dividend disbursing agent fees and expenses 113,679
Directors'/Trustees' fees 11,486
Auditing fees 14,192
Legal fees 11,491
Portfolio accounting fees 184,121
Shareholder services fee-Institutional Shares 2,826,910
Shareholder services fee-Institutional Service Shares 960,721
Shareholder services fee-Institutional Capital Shares 292,774
Share registration costs 40,925
Printing and postage 18,818
Insurance premiums 107,792
Miscellaneous 11,466
TOTAL EXPENSES 9,207,530
WAIVERS:
Waiver of investment advisory fee $ (2,420,288)
Waiver of shareholder services fee-Institutional Shares (2,826,910)
Waiver of shareholder services fee-Institutional Capital
Shares (175,665)
TOTAL WAIVERS (5,422,863)
Net expenses 3,784,667
Net investment income $ 86,540,164
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 86,540,164 $ 50,489,449
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (60,707,164) (40,931,344)
Institutional Service Shares (19,716,305) (8,059,884)
Institutional Capital Shares (6,116,695) (1,498,221)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO
SHAREHOLDERS (86,540,164) (50,489,449)
SHARE TRANSACTIONS:
Proceeds from sale of shares 26,516,611,802 15,976,645,016
Net asset value of shares issued to shareholders in payment
of distributions declared 51,764,190 33,029,994
Cost of shares redeemed (25,657,179,044) (15,177,894,329)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 911,196,948 831,780,681
Change in net assets 911,196,948 831,780,681
NET ASSETS:
Beginning of period 1,258,195,953 426,415,272
End of period $ 2,169,392,901 $ 1,258,195,953
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
JANUARY 31, 1999
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 provision for federal taxes is
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 Act.
Additional information on each restricted security held at January 31, 1999 is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Bankers Trust Corp. 144A, 4.960%, 2/1/1999 8/7/1998 $ 16,400,000
Bankers Trust Corp., 4.960%, 2/1/1999 2/3/1998 20,000,000
Beta Finance, Inc., 5.000% - 5.010%, 1/25/2000 - 2/1/2000 1/25/1999-2/1/1999 30,000,000
Bishop's Gate Residential Mortgage Trust, 5.747%, 2/10/1999 12/11/1998 6,000,000
Comdisco, Inc., 144A Notes, 5.350%, 2/26/1999 8/26/1998 10,000,000
Gotham Funding Corp., 5.103% - 5.122%, 2/10/1999 - 2/16/1999 1/11, 1/13, 1/14, 1/15-1/19/1999 104,695,064
Liquid Asset Backed Securities Trust, Series 1997-1,
5.000%, 2/16/1999 2/19/1997 11,260,154
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
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, 1999, capital paid-in aggregated $2,169,392,201.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL SHARES
Shares sold 19,781,464,858 13,256,360,968
Shares issued to shareholders in payment of distributions
declared 34,346,178 26,084,298
Shares redeemed (19,207,430,021) (12,804,697,557)
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS 608,381,015 477,747,709
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
Shares sold 5,129,107,787 1,999,938,515
Shares issued to shareholders in payment of distributions
declared 12,725,748 5,524,975
Shares redeemed (4,972,051,133) (1,698,488,527)
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE
SHARE TRANSACTIONS 169,782,402 306,974,963
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL CAPITAL SHARES
Shares sold 1,606,039,157 720,345,533
Shares issued to shareholders in payment of distributions
declared 4,692,264 1,420,721
Shares redeemed (1,477,697,890) (674,708,245)
NET CHANGE RESULTING FROM INSTITUTIONAL CAPITAL
SHARE TRANSACTIONS 133,033,531 47,058,009
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 911,196,948 831,780,681
</TABLE>
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. Effective March 31, 1999, the Adviser will merge into
Federated Investment Management Company (formerly Federated Advisers). The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser can
modify or terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended January 31, 1999, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $324,480,000 and $320,920,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
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, 1999, 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, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, 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, 1999, 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 the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
[Graphic]
Boston, Massachusetts
March 15, 1999
Prime Value Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL CAPITAL SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's semi-annual report to shareholders
as it becomes available. To obtain the SAI, semi-annual report and other
information without charge, call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
[Graphic]
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-7364
Cusip 608912606
G01881-07 (3/99)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Prime Value Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
INSTITUTIONAL CAPITAL SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Institutional Shares, Institutional
Service Shares, and Institutional Capital Shares of Prime Value Obligations Fund
(Fund), dated March 31, 1999. Obtain the prospectuses without charge by calling
1-800-341-7400.
MARCH 31, 1999
[Graphic]
Prime Value Obligations Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
G01881-10 (3/99)
CONTENTS
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
What Do Shares Cost? 5
How is the Fund Sold? 5
Subaccounting Services 5
Redemption in Kind 6
Massachusetts Partnership Law 6
Account and Share Information 6
Tax Information 6
Who Manages and Provides Services to the Fund? 7
How Does the Fund Measure Performance? 10
Who is Federated Investors, Inc.? 12
Addresses 13
How is the Fund Organized?
The Fund is a diversified portfolio of Money Market Obligations Trust II
(Trust). The Trust is an open-end, management investment company that was
established under the laws of the Commonwealth of Massachusetts on November 16,
1992. The Trust may offer separate series of shares representing interests in
separate portfolios of securities. On November 15, 1996, the Trust changed its
name from Lehman Brothers Institutional Funds Group Trust to Money Market
Obligations Trust II, and the Fund changed its name from Prime Value Money
Market Fund to Prime Value Obligations Fund.
The Board of Trustees (the Board) has established three classes of shares of the
Fund, known as Institutional Shares, Institutional Service Shares, and
Institutional Capital Shares (Shares). This SAI relates to all classes of the
above-mentioned Shares. The Fund's investment adviser is Federated Investment
Management Company (Adviser). Effective March 31, 1999, Federated Management,
Adviser to the Fund, merged into Federated Investment Management Company
(formerly Federated Advisers).
Securities in Which the Fund Invests
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher credit risks
generally have higher yields.
The following describes the types of fixed income securities in which the Fund
invests.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the market and prepayment risks of these mortgage backed securities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers.
In addition, the credit risk of an issuer's debt security may vary based on its
priority for repayment. For example, higher ranking (senior) debt securities
have a higher priority than lower ranking (subordinated) securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event of
bankruptcy, holders of senior securities may receive amounts otherwise payable
to the holders of subordinated securities. Some subordinated securities, such as
trust preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer any
payment that would reduce its capital below regulatory requirements.
MUNICIPAL SECURITIES
Municipal securities are issued by states, counties, cities and other political
subdivisions and authorities. Although many municipal securities are exempt from
federal income tax, the Fund intends to invest in taxable municipal securities.
MORTGAGE BACKED SECURITIES
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and prepayments from the underlying mortgages. As
a result, the holders assume all the prepayment risks of the underlying
mortgages.
ASSET BACKED SECURITIES
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities have prepayment
risks.
ZERO COUPON SECURITIES
Zero Coupon Securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the market and credit risks of a zero coupon security.
There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs are
the most common forms of stripped zero coupon securities. In addition, some
securities give the issuer the option to deliver additional securities in place
of cash interest payments, thereby increasing the amount payable at maturity.
These are referred to as pay-in- kind or PIK securities.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of nine months or
less. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default. The short
maturity of commercial paper reduces both the market and credit risks as
compared to other debt securities of the same issuer.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit
and banker's acceptances. Yankee instruments are denominated in
U.S. dollars and issued by U.S. branches of foreign banks. Eurodollar
instruments are denominated in U.S. dollars and issued by non-
U.S. branches of U.S. or foreign banks.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must repay upon
demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year.
INSURANCE CONTRACTS
Insurance contracts include guaranteed investment contracts, funding agreements
and annuities. The Fund treats these contracts as fixed income securities.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing the credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser usually evaluates the credit risk of a fixed income
security based solely upon its credit enhancement.
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to security's
holders. Either form of credit enhancement reduces credit risk by providing
another source of payment for a fixed income security.
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States. In
addition to the risks normally associated with United States securities of the
same type, foreign securities are subject to country risk and currency risk.
SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS
Repurchase Agreements are transactions in which a Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements with
banks and other recognized financial institutions, such as securities dealers,
which are deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian is required to take possession of the
securities subject to repurchase agreements. The Adviser or subcustodian will
monitor the value of the underlying security each day to ensure that the value
of the security always equals or exceeds the repurchase price.
Repurchase Agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse Repurchase Agreements are repurchase agreements in which a Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
DELAYED DELIVERY TRANSACTIONS
Delayed Delivery Transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery scheduled for a future time. During the period between purchase and
settlement, no payment is made by the Fund to the issuer and no interest accrues
to the Fund. The Fund records the transaction when it agrees to purchase the
securities and reflects their value in determining the price of its shares.
Settlement dates may be a month or more after entering into these transactions
so that the market values of the securities bought may vary from the purchase
prices. Therefore, delayed delivery transactions create market risks for the
Fund. Delayed delivery transactions also involve credit risks in the event of a
counterparty default.
SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on loaned securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of any cash collateral. Loans are subject to termination at
the option of the Fund or the borrower. The Fund will not have the right to vote
on securities while they are on loan, but it will terminate a loan in
anticipation of any important vote. The Fund may pay administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash collateral to a securities lending agent or broker.
Securities lending activities are subject to market risks and credit risks.
ASSET COVERAGE
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.
INVESTMENT RATINGS
A nationally recognized rating service'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, Prime-1 or Prime- 2 by
Moody's Investors Service, Inc., or F-1+, F-1, or F-2 by Fitch IBCA, Inc. 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 rating service can be treated as being in one of the two
highest short-term rating categories; currently, such securities must be rated
by two rating services in one of their two highest rating categories. See
"Regulatory Compliance."
INVESTMENT RISKS
BOND MARKET RISKS
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money. Money market funds try to minimize this risk by purchasing
higher quality securities.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the Adviser's credit assessment.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities issued
or credit enhanced by companies in similar businesses or with similar
characteristics. As a result, the Fund will be more susceptible to any economic,
business, political, or other developments which generally affect these issuers.
INVESTMENT LIMITATIONS
DIVERSIFICATION OF INVESTMENTS
The Fund may not purchase securities of any one issuer if as a result more than
5% of the value of the Fund's assets would be invested in the securities of such
issuer, except that up to 25% of the value of the Fund's total assets may be
invested without regard to such 5% limitation and provided that there is no
limitation with respect to investments in U.S. government securities.
ISSUING SENIOR SECURITIES, BORROWING MONEY AND PLEDGING ASSETS
The Fund may not borrow money, except that the Fund may: (i) borrow money for
temporary or emergency purposes (not for leveraging or investment) from banks
or, subject to specific authorization by the SEC, from funds advised by the
adviser or an affiliate of the adviser; and (ii) engage in reverse repurchase
agreements, provided that (i) and (ii) in combination do not exceed one-third of
the value of the Fund's total assets (including the amount borrowed) less
liabilities (other than borrowings). The Fund may not mortgage, pledge, or
hypothecate its assets except in connection with such borrowings and reverse
repurchase agreements and then only in amounts not exceeding one-third of the
value of the Fund's total assets. Additional investments will not be made when
borrowings exceed 5% of the Fund's assets.
CONCENTRATION OF INVESTMENTS
The Fund may not purchase any securities which would cause 25% or more of the
value of its total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business
activivites in the same industry, except that the Fund intends to invest 25% or
more of the value of its total assets in obligations of issuers in the banking
industry or in obligations, such as repurchase agreements, secured by such
obligations; provided that there is no limitation with respect to investments in
U.S. government securities or, in bank instruments issued or enhanced by
approved banks.
LENDING CASH OR SECURITIES
The Fund may not make loans, except that the Fund may: (i) purchase or hold debt
obligations in accordance with its investment objective and policies; (ii) enter
into repurchase agreements for securities; (iii) lend portfolio securities as
described in the prospectus; and (iv) subject to specific authorization by the
SEC, lend money to other funds advised by the adviser or an affiliate of the
adviser.
UNDERWRITING
The Fund may not act as an underwriter of securities, except insofar as the Fund
may be deemed an underwriter under applicable securities laws in selling
portfolio securities.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate or real estate limited
partnerships, provided that the Fund may purchase securities of issuers which
invest in real estate or interests therein.
INVESTING IN COMMODITIES AND MINERALS
The Fund may not purchase or sell commodities contracts, or invest in oil, gas
or mineral exploration or development programs or in mineral leases.
The above limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
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 SAI, 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 nationally recognized rating services, 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.
DETERMINING MARKET VALUE OF SECURITIES
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.
What Do Shares Cost?
The net asset value (NAV) for each class of Shares may differ due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution- related
or shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
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. 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.
Account and Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of March 4, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Sunamerica National Life Insurance
Company, Los Angeles, California, 5.34% of Institutional Shares; Federated
Investors Management Company, Pittsburgh, Pennsylvania, 14.20% of Institutional
Shares; Hare & Co., New York, New York, 8.58% of Institutional Service Shares;
Thafnab & Co., Terre Haute First National Bank, Terre Haute, Indiana, 10.94% of
Institutional Service Shares; First Union Capital Markets Corp., Charlotte,
North Carolina, 7.46% of Institutional Service Shares; Kaiser Foundation Health
Plan of Texas, Oakland, California, 22.05% of Institutional Capital Shares; TJW
SR./SKW Investments Ltd, Pasadena, Texas, 10.61% of Institutional Capital
Shares; Summit Bank, Hackensack, New Jersey, 10.10% of Institutional Capital
Shares; First Union National Bank Trust Accounts, Charlotte, North Carolina,
11.48% of Institutional Capital Shares; Norwest Investment Services Inc.,
Minneapolis, Minnesota, 9.42% of Institutional Capital Shares; and Mitre Corp.,
Bedford, Massachusetts, 6.73% of Institutional Capital Shares.
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of three
funds and the Federated Fund Complex is comprised of 54 investment companies,
whose investment advisers are affiliated with the Fund's Adviser.
As of March 4, 1999, the Fund's Board and Officers as a group owned less than 1%
of the Fund's outstanding Institutional, Institutional Service, and
Institutional Capital Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST AND FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+ Chief Executive Officer and Director or Trustee of the $0 $0 for the Trust and
Birth Date: July 28, 1924 Federated Fund Complex; Chairman and Director, Federated 54 other investment
Federated Investors Tower Investors, Inc.; Chairman and Trustee, Federated Investment companies in the
1001 Liberty Avenue Management Company; Chairman and Director, Federated Fund Complex
Pittsburgh, PA Investment Counseling, and Federated Global Investment
CHAIRMAN AND TRUSTEE Management Corp.; Chairman, Passport Research, Ltd.
THOMAS G. BIGLEY Director or Trustee of the Federated Fund Complex; Director, $3,092.74 $113,860.22 for the
Trust
Birth Date: February 3, 1934 Member of Executive Committee, Children's Hospital of and 54 other
investment
15 Old Timber Trail Pittsburgh; formerly: Senior Partner, Ernst & Young LLP; companies in the
Pittsburgh, PA Director, MED 3000 Group, Inc.; Director, Member of Fund Complex
TRUSTEE Executive Committee,
University of Pittsburgh.
JOHN T. CONROY, JR. Director or Trustee of the Federated Fund Complex; $3,402.52 $125,264.48 for the
Trust
Birth Date: June 23, 1937 President, Investment Properties Corporation; Senior Vice and 54 other
investment
Wood/IPC Commercial Dept. President, John R. Wood and Associates, Inc., Realtors; companies in the
John R. Wood Associates,
Inc. Realtors Partner or Trustee in private real estate ventures in Fund Complex
3255 Tamiami Trail North Southwest Florida; formerly: President, Naples Property
Naples, FL Management, Inc. and Northgate Village Development
TRUSTEE Corporation.
NICHOLAS CONSTANTAKIS Director or Trustee of the Federated Fund Complex; formerly: $2,671.50 $47,958.02 for the
Birth Date: September 3, 1939 Partner, Andersen Worldwide SC. Trust and 29 other
175 Woodshire Drive investment companies
Pittsburgh, PA in the Fund Complex
TRUSTEE
WILLIAM J. COPELAND Director or Trustee of the Federated Fund Complex; Director $3,402.52 $125,264.48 for the
Birth Date: July 4, 1918 and Member of the Executive Committee, Michael Baker, Inc.; Trust and 54 other
One PNC Plaza-23rd Floor formerly: Vice Chairman and Director, PNC Bank, N.A., investment companies
Pittsburgh, PA PNC Bank Corp.; Director, Ryan Homes, Inc. in the Fund Complex
TRUSTEE Previous Positions: Director, United Refinery; Director,
Forbes Fund; Chairman, Pittsburgh Foundation; Chairman,
Pittsburgh Civic
Light Opera.
JOHN F. CUNNINGHAM++ Director or Trustee of some of the Federated Funds; $0 $0 for the Trust and
Birth Date: March 5, 1943 Chairman, President and Chief Executive Officer, Cunningham 26 other investment
353 El Brillo Way & Co., Inc. ; Trustee Associate, Boston College; Director, companies in the
Palm Beach, FL EMC Corporation; formerly: Director, Redgate Communications. Fund Complex
TRUSTEE Previous Positions: Chairman of the Board and Chief
Executive Officer, Computer Consoles, Inc.;
President and Chief Operating Officer, Wang
Laboratories; Director, First National Bank of
Boston; Director, Apollo Computer, Inc.
J. CHRISTOPHER DONAHUE*+ President or Executive Vice President of the Federated Fund $0 $0 for the Trust and
Birth Date: April 11, 1949 Complex; Director or Trustee of some of the Funds in the 16 other investment
Federated Investors Tower Federated Fund Complex; President and Director, Federated companies in the
1001 Liberty Avenue Investors, Inc.; President and Trustee, Federated Investment Fund Complex
Pittsburgh, PA Management Company; President and Director, Federated
PRESIDENT AND TRUSTEE Investment Counseling and Federated Global Investment
Management Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services Company; Director,
Federated Services Company.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST AND FUND COMPLEX
<S> <C> <C> <C>
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund Complex; Professor $3,092.74 $113,860.22 for the
Birth Date: October 11, 1932 of Medicine, University of Pittsburgh; Medical Director, Trust and 54 other
3471 Fifth Avenue University of Pittsburgh Medical Center - Downtown; in the investment
Suite 1111 Hematologist, Oncologist, and Internist, University of companies
Pittsburgh, PA Pittsburgh Medical Center; Member, National Board of Fund Complex
TRUSTEE Trustees, Leukemia Society of America.
PETER E. MADDEN Director or Trustee of the Federated Fund Complex; $3,092.74 $113,860.22 for the
Birth Date: March 16, 1942 formerly: Representative, Commonwealth of Massachusetts Trust and 54 other
One Royal Palm Way General Court; President, State Street Bank and Trust investment companies
100 Royal Palm Way Company and State Street Corporation. in the Fund Complex
Palm Beach, FL Previous Positions: Director, VISA USA and VISA
TRUSTEE International; Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation.
CHARLES F. MANSFIELD, JR.++ Director or Trustee of some of the Federated Funds; $0 $0 for the Trust and
Birth Date: April 10, 1945 Management Consultant. 26 other investment
80 South Road Previous Positions: Chief Executive Officer, PBTC companies in the
Westhampton Beach, NY International Bank; Chief Financial Officer of Retail Fund Complex
TRUSTEE Banking Sector, Chase Manhattan Bank; Senior Vice President,
Marine Midland Bank; Vice President, Citibank; Assistant
Professor of Banking and Finance, Frank G. Zarb School of
Business, Hofstra University.
JOHN E. MURRAY, JR., J.D.,
S.J.D. Director or Trustee of the Federated Fund Complex; $3,092.74 $113,860.22 for
Birth Date: December 20, 1932 President, Law Professor, Duquesne University; Consulting the Trust and 54
President, other investment
Duquesne University Partner, companies in the
Pittsburgh, PA Mollica & Murray. Fund Complex
TRUSTEE Previous Positions: Dean and Professor of Law, University of
Pittsburgh School of Law; Dean and Professor of Law,
Villanova University School of Law.
MARJORIE P. SMUTS Director or Trustee of the Federated Fund Complex; Public $3,092.74 $113,860.22 for the
Birth Date: June 21, 1935 Relations/Marketing/Conference Planning. Trust and 54 other
4905 Bayard Street Previous Positions: National Spokesperson, Aluminum Company investment companies
Pittsburgh, PA of America; business owner. in the Fund Complex
TRUSTEE
JOHN S. WALSH++ Director or Trustee of some of the Federated Funds; $0 $0 for the Trust and
Birth Date: November 28, 1957 President and Director, Heat Wagon, Inc.; President and 23 other investment
2007 Sherwood Drive Director, Manufacturers Products, Inc.; President, Portable companies in the
Valparaiso, IN Heater Parts, a division of Manufacturers Products, Inc.; Fund Complex
TRUSTEE Director, Walsh & Kelly, Inc.; formerly: Vice President,
Walsh & Kelly, Inc.
EDWARD C. GONZALES Trustee or Director of some of the Funds in the Federated $0 $0 for the Trust and
Birth Date: October 22, 1930 Fund Complex; President, Executive Vice President and 1 other investment
Federated Investors Tower Treasurer of some of the Funds in the Federated Fund Complex company in the
1001 Liberty Avenue Vice Chairman, Federated Investors, Inc.; Vice President, Fund Complex
Pittsburgh, PA Federated Investment Management Company, and Federated
EXECUTIVE VICE PRESIDENT Investment Counseling, Federated Global Investment
Management Corp. and Passport Research, Ltd.; Executive Vice
President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company.
JOHN W. MCGONIGLE Executive Vice President and Secretary of the Federated Fund $0 $0 for the Trust and
Birth Date: October 26, 1938 Complex; Executive Vice President, Secretary, and Director, 54 other investment
Federated Investors Tower Federated Investors, Inc.; Trustee, Federated Investment companies in the
1001 Liberty Avenue Management Company; Director, Federated Investment Fund Complex
Pittsburgh, PA Counseling and Federated Global Investment Management Corp.;
EXECUTIVE VICE PRESIDENT Director, Federated Services Company; Director, Federated
AND SECRETARY Securities Corp.
RICHARD B. FISHER President or Vice President of some of the Funds in the $0 $0 for the Trust and
Birth Date: May 17, 1923 Federated Fund Complex; Director or Trustee of some of the 6 other investment
Federated Investors Tower Funds in the Federated Fund Complex; Executive Vice companies in the
1001 Liberty Avenue President, Federated Investors, Inc.; Chairman and Director, Fund Complex
Pittsburgh, PA Federated Securities Corp.
VICE PRESIDENT
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST AND FUND COMPLEX
<S> <C> <C> <C>
RICHARD J. THOMAS Treasurer of the Federated Fund Complex; Vice President- $0 $0 for the Trust and
Birth Date: June 17, 1954 Funds Financial Services Division, Federated Investors, 54 other investment
Federated Investors Tower Inc.; formerly: various management positions within Funds companies in the
1001 Liberty Avenue Financial Services Division of Federated Investors, Inc. Fund Complex
Pittsburgh, PA
TREASURER
WILLIAM D. DAWSON, III Chief Investment Officer of this Fund and various other $0 $0 for the Trust and
Birth Date: March 3, 1949 Funds in the Federated Fund Complex; Executive Vice 41 other investment
Federated Investors Tower President, Federated Investment Counseling, Federated Global companies in the
1001 Liberty Avenue Investment Management Corp., Federated Investment Management Fund Complex
Pittsburgh, PA Company, and Passport Research, Ltd.; Registered
CHIEF INVESTMENT OFFICER Representative, Federated
Securities Corp.; Portfolio Manager, Federated
Administrative Services; Vice President,
Federated Investors, Inc.; Formerly: Executive
Vice President and Senior Vice President,
Federated Investment Counseling Institutional
Portfolio Management Services Division; Senior
Vice President, Federated Investment Management
Company and Passport Research, Ltd.
DEBORAH A. CUNNINGHAM Deborah A. Cunningham is Vice President of the Trust. $0 $0 for the Trust and
Birth Date: September 15, 1959 Ms. Cunningham joined Federated in 1981 and has been a 6 other investment
Federated Investors Tower Senior Portfolio Manager and a Senior Vice President of the companies in the
1001 Liberty Avenue Fund's Adviser since 1997. Ms. Cunningham served as a Fund Complex
Pittsburgh, PA Portfolio Manager and a Vice President of the Adviser from
VICE PRESIDENT 1993 until 1996. Ms. Cunningham is a Chartered Financial
Analyst and received her M.S.B.A. in Finance from Robert
Morris College.
MARY JO OCHSON Mary Jo Ochson is Vice President of the Trust. Ms. Ochson $0 $0 for the Trust and
Birth Date: September 12, 1953 joined Federated in 1982 and has been a Senior Portfolio 7 other investment
Federated Investors Tower Manager and a Senior Vice President of the Fund's Adviser companies in the
1001 Liberty Avenue since 1996. From 1988 through 1995, Ms. Ochson served as a Fund Complex
Pittsburgh, PA Portfolio Manager and a Vice President of the Fund's
VICE PRESIDENT Adviser. Ms. Ochson is a Chartered Financial Analyst and
received her M.B.A. in Finance from the University of
Pittsburgh.
</TABLE>
+ Mr. Donahue is the father of J. Christopher Donahue, President and
Trustee of the Trust.
++ Messrs. Cunningham, Mansfield, and Walsh became members of the Board on
January 1, 1999. They did not earn any fees for serving the Fund Complex since
these fees are reported as of the end of the last calendar year. They did not
receive any fees as of the fiscal year end of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust or any Fund shareholder 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 (former
adviser), New York, New York, served as the Fund's Adviser.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% 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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
Prior to November 15, 1996, FDISG (former administrator), a subsidiary of First
Data Corporation, Boston, Massachusetts, served as the Fund's
administrator.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by
shareholders.
INDEPENDENT AUDITORS
Ernst & Young LLP is the independent auditor for the Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
FOR THE YEAR ENDED JANUARY 31 1999 1998 1997 1
<S> <C> <C> <C>
Advisory Fee Earned 2 $3,264,534 $1,821,778 $202,835
Advisory Fee Reduction 2,420,288 1,553,105 166,441
Administrative Fee 3 1,230,729 687,478 78,894
SHAREHOLDER SERVICES FEE
Institutional Shares 0 - -
Institutional Service Shares 960,721 - -
Institutional Capital Shares 117,109 - -
</TABLE>
1 For the period from November 15, 1996 to January 31, 1997.
2 For the period from February 1, 1996 to November 14, 1996, the former adviser
earned $1,965,709.
3 For the period from February 1, 1996 to November 14, 1996, the former
administrator earned $757,667.
Fees are allocated among classes based on their pro rata share of Fund assets,
except for shareholder services fees, which are borne only by the applicable
class of Shares.
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year, five-year and the start of performance
periods ended January 31, 1999.
Yield and Effective Yield given for the 7-day period ended January 31, 1999.
<TABLE>
<CAPTION>
7-DAY START OF PERFORMANCE
SHARE CLASS PERIOD 1 YEAR 5 YEARS ON FEBRUARY 8, 1993
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES:
Total Return - 5.53% 5.45% 5.08%
Yield 4.97% - - -
Effective Yield 5.09% - - -
<CAPTION>
7-DAY START OF PERFORMANCE
SHARE CLASS PERIOD 1 YEAR 5 YEARS ON SEPTEMBER 1, 1993
<S> <C> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Total Return - 5.27% 5.18% 5.02%
Yield 4.72% - - -
Effective Yield 4.83% - - -
<CAPTION>
7-DAY START OF PERFORMANCE
SHARE CLASS PERIOD 1 YEAR 5 YEARS ON FEBRUARY 8, 1993
<S> <C> <C> <C> <C>
INSTITUTIONAL
CAPITAL SHARES:
Total Return - 5.40% 5.30% 4.94%
Yield 4.85% - - -
Effective Yield 4.96% - - -
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares 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 NAV 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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. The effective yield is calculated by compounding the unannualized
base-period return by: adding one to the base-period return, raising the sum to
the 365/7th power; and subtracting one from the result.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
* charts, graphs, and illustrations using the Fund's returns; or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
* information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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.
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
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
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
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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value- oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/agency, and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion, and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated 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,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime, and 23 municipal with assets
approximating $41.6 billion, $22.8 billion, and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment
Officers are Executive Vice Presidents of the Federated advisory
companies.
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 $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, 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 advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include 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,
Broker/Dealer Sales Division, Federated Securities Corp.
Addresses
PRIME VALUE OBLIGATIONS FUND
Institutional Shares
Institutional Service Shares
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 Investment Management Company
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
200 Clarendon Street
Boston, MA 02116-5072
PROSPECTUS
Municipal Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL SHARES
A money market mutual fund seeking to provide current income exempt from all
federal regular income tax consistent with stability of principal.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
MARCH 31, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which
the Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 4
What Do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 5
How to Redeem Shares 6
Account and Share Information 8
Who Manages the Fund? 8
Financial Information 9
Report of Ernst & Young LLP, Independent Auditors 28
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is to provide current income exempt
from all federal regular income tax consistent with stability of principal.
While there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the strategies and policies described in this
prospectus.
This investment objective may be changed by the Fund's Trustees without
shareholder approval.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES? The Fund invests in tax exempt
securities so that the Fund's annual interest income is exempt from federal
regular income tax. Interest income from the Fund's investments may be subject
to the federal alternative minimum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money by investing in the Fund.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares as of the calendar year-end for
each of the last five years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 1% up to 5%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features five distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Institutional Shares for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1994
through 1998. The percentages noted are: 2.92%, 4.04%, 3.58%, 3.67% and 3.56%,
respectively.
Historically, the Fund has maintained a constant $1.00 net asset value. The bar
chart shows the variability of the Fund's Institutional Shares total returns on
a yearly basis.
The Fund's Institutional Shares are not sold subject to a sales charge (load).
The total returns displayed above are based upon the net asset value.
Within the period shown in the Chart, the Fund's Institutional Shares highest
quarterly return was 1.04% (quarter ended June 30, 1995). Its lowest quarterly
return was 0.60% (quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURN
The following table represents the Fund's Institutional Shares Average Annual
Total Return through December 31, 1998.
CALENDAR PERIOD FUND
1 Year 3.56%
5 Years 3.55%
Start of Performance 1 3.39%
1 The Fund's Institutional Shares start of performance date was February 8,
1993.
Investors may call the Fund at 1-800-341-7400 to acquire the current 7-Day Net
Yield.
The Fund's Institutional Shares 7-Day Net Yield as of 12/31/98 was 3.77%.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are the Fund's Fees and Expenses?
MUNICIPAL OBLIGATIONS FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Shares.
<TABLE>
<S> <C>
SHAREHOLDER FEES
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering price). None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1 Expenses That are Deducted
From Fund Assets (as a percentage of average net assets)
Management Fee 2 0.20%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 0.14%
Total Annual Fund Operating Expenses 0.59%
1 Although not contractually obligated to do so, the adviser and shareholder
services provider waived certain amounts. These are described below along with
the net expenses the Fund's Institutional Shares actually paid for the fiscal
year ended January 31, 1999.
Waiver of Fund Expenses 0.41%
Total Actual Annual Fund Operating Expenses (after waivers) 0.18%
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund's Institutional shares (after the voluntary waiver) was 0.04% for the year
ended January 31, 1999.
3 The shareholder services fee has been voluntarily reduced. This voluntary
reduction can be terminated at any time. The shareholder services fee paid by
the Fund's Institutional Shares (after the voluntary reduction) was 0.00% for
the year ended January 31, 1999. </TABLE> EXAMPLE This Example is
intended to help you compare the cost of investing in the Fund's Institutional
Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Shares
for the time periods indicated and then redeem all of your Shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's Institutional Shares operating expenses are BEFORE
WAIVERS as shown in the table and remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
1 Year $ 60
3 Years $189
5 Years $329
10 Years $738
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio will be 90
days or less.
The Fund's investment adviser (Adviser) performs a fundamental credit analysis
to develop an approved list of issuers and securities that meet the Adviser's
minimum credit standards. The Adviser targets an average portfolio maturity
based upon its interest rate outlook and the tax-exempt securities available.
The Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of municipal
securities, the Adviser generally shortens the portfolio's maturity when it
expects interest rates to rise and extends the maturity when it expects interest
rates to fall. In order to enhance yield, the Fund's Adviser will seek to invest
a significant portion of the portfolio in tax exempt securities subject to the
alternative minimum tax.
What are the Principal Securities in Which the Fund Invests?
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to regular federal income taxes. Typically, states, counties, cities and
other political subdivisions and authorities issue tax exempt securities. The
market categorizes tax exempt securities by their source of repayment. Fixed
income securities pay interest, dividends or distributions at a specified rate.
The rate may be a fixed percentage of the principal or adjusted periodically. In
addition, the issuer of a fixed income security must repay the principal amount
of the security, normally within a specified time.
The following describes the types of tax exempt securities in which the Fund
invests:
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also pay interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, because their variable
interest rate adjusts in response to changes in market rates, even though their
stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations before collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money. Money market funds try to minimize this risk by purchasing
higher quality securities.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the Adviser's credit assessment.
BOND MARKET RISKS
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities issued
or credit enhanced by companies in similar businesses or with other similar
characteristics. As a result, the Fund will be more susceptible to any economic,
business, political, or other developments which generally affect these issuers.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions, the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax. Temporary investments will be of comparable quality to other
securities in which the Fund invests. This may cause the Fund to give up greater
after tax investment returns to maintain the safety of principal. This also may
cause the Fund to receive and distribute taxable income to investors.
What Do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined net asset value (NAV). The Fund does not charge
a front-end sales charge. NAV is determined at 12:00 noon and 3:00 p.m. (Eastern
time) and as of the end of regular trading (normally 4:00 p.m. Eastern time)
each day the NYSE is open.
The required minimum initial investment for Fund Shares is $1,000,000. There is
no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $1,000,000 minimum
is reached within one year of opening the account. An institutional investor's
minimum investment is calculated by combining all accounts it maintains with the
Fund. Accounts established through investment professionals may be subject to a
smaller minimum investment amount. Keep in mind that investment professionals
may charge you fees for their services in connection with your Share
transactions.
How is the Fund Sold?
The Fund offers three share classes: Institutional Shares, Institutional Service
Shares and Institutional Capital Shares, each representing interests in a single
portfolio of securities. This prospectus relates only to Institutional Shares.
Each share class has different expenses, which affect their performance. Contact
your investment professional or call 1- 800-341-7400 for more information
concerning the other classes.
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity.
The Distributor and its affiliates may pay out of their assets other
amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of
Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 3:00 p.m.
(Eastern time). You will receive that day's dividend if the investment
professional forwards the order to the Fund and the Fund receives payment by
3:00 p.m. (Eastern time). You will become the owner of Shares and receive
dividends when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares after the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder after the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY INVEST-BY-PHONE
Once you establish an account, you may use the Fund's Invest-By-Phone privilege
for future Share purchases if you have an account with a bank that is an
Automated Clearing House member. To apply, call the Fund for an authorization
form. You may use Invest-By-Phone to purchase Shares approximately two weeks
from the date you file the form with Federated Shareholder Services Company.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). Investment
professionals are responsible for promptly submitting redemption requests and
providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired to
you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired to
you the following business day. You will receive that day's dividend.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the day
that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
ACCOUNT ACTIVITY
You will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
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 pays any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes. Capital gains and non-exempt
dividends are taxable whether paid in cash or reinvested in the Fund.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.20% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.
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 28.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998 1997 1996 1 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.03 0.04 0.04 0.04 0.03
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.03) (0.04) (0.04) (0.04) (0.03)
Distributions from net realized gains
on investments - - - (0.00) 2 -
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 3 3.53% 3.68% 3.56% 4.03% 3.04%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.18% 0.18% 0.18% 0.18% 0.15%
Net investment income 3.41% 3.57% 3.48% 3.95% 2.86%
Expense waiver/reimbursement 4 0.41% 0.23% 0.20% 0.12% 0.16%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $303,899 $217,838 $159,561 $135,120 $93,595
</TABLE>
1 Federated Management became the Fund's investment adviser on November 15,
1996. Prior to November 15, 1996, Lehman Brothers Global Asset Management served
as the Fund's investment adviser.
2 Amount represents less than $(0.01) per share.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 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
JANUARY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.4% 1
ALABAMA-0.4%
$ 2,000,000 Birmingham, AL, IDA, Series 1997, Weekly VRDNs (Millcraft,
AL Inc.)/(Regions Bank, Alabama LOC) $ 2,000,000
ARIZONA-1.7%
5,400,000 Eloy, AZ, IDA, Series 1996, Weekly VRDNs (The Marley Cooling
Tower Co.)/(First Union National Bank, Charlotte, N.C. LOC) 5,400,000
715,000 Maricopa County, AZ, IDA, 3.20% CP (Citizens Utilities Co.),
Mandatory Tender 3/5/1999 715,000
2,090,000 Pima County, AZ, IDA, Single Family Mortgage (PA-159) Weekly
VRDNs (GNMA COL)/(Merrill Lynch Capital Services, Inc. LIQ) 2,090,000
TOTAL 8,205,000
ARKANSAS-4.1%
1,000,000 Arkadelphia, AR, IDRBs, Series 1996, Weekly VRDNs (Siplast,
Inc.)/(Den Danske Bank A/S LOC) 1,000,000
9,000,000 Arkansas Development Finance Authority, Series 1995, Weekly
VRDNs (Paco Steel & Engineering Corporation Project)/(Union
Bank of California LOC) 9,000,000
1,800,000 Hope, AR, Solid Waste Disposal Revenue Bonds, Series 1994,
3.70% CP (Temple-Inland Forest Products Corp.)/(Temple-
Inland, Inc. GTD), Mandatory Tender 3/11/1999 1,800,000
8,000,000 Springdale, AR, IDA Weekly VRDNs (Newlywed Food)/(Mellon
Bank N.A., Pittsburgh LOC) 8,000,000
TOTAL 19,800,000
CALIFORNIA-0.8%
4,000,000 California Student Education Loan Marketing Corp., Series
1994A, 3.80% TOBs (Dresdner Bank AG, Frankfurt LOC),
Mandatory Tender 6/1/1999 4,000,000
CONNECTICUT-0.5%
2,450,000 Bridgeport, CT, UT GO, 4.25% BANs, 3/18/1999 2,451,323
FLORIDA-2.0%
9,635,000 Dade County, FL, PT-1083 Weekly VRDNs (Miami International
Airport)/(FSA INS)/(Merrill Lynch Capital Services, Inc. LOC) 9,635,000
GEORGIA-8.1%
1,100,000 Bowdon, GA Development Authority, Weekly VRDNs (Trintex
Corp.)/(First Union National Bank, Charlotte, N.C. LOC) 1,100,000
6,000,000 Clayton County, GA Development Authority, Series 1994,
Weekly VRDNs (Lear Seating Corp.)/(Chase Manhattan Bank
N.A., New York LOC) 6,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
GEORGIA-CONTINUED
$ 1,500,000 Clayton County, GA Housing Authority, Multifamily Housing
Revenue Bonds, Series 1997, Weekly VRDNs (Hyde Park Club
Apartments)/(KeyBank, N.A. LOC) $ 1,500,000
2,000,000 Franklin County, GA Industrial Building Authority, Series
1995, Weekly VRDNs (Bosal Industries, Inc.)/(Bank of New
York, New York LOC) 2,000,000
2,160,000 Gainesville, GA Redevelopment Authority, IDRB, Series 1986,
Weekly VRDNs (Hotel of Gainesville Associates
Project)/(Regions Bank, Alabama LOC) 2,160,000
4,000,000 Jackson County, GA, IDA, Series 1996, Weekly VRDNs (Buhler
Quality Yarns Corp. Project)/(UBS AG LOC) 4,000,000
5,800,000 Richmond County, GA Development Authority, Series 1999,
Weekly VRDNs (Evergreen Nylon Recycling, LLC)/(Banque
Nationale de Paris LOC) 5,800,000
6,000,000 Richmond County, GA Development Authority, Solid Waste
Disposal Revenue Bonds, Series 1995, Weekly VRDNs (Federal
Paper Board Co., Inc.)/(Wachovia Bank
of NC, N.A., Winston-Salem LOC) 6,000,000
10,750,000 Savannah, GA, EDA, Series 1995A, Weekly VRDNs (Home Depot,
Inc.) 10,750,000
TOTAL 39,310,000
HAWAII-1.4%
6,960,000 Hawaii Finance and Development Corp., PT-1049 Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ) 6,960,000
IDAHO-1.5%
7,461,000 Idaho Housing Agency, PA-115, 1994 Series F, Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ) 7,461,000
ILLINOIS-4.4%
7,000,000 Chicago, IL, Chicago Midway Airport Special Facility Revenue
Bonds, Series 1998, 3.25% TOBs (Signature Flight Support
Corp.)/(Bayerische Landesbank Girozentrale LOC), Optional
Tender 6/1/1999 7,000,000
3,000,000 Chicago, IL, Gas Supply Revenue Bonds, 1993 Series B, 3.20%
TOBs (Peoples Gas Light & Coke Company), Optional Tender
12/1/1999 3,000,000
6,000,000 Illinois Development Finance Authority, Series 1997, Weekly
VRDNs (Toyal America, Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 6,000,000
2,575,000 Peoria, IL, Series 1995, Weekly VRDNs (Praise and Leadership
Elementary School)/(Bank One, Illinois, N.A. LOC) 2,575,000
2,360,000 Rockford, IL, EDRB, 3.80% TOBs (Independence Village of
Rockford)/(Paribas, Paris LOC), Optional Tender 12/1/1999 2,360,000
600,000 Southwestern Illinois Development Authority, Series 1991,
Weekly VRDNs (Robinson Steel Co.)/(American National Bank,
Chicago LOC) 600,000
TOTAL 21,535,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
INDIANA-3.7%
$ 2,250,000 Clarksville, IN, Series 1997, Weekly VRDNs (Metal Sales
Manufacturing Corp)/
(Star Bank, NA, Cincinnati LOC) $ 2,250,000
3,625,000 Elkhart County, IN, Series 1997, Weekly VRDNs (Hart Housing
Group, Inc.)/(KeyBank, N.A. LOC) 3,625,000
6,500,000 Jeffersonville, IN, Series 1997A, Weekly VRDNs (Wayne Steel,
Inc.)/(Bank One, Ohio, N.A. LOC) 6,500,000
1,570,000 Richmond, IN, Economic Development Revenue Bonds, Series
1996, Weekly VRDNs (Holland Colors Americas, Inc.
Project)/(Bank One, Indiana, N.A. LOC) 1,570,000
4,000,000 Rushville, IN, Series 1996, Weekly VRDNs (Fujitsu Ten Corp.
of America)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 4,000,000
TOTAL 17,945,000
KENTUCKY-4.7%
8,320,000 2 Kentucky Housing Corp., Variable Rate Certificates, Series
1998 W, 3.25% TOBs (Bank of America NT and SA, San Francisco
LIQ), Optional Tender 6/15/1999 8,320,000
5,000,000 Louisville & Jefferson County, KY Regional Airport
Authority, Series 1996-A, Weekly VRDNs (National City Bank,
Kentucky LOC) 5,000,000
5,000,000 Louisville & Jefferson County, KY Regional Airport
Authority, Series 1997 AA-1, Weekly VRDNs (National City
Bank, Kentucky LOC) 5,000,000
4,400,000 Paris, KY, Weekly VRDNs (Monessen Holdings, LLC)/(Bank One,
Kentucky LOC) 4,400,000
TOTAL 22,720,000
LOUISIANA-0.3%
1,600,000 Ouachita Parish, LA, IDB, Series 1998, Weekly VRDNs (Dixie
Carbonic, Inc.)/(Bank One, Illinois, N.A. LOC) 1,600,000
MAINE-1.2%
4,000,000 Jay, ME, Solid Waste Disposal Revenue Bonds, 4.00% TOBs
(International Paper Co.), Optional Tender 6/1/1999 4,000,000
1,900,000 Trenton, ME, Series 1998, Weekly VRDNs (Hinckley
Co.)/(KeyBank, N.A. LOC) 1,900,000
TOTAL 5,900,000
MARYLAND-1.6%
2,400,000 Harford County, MD, Series 1989, Weekly VRDNs (Harford
Commons Associates Facility)/(First National Bank of
Maryland, Baltimore LOC) 2,400,000
1,386,000 Harford County, MD, Variable Rate Demand/Fixed Rate
Refunding Bond (1989 Issue) Weekly VRDNs (Harford Commons
Associates Facility)/(First National Bank of Maryland,
Baltimore LOC) 1,386,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
MARYLAND-CONTINUED
$ 2,580,000 Maryland State Community Development Administration, Series
1990A, Weekly VRDNs (College Estates)/(First National Bank
of Maryland, Baltimore LOC) $ 2,580,000
1,370,000 Montgomery County, MD Weekly VRDNs (Information Systems and
Networks Corp.)/(PNC Bank, N.A. LOC) 1,370,000
TOTAL 7,736,000
MASSACHUSETTS-0.7%
3,400,000 Massachusetts IFA, IDRB, Series 1995, Weekly VRDNs (Dunsirn
Industries, Inc. Project)/(Bank One, Wisconsin, N.A. LOC) 3,400,000
MINNESOTA-6.1%
1,500,000 Blaine, MN, Series 1997, Weekly VRDNs (Plastic Enterprises,
Inc.)/(Norwest Bank Minnesota, N.A. LOC) 1,500,000
10,195,000 2 Dakota County & Washington County MN Housing & Redevelopment
Authority, MERLOTS, Series J, 3.35% TOBs (United States
Treasury COL)/(First Union National Bank, Charlotte, N.C.
LIQ), Optional Tender 3/1/1999 10,195,000
5,000,000 2 Dakota County, Washington County & Anoka City, MN Housing &
Redevelopment Authority, MERLOTS, Series H, 3.35% TOBs
(United States Treasury COL)/(First Union National Bank,
Charlotte, N.C. LIQ), Optional Tender 3/1/1999 5,000,000
6,000,000 Edgerton, MN, Series 1998, Weekly VRDNs (Fey Industries,
Inc.)/(Norwest Bank Minnesota, N.A. LOC) 6,000,000
2,950,000 Savage, MN, Series 1998, Weekly VRDNs (Fabcon,
Inc.)/(Norwest Bank Minnesota, N.A. LOC) 2,950,000
2,000,000 Springfield, MN, Series 1998, Weekly VRDNs (Ochs Brick
Co.)/(Norwest Bank Minnesota, N.A. LOC) 2,000,000
2,000,000 White Bear Lake, MN, Century Townhomes, Series 1997, 4.55%
TOBs (Westdeutsche Landesbank Girozentrale), Optional Tender
5/1/1999 2,000,000
TOTAL 29,645,000
MISSISSIPPI-5.1%
1,168,000 Greenville, MS, IDA Weekly VRDNs (Mebane Packaging
Corp)/(First Union National Bank, Charlotte, NC LOC) 1,168,000
4,070,000 Mississippi Business Finance Corp., Series 1995, Weekly
VRDNs (Mississippi Baking Company L.L.C. Project)/(First
National Bank of Maryland, Baltimore LOC) 4,070,000
9,995,000 2 Mississippi Home Corp., PT-218B, 3.75% TOBs (GNMA
COL)/(Bayerische Hypotheken-und Vereinsbank AG LIQ),
Mandatory Tender 7/8/1999 9,995,000
9,790,000 Mississippi Regional Housing Authorithy No. II, Series 1998,
3.60% TOBs (Bradford Park Apartments)/(Amsouth Bank N.A.,
Birmingham LOC), Mandatory Tender 10/1/1999 9,790,000
TOTAL 25,023,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
MISSOURI-0.2%
$ 1,000,000 St. Louis, MO, IDA, Series 1997, Weekly VRDNs (Cee Kay
Supply)/(Commerce Bank, Kansas City, N.A. LOC) $ 1,000,000
MULTI STATE-7.4%
20,000,000 Charter Mac Floater Certificates Trust I, (First Tranche)
Weekly VRDNs (MBIA INS)/(Bayerische Landesbank Girozentrale,
Commerzbank AG, Frankfurt and Credit Communal de Belgique,
Brussles LIQs) 20,000,000
10,000,000 Charter Mac Floater Certificates Trust I, (Second Tranche)
Weekly VRDNs (MBIA INS)/(Bayerische Landesbank Girozentrale,
Commerzbank AG, Frankfurt and Credit Communal de Belgique,
Brussles LIQs) 10,000,000
5,684,000 Clipper Tax-Exempt Trust (AMT MultiState), Series A, Weekly
VRDNs (State Street Bank and Trust Co. LIQ) 5,684,000
TOTAL 35,684,000
NEBRASKA-1.7%
2,710,000 Nebraska Investment Finance Authority, Series 1997, Weekly
VRDNs (Transcrypt International, Inc.)/(Norwest Bank
Minnesota, N.A. LOC) 2,710,000
5,700,000 Stanton County, NE, Series 1998, Weekly VRDNs (Nucor
Corporation) 5,700,000
TOTAL 8,410,000
NEVADA-0.1%
600,000 Nevada State Department of Community & Industrial
Development Weekly VRDNs (Kinplex Company Project)/(Credit
Commercial De France, Paris LOC) 600,000
NEW HAMPSHIRE-2.9%
4,000,000 New Hampshire Business Finance Authority, IDRB, Series A,
Weekly VRDNs (Upper Valley Press)/(KeyBank, N.A. LOC) 4,000,000
9,995,000 2 New Hampshire State HFA, Variable Rate Certificates, Series
1998U, 3.68% TOBs (AMBAC INS)/(Bank of America NT and SA, San
Francisco LIQ), Optional Tender 6/1/1999 9,995,000 TOTAL
13,995,000 NEW JERSEY-2.9%
2,812,000 Cedar Grove Township, NJ, 3.80% BANs, 3/8/1999 2,812,338
4,989,000 Galloway Township, NJ, 4.125% BANs, 3/11/1999 4,990,624
4,367,000 Haddonfield, NJ, 4.40% BANs, 6/4/1999 4,375,500
1,900,000 New Jersey EDA, Trust Receipts, Series 1998 FR/RI-34, Weekly
VRDNs (New Jersey-American Water Co., Inc.)/(FGIC INS)/(Bank
of New York, New York LIQ) 1,900,000
TOTAL 14,078,462
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW MEXICO-2.1%
$ 5,330,000 Albuquerque, NM, Series 1996, Weekly VRDNs (Rose's Southwest
Papers, Inc. Project)/(Norwest Bank Minnesota, N.A. LOC) $ 5,330,000
5,000,000 Los Lunas Village, NM, Series 1998, Weekly VRDNs (Wall
Colmonoy Corp.)/(Michigan National Bank, Farmington Hills LOC) 5,000,000
TOTAL 10,330,000
NEW YORK-3.7%
10,000,000 2 New York City, NY, Trust Receipts, Series 1998 FR/RI-A77,
2.90% TOBs (National Westminster Bank, PLC, London LIQ),
Optional Tender 3/12/1999 10,000,000
1,995,000 New York State Mortgage Agency, (PA-422) Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ) 1,995,000
5,900,000 2 Triborough Bridge & Tunnel Authority, NY, Floater
Certificates, Series 1998-72, 3.25% TOBs (FGIC INS)/(Morgan
Stanley, Dean Witter Municipal Funding, Inc. LIQ), Optional
Tender 2/11/1999 5,900,000
TOTAL 17,895,000
NORTH CAROLINA-1.0%
5,000,000 Person County, NC, Industrial Facilities & Pollution Control
Financing Authority Daily VRDNs (Carolina Power & Light
Co.)/(SunTrust Bank, Atlanta LOC) 5,000,000
OHIO-1.4%
6,800,000 Clermont County, OH, Variable Rate IDRB's, Series 1997, Weekly
VRDNs (Buriot International, Inc.)/(KeyBank, N.A.
LOC) 6,800,000
OKLAHOMA-6.0%
8,000,000 Broken Arrow, OK, EDA Weekly VRDNs (Blue Bell
Creameries)/(Banque Nationale de Paris LOC) 8,000,000
13,835,000 Tulsa County, OK, HFA, CDC Municipal Products, Inc. Class A
Certificates, Series 1996E, Weekly VRDNs (GNMA COL)/(CDC
Municipal Products, Inc. LIQ) 13,835,000
7,245,000 Tulsa, OK International Airport, Variable Rate Certificates,
Series 1997 B-1, Weekly VRDNs (MBIA INS)/(Bank of America NT
and SA, San Francisco LIQ) 7,245,000
TOTAL 29,080,000
OREGON-0.6%
2,000,000 Oregon School Boards Association, Pooled Short-Term
Borrowing Program, Series 1998A, 4.00% TRANs, 6/30/1999 2,000,000
660,000 Oregon State, Economic Development Revenue Bonds, Series
1988B, Weekly VRDNs (Domaine Drouhin Oregon, Inc.)/(Wells
Fargo Bank, N.A. LOC) 660,000
TOTAL 2,660,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-2.7%
$ 3,000,000 Clinton County, PA IDA, Solid Waste Disposal Revenue Bonds,
Series 1992A, 3.95% TOBs (International Paper Co.), Optional
Tender 1/15/2000 $ 3,000,000
3,100,000 Pennsylvania EDFA, Series B1, Weekly VRDNs (Erie Plating
Co.)/(PNC Bank, N.A. LOC) 3,100,000
500,000 Pennsylvania State Higher Education Assistance Agency,
Student Loan Adjustable Rate Revenue Bonds, Series 1997A,
Weekly VRDNs (Student Loan Marketing Association LOC) 500,000
6,745,000 2 Philadelphia, PA, IDA, Variable Rate Certificates, Series
1998P-1, 3.75% TOBs (Philadelphia Airport System)/(FGIC
INS)/(Bank of America NT and SA, San Francisco LIQ),
Optional Tender 8/4/1999 6,745,000
TOTAL 13,345,000
SOUTH CAROLINA-2.1%
4,000,000 South Carolina Job Development Authority Weekly VRDNs
(Boozer Lumber Co.)/(SouthTrust Bank of Alabama, Birmingham
LOC) 4,000,000
125,000 South Carolina Job Development Authority, Series 1988A,
Weekly VRDNs (Kent Manufacturing Co.)/(Credit Commercial De
France, Paris LOC) 125,000
300,000 South Carolina Job Development Authority, Series 1988B,
Weekly VRDNs (Seacord Corporation)/(Credit Commercial De
France, Paris LOC) 300,000
500,000 South Carolina Job Development Authority, Series 1990,
Weekly VRDNs (NMFO Associates)/(Wachovia Bank of NC, N.A.,
Winston-Salem LOC) 500,000
950,000 South Carolina Job Development Authority, Series 1990,
Weekly VRDNs (Old Claussen's Bakery)/(Wachovia Bank of NC,
N.A., Winston-Salem LOC) 950,000
550,000 South Carolina Job Development Authority, Series 1990,
Weekly VRDNs (Rice Street Association)/(Wachovia Bank of NC,
N.A., Winston-Salem LOC) 550,000
825,000 South Carolina Job Development Authority, Series B, Weekly
VRDNs (Osmose Wood Preserving)/(Credit Commercial De France,
Paris LOC) 825,000
2,885,000 York County, SC IDA, Industrial Development Revenue Bonds,
Series 1989, Weekly VRDNs (Sediver Inc)/(Banque Nationale de
Paris LOC) 2,885,000
TOTAL 10,135,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
SOUTH DAKOTA-1.0%
$ 3,000,000 South Dakota Housing Development Authority, 1998 Series B,
3.75% BANs, 8/5/1999 $ 3,000,000
675,000 South Dakota Housing Development Authority, CDC Municipal
Products, Inc. Class A Certificates, Series 1996C, Weekly
VRDNs (CDC Municipal Products, Inc. LIQ) 675,000
1,405,000 South Dakota Housing Development Authority, Homeownership
Mortgage Bonds, 1997 Series E, Weekly VRDNs 1,405,000
TOTAL 5,080,000
TENNESSEE-3.4%
4,000,000 Carter County, TN, IDB, Series 1983, Monthly VRDNs (Inland
Container Corporation)/(Temple-Inland, Inc. GTD) 4,000,000
1,500,000 Cheatham County, TN, IDB, Series 1997B, Weekly VRDNs (Triton
Boat Co.)/(First American National Bank, Nashville, TN LOC) 1,500,000
2,000,000 Hawkins County, TN, IDB, Series 1995, Weekly VRDNs (Sekisui
Ta Industries, Inc. Project)/(Bank of Tokyo-Mitsubishi Ltd.
LOC) 2,000,000
200,000 Jackson, TN, IDB, Solid Waste Facility Bonds, Series 1995,
Weekly VRDNs (Florida Steel Corp.)/(Nationsbank, N.A.,
Charlotte LOC) 200,000
2,500,000 Knox County, TN, IDB, Series 1996, Weekly VRDNs (Health
Ventures, Inc. Project)/(SunTrust Bank, Nashville LOC) 2,500,000
2,530,000 Morristown, TN, IDB Weekly VRDNs (Tuff Torq Corp.)/
(Bank of Tokyo-Mitsubishi Ltd. LOC) 2,530,000
900,000 South Pittsburg, TN, IDB, Series 1996, Weekly VRDNs (Lodge
Manufacturing Co. Project)/(SunTrust Bank, Nashville LOC) 900,000
3,000,000 Tennessee Housing Development Agency, Series 1997K, Weekly
VRDNs (Bank of America NT and SA, San Francisco LIQ) 3,000,000
TOTAL 16,630,000
TEXAS-7.1%
1,000,000 Angelina and Neches River Authority, Texas, Solid Waste
Disposal Revenue Bonds, Series 1993, 3.75% CP (Temple-Eastex
Inc.)/(Temple-Inland, Inc. GTD), Mandatory Tender 3/10/1999 1,000,000
3,000,000 Angelina and Neches River Authority, Texas, Solid Waste
Disposal Revenue Bonds, Series 1993, 3.80% CP (Temple-Eastex
Inc.)/(Temple-Inland, Inc. GTD), Mandatory Tender 3/12/1999 3,000,000
1,600,000 Angelina and Neches River Authority, Texas, Waste Disposal
Revenue Bonds, Series 1998, 3.75% CP (Temple-Inland Forest
Products Corp.)/(Temple-Inland, Inc. GTD), Mandatory Tender
3/9/1999 1,600,000
7,500,000 Harris County, TX, HFDC, Revenue Refunding Bonds, Series
1986, 4.35% CP
(Young Men's Christian Association of the Greater Houston
Area)/
(Bank of Tokyo-Mitsubishi Ltd. LOC), Mandatory Tender
2/2/1999 7,500,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
TEXAS-CONTINUED
$ 2,400,000 Lubbock, TX, IDC Daily VRDNs (McLane Co.,
Inc.)/(Nationsbank, N.A.,
Charlotte LOC) $ 2,400,000
8,000,000 McAllen, TX, IDA, Series 1998, Weekly VRDNs (NiTek McAllen,
LLC)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 8,000,000
4,780,000 Saginaw, TX, IDA, Series 1998, Weekly VRDNs (Glad Investing
Partners, Ltd.)/(Bank One, Texas N.A. LOC) 4,780,000
6,000,000 Tarrant County, TX, IDC, Series 1997, Weekly VRDNs (Lear
Operations Corp.)/(Chase Manhattan Bank N.A., New York LOC) 6,000,000
TOTAL 34,280,000
VIRGINIA-2.5%
12,100,000 Virginia Peninsula Port Authority, Series 1997, Daily VRDNs
(Ziegler Coal Holding Co.)/(UBS AG LOC) 12,100,000
WISCONSIN-2.3%
2,000,000 Milwaukee, WI, Series 1997, 3.25% TOBs (Signature Flight
Support Corp.)/(Bayerische Landesbank Girozentrale LOC),
Optional Tender 6/1/1999 2,000,000
1,000,000 New Berlin, WI, Series 1997A, Weekly VRDNs (Sunraider
LLC/New Berlin Plastics, Inc.)/(Bank One, Wisconsin, N.A. LOC) 1,000,000
8,035,000 Wisconsin Housing & Economic Development Authority, PT-90,
Series 1996F, Weekly VRDNs (Banque Nationale de Paris LIQ) 8,035,000
TOTAL 11,035,000
TOTAL INVESTMENTS (AT AMORTIZED COST) 3 $ 483,463,785
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 90.4% of the
portfolio as calculated based upon total portfolio market value.
1 The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ('NRSROs') or unrated securities of comparable quality. An NRSRO's
two highest rating categories are determined without regard for sub-categories
and gradations. For example, securities rated SP-1+, SP- 1, or SP-2 by Standard
& Poor's, MIG-1 or MIG-2 by Moody's Investors Service, Inc., or F-1+, F-1, or
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, 1999, the portfolio securities were rated as follows:
Tier Rating based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
95.69% 4.31%
2 Denotes a restricted security which is subject to restrictions on resale under
Federal Securities laws. At January 31, 1999, these securities amounted to
$66,150,000 which represents 13.6% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($486,265,314) at January 31, 1999.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation
AMT -Alternative Minimum Tax
BAN(s) -Bond Anticipation Note(s)
COL -Collateralized
CP -Commercial Paper
EDA -Economic Development Authority
EDFA -Economic Development Financing Authority EDRB -Economic Development
Revenue Bonds FGIC -Financial Guaranty Insurance Company FSA -Financial Security
Assurance GNMA -Government National Mortgage Association GO -General Obligation
GTD -Guaranty HFA -Housing Finance Authority HFDC -Health Facility Development
Corporation IDA -Industrial Development Authority IDB -Industrial Development
Bond IDC -Industrial Development Corporation IDRB(s)-Industrial Development
Revenue Bond(s) IFA -Industrial Finance Authority INS -Insured LIQ -Liquidity
Agreement LOC(s) -Letter(s) of Credit MBIA -Municipal Bond Investors Assurance
MERLOTS-Municipal Exempt Receipts - Liquidity Optional Tender Series SA -Support
Agreement TOBs -Tender Option Bonds TRANs -Tax and Revenue Anticipation Notes UT
- -Unlimited Tax VRDNs -Variable Rate Demand Notes See Notes which are an
integral part of the Financial Statements
Statement of Assets and Liabilities
JANUARY 31, 1999
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 483,463,785
Cash 779,928
Income receivable 2,914,688
Prepaid expenses 728
TOTAL ASSETS 487,159,129
LIABILITIES:
Payable for shares redeemed $ 23,377
Income distribution payable 834,252
Accrued expenses 36,186
TOTAL LIABILITIES 893,815
Net assets for 486,241,985 shares outstanding $ 486,265,314
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$303,906,743 / 303,884,188 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$67,828,653 / 67,828,674 shares outstanding $1.00
INSTITUTIONAL CAPITAL SHARES:
$114,529,918 / 114,529,123 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED JANUARY 31, 1999
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 14,557,221
EXPENSES:
Investment advisory fee $ 803,037
Administrative personnel and services fee 302,822
Custodian fees 6,697
Transfer and dividend disbursing agent fees and expenses 61,219
Directors'/Trustees' fees 6,315
Auditing fees 14,192
Legal fees 20,325
Portfolio accounting fees 106,414
Shareholder services fee-Institutional Shares 672,157
Shareholder services fee-Institutional Service Shares 157,723
Shareholder services fee-Institutional Capital Shares 175,081
Share registration costs 23,701
Printing and postage 15,386
Insurance premiums 29,162
Miscellaneous 1,505
TOTAL EXPENSES 2,395,736
WAIVERS:
Waiver of investment advisory fee $ (636,478)
Waiver of shareholder services fee-Institutional Shares (672,157)
Waiver of shareholder services fee-Institutional
Capital Shares (105,514)
TOTAL WAIVERS (1,414,149)
Net expenses 981,587
Net investment income $ 13,575,634
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 13,575,634 $ 7,984,661
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (9,176,860) (7,088,218)
Institutional Service Shares (2,031,566) (424,504)
Institutional Capital Shares (2,367,208) (472,939)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS
TO SHAREHOLDERS (13,575,634) (7,985,661)
SHARE TRANSACTIONS:
Proceeds from sale of shares 6,671,442,391 4,261,655,577
Net asset value of shares issued to shareholders in payment of
distributions declared 4,797,681 2,454,015
Cost of shares redeemed (6,466,730,133) (4,146,914,995)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 209,509,939 117,194,597
Change in net assets 209,509,939 117,193,597
NET ASSETS:
Beginning of period 276,755,375 159,561,778
End of period $ 486,265,314 $ 276,755,375
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
JANUARY 31, 1999
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 provision for federal taxes is
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, 1999, is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Dakota County & Washington County, MN 1/5/1999 $10,195,000
Dakota County, Washington County & Anoka City, MN 12/1/1998 5,000,000
Kentucky Housing Corp. 11/19/1998 8,320,000
Mississippi Home Corp. 8/17/1998 9,995,000
New Hampshire State HFA 11/19/1998 9,995,000
New York City, NY Trust Receipts 1/19/1999 10,000,000
Philadelphia, PA IDA, Variable Rate 8/27/1998 6,745,000
Triborough Bridge & Tunnel Authority, NY 1/26/1999 5,900,000
</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). At January
31, 1999, capital paid-in aggregated $486,265,314.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL SHARES:
Shares sold 5,212,142,622 3,591,948,985
Shares issued to shareholders in payment of distributions
declared 1,302,615 1,979,575
Shares redeemed (5,127,376,711) (3,535,649,749)
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS 86,068,526 58,278,811
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Shares sold 422,524,378 251,107,687
Shares issued to shareholders in payment of distributions
declared 1,503,612 339,358
Shares redeemed (397,415,401) (210,231,259)
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE
SHARE TRANSACTIONS 26,612,589 41,215,786
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL CAPITAL SHARES:
Shares sold 1,036,775,391 418,598,905
Shares issued to shareholders in payment of distributions
declared 1,991,454 135,082
Shares redeemed (941,938,021) (401,033,987)
NET CHANGE RESULTING FROM INSTITUTIONAL CAPITAL
SHARE TRANSACTIONS 96,828,824 17,700,000
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 209,509,939 117,194,597
</TABLE>
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. Effective March 31, 1999, the Adviser will merge into
Federated Investment Management Company (formerly Federated Advisers). The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser can
modify or terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES FServ, through its
subsidiary FSSC, serves as transfer and dividend disbursing agent for the Fund.
The fee paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended January 31, 1999, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $1,578,571,000 and $2,064,965,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
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, 1999, 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 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, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, 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, 1999, 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 the financial highlights for each of
the periods indicated therein, in conformity with generally accepted accounting
principles.
[Graphic]
Boston, Massachusetts
March 15, 1999
PROSPECTUS
[Graphic]
Municipal Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's semi-annual report to shareholders
as it becomes available. To obtain the SAI, semi-annual report and other
information without charge, call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
[Graphic]
Municipal Obligations Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-7364
Cusip 608912101
G01881-05-IS (3/99)
[Graphic]
PROSPECTUS
Municipal Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL SERVICE SHARES
A money market mutual fund seeking to provide current income exempt from all
federal regular income tax consistent with stability of principal.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
MARCH 31, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in Which the
Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 4
What Do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 5
How to Redeem Shares 6
Account and Share Information 8
Who Manages the Fund? 9
Financial Information 9
Report of Ernst & Young LLP, Independent Auditors 28
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is to provide current income exempt
from all federal regular income tax consistent with stability of principal.
While there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the strategies and policies described in this
prospectus.
This investment objective may be changed by the Fund's Trustees without
shareholder approval.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES? The Fund invests in tax exempt
securities so that the Fund's annual interest income is exempt from federal
regular income tax. Interest income from the Fund's investments may be subject
to the federal alternative minimum tax for individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money by investing in the Fund.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares as of the calendar year-end
for each of the last five years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 1% up to 4%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features five distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Institutional Service Shares for each calendar
year is stated directly at the top of each respective bar, for the calendar
years 1994 through 1998. The percentages noted are: 2.67%, 3.78%, 3.32%, 3.41%
and 3.30%, respectively.
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional
Service Shares total returns on a yearly basis.
The Fund's Institutional Service Shares are not sold subject to a sales charge
(load). The total returns displayed above are based upon the net asset value.
Within the period shown in the Chart, the Fund's Institutional Service Shares
highest quarterly return was 0.98% (quarter ended June 30, 1995). Its lowest
quarterly return was 0.53% (quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURN
The following table represents the Fund's Institutional Service Shares Average
Annual Total Return through December 31, 1998.
CALENDAR PERIOD FUND
1 Year 3.30%
5 Years 3.29%
Start or Performance 1 3.14%
1 The Fund's Institutional Service Shares start of performance date was February
8, 1993.
Investors may call the Fund at 1-800-341-7400 to acquire the current 7-Day Net
Yield.
The Fund's Institutional Service Shares 7-Day Net Yield as of 12/31/98 was
3.52%.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are the Fund's Fees and Expenses?
MUNICIPAL OBLIGATIONS FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Service Shares.
<TABLE>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds,
as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage
of average net assets)
Management Fee 2 0.20%
Distribution (12b-1) Fee None
Shareholder Services Fee 0.25%
Other Expenses 0.14%
Total Annual Fund Operating Expenses 0.59%
1 Although not contractually obligated to do so, the adviser waived certain
amounts. These are described below along with the net expenses the Fund's
Institutional Service Shares actually paid for the fiscal year ended January 31,
1999.
Waiver of Fund Expenses 0.16%
Total Actual Annual Fund Operating Expenses (after waivers) 0.43%
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund's Institutional Service Shares (after the voluntary waiver) was 0.04% for
the year ended January 31, 1999. </TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Institutional Service Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Service
Shares for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's Institutional Service Shares operating
expenses are BEFORE WAIVERS as shown in the table and remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
1 Year $ 60
3 Years $189
5 Years $329
10 Years $738
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio will be 90
days or less.
The Fund's investment adviser (Adviser) performs a fundamental credit analysis
to develop an approved list of issuers and securities that meet the Adviser's
minimum credit standards. The Adviser targets an average portfolio maturity
based upon its interest rate outlook and the tax-exempt securities available.
The Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of municipal
securities, the Adviser generally shortens the portfolio's maturity when it
expects interest rates to rise and extends the maturity when it expects interest
rates to fall. In order to enhance yield, the Fund's Adviser will seek to invest
a significant portion of the portfolio in tax exempt securities subject to the
alternative minimum tax.
What are the Principal Securities in Which the Fund Invests?
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to regular federal income taxes. Typically, states, counties, cities and
other political subdivisions and authorities issue tax exempt securities. The
market categorizes tax exempt securities by their source of repayment. Fixed
income securities pay interest, dividends or distributions at a specified rate.
The rate may be a fixed percentage of the principal or adjusted periodically. In
addition, the issuer of a fixed income security must repay the principal amount
of the security, normally within a specified time.
The following describes the types of tax exempt securities in which the Fund
invests:
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also pay interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, because their variable
interest rate adjusts in response to changes in market rates, even though their
stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations before collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money. Money market funds try to minimize this risk by purchasing
higher quality securities.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the Adviser's credit assessment.
BOND MARKET RISKS
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities issued
or credit enhanced by companies in similar businesses or with other similar
characteristics. As a result, the Fund will be more susceptible to any economic,
business, political, or other developments which generally affect these issuers.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions, the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax. Temporary investments will be of comparable quality to other
securities in which the Fund invests. This may cause the Fund to give up greater
after tax investment returns to maintain the safety of principal. This also may
cause the Fund to receive and distribute taxable income to investors.
What Do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next determined net asset value (NAV). The Fund does not charge
a front-end sales charge. NAV is determined at 12:00 noon and 3:00 p.m. (Eastern
time) and as of the end of regular trading (normally 4:00 p.m. Eastern time)
each day the NYSE is open.
The required minimum initial investment for Fund Shares is $1,000,000. There is
no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $1,000,000 minimum
is reached within one year of opening the account. An institutional investor's
minimum investment is calculated by combining all accounts it maintains with the
Fund. Accounts established through investment professionals may be subject to a
smaller minimum investment amount. Keep in mind that investment professionals
may charge you fees for their services in connection with your Share
transactions.
How is the Fund Sold?
The Fund offers three share classes: Institutional Shares, Institutional Service
Shares and Institutional Capital Shares, each representing interests in a single
portfolio of securities. This prospectus relates only to Institutional Service
Shares. Each share class has different expenses which affect their performance.
Contact your investment professional or call 1-800-341-7400 for more information
concerning the other classes.
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity.
The Distributor and its affiliates may pay out of their assets other
amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of
Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 3:00 p.m.
(Eastern time). You will receive that day's dividend if the investment
professional forwards the order to the Fund and the Fund receives payment by
3:00 p.m. (Eastern time). You will become the owner of Shares and receive
dividends when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares after the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder after the Fund receives the order.
BY WIRE Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY INVEST-BY-PHONE
Once you establish an account, you may use the Fund's Invest-By-Phone privilege
for future Share purchases if you have an account with a bank that is an
Automated Clearing House member. To apply, call the Fund for an authorization
form. You may use Invest-By-Phone to purchase Shares approximately two weeks
from the date you file the form with Federated Shareholder Services Company.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). Investment
professionals are responsible for promptly submitting redemption requests and
providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired to
you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired to
you the following business day. You will receive that day's dividend.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the day
that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed within
the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
ACCOUNT ACTIVITY
You will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
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 pays any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes. Capital gains and non-exempt
dividends are taxable whether paid in cash or reinvested in the Fund.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the
Fund's assets, including buying and selling portfolio securities. The
Adviser's address is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.20% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.
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 28.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998 1997
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.03 0.03 0.03
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 3.27% 3.43% 3.31%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.43% 0.43% 0.43%
Net investment income 3.22% 3.48% 3.08%
Expense waiver/reimbursement 2 0.16% 0.23% 0.21%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $67,832 $41,216 $0.30
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
JANUARY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.4% 1
ALABAMA-0.4%
$ 2,000,000 Birmingham, AL, IDA, Series 1997, Weekly VRDNs (Millcraft,
AL Inc.)/(Regions Bank, Alabama LOC) $ 2,000,000
ARIZONA-1.7%
5,400,000 Eloy, AZ, IDA, Series 1996, Weekly VRDNs (The Marley Cooling
Tower Co.)/(First Union National Bank, Charlotte, N.C. LOC) 5,400,000
715,000 Maricopa County, AZ, IDA, 3.20% CP (Citizens Utilities Co.),
Mandatory Tender 3/5/1999 715,000
2,090,000 Pima County, AZ, IDA, Single Family Mortgage (PA-159) Weekly
VRDNs (GNMA COL)/(Merrill Lynch Capital Services, Inc. LIQ) 2,090,000
TOTAL 8,205,000
ARKANSAS-4.1%
1,000,000 Arkadelphia, AR, IDRBs, Series 1996, Weekly VRDNs (Siplast,
Inc.)/(Den Danske Bank A/S LOC) 1,000,000
9,000,000 Arkansas Development Finance Authority, Series 1995, Weekly
VRDNs (Paco Steel & Engineering Corporation Project)/(Union
Bank of California LOC) 9,000,000
1,800,000 Hope, AR, Solid Waste Disposal Revenue Bonds, Series 1994,
3.70% CP (Temple-Inland Forest Products Corp.)/(Temple-
Inland, Inc. GTD), Mandatory Tender 3/11/1999 1,800,000
8,000,000 Springdale, AR, IDA Weekly VRDNs (Newlywed Food)/(Mellon
Bank N.A., Pittsburgh LOC) 8,000,000
TOTAL 19,800,000
CALIFORNIA-0.8%
4,000,000 California Student Education Loan Marketing Corp., Series
1994A, 3.80% TOBs (Dresdner Bank AG, Frankfurt LOC),
Mandatory Tender 6/1/1999 4,000,000
CONNECTICUT-0.5%
2,450,000 Bridgeport, CT, UT GO, 4.25% BANs, 3/18/1999 2,451,323
FLORIDA-2.0%
9,635,000 Dade County, FL, PT-1083 Weekly VRDNs (Miami International
Airport)/(FSA INS)/(Merrill Lynch Capital Services, Inc. LOC) 9,635,000
GEORGIA-8.1%
1,100,000 Bowdon, GA Development Authority, Weekly VRDNs (Trintex
Corp.)/(First Union National Bank, Charlotte, N.C. LOC) 1,100,000
6,000,000 Clayton County, GA Development Authority, Series 1994,
Weekly VRDNs (Lear Seating Corp.)/(Chase Manhattan Bank
N.A., New York LOC) 6,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
GEORGIA-CONTINUED
$ 1,500,000 Clayton County, GA Housing Authority, Multifamily Housing
Revenue Bonds, Series 1997, Weekly VRDNs (Hyde Park Club
Apartments)/(KeyBank, N.A. LOC) $ 1,500,000
2,000,000 Franklin County, GA Industrial Building Authority, Series
1995, Weekly VRDNs (Bosal Industries, Inc.)/(Bank of New
York, New York LOC) 2,000,000
2,160,000 Gainesville, GA Redevelopment Authority, IDRB, Series 1986,
Weekly VRDNs (Hotel of Gainesville Associates
Project)/(Regions Bank, Alabama LOC) 2,160,000
4,000,000 Jackson County, GA, IDA, Series 1996, Weekly VRDNs (Buhler
Quality Yarns Corp. Project)/(UBS AG LOC) 4,000,000
5,800,000 Richmond County, GA Development Authority, Series 1999,
Weekly VRDNs (Evergreen Nylon Recycling, LLC)/(Banque
Nationale de Paris LOC) 5,800,000
6,000,000 Richmond County, GA Development Authority, Solid Waste
Disposal Revenue Bonds, Series 1995, Weekly VRDNs (Federal
Paper Board Co., Inc.)/(Wachovia Bank
of NC, N.A., Winston-Salem LOC) 6,000,000
10,750,000 Savannah, GA, EDA, Series 1995A, Weekly VRDNs (Home Depot,
Inc.) 10,750,000
TOTAL 39,310,000
HAWAII-1.4%
6,960,000 Hawaii Finance and Development Corp., PT-1049 Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ) 6,960,000
IDAHO-1.5%
7,461,000 Idaho Housing Agency, PA-115, 1994 Series F, Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ) 7,461,000
ILLINOIS-4.4%
7,000,000 Chicago, IL, Chicago Midway Airport Special Facility Revenue
Bonds, Series 1998, 3.25% TOBs (Signature Flight Support
Corp.)/(Bayerische Landesbank Girozentrale LOC), Optional
Tender 6/1/1999 7,000,000
3,000,000 Chicago, IL, Gas Supply Revenue Bonds, 1993 Series B, 3.20%
TOBs (Peoples Gas Light & Coke Company), Optional Tender
12/1/1999 3,000,000
6,000,000 Illinois Development Finance Authority, Series 1997, Weekly
VRDNs (Toyal America, Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 6,000,000
2,575,000 Peoria, IL, Series 1995, Weekly VRDNs (Praise and Leadership
Elementary School)/(Bank One, Illinois, N.A. LOC) 2,575,000
2,360,000 Rockford, IL, EDRB, 3.80% TOBs (Independence Village of
Rockford)/(Paribas, Paris LOC), Optional Tender 12/1/1999 2,360,000
600,000 Southwestern Illinois Development Authority, Series 1991,
Weekly VRDNs (Robinson Steel Co.)/(American National Bank,
Chicago LOC) 600,000
TOTAL 21,535,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
INDIANA-3.7%
$ 2,250,000 Clarksville, IN, Series 1997, Weekly VRDNs (Metal Sales
Manufacturing Corp (Star Bank, NA, Cincinnati LOC) $ 2,250,000
3,625,000 Elkhart County, IN, Series 1997, Weekly VRDNs (Hart Housing
Group, Inc.)/(KeyBank, N.A. LOC) 3,625,000
6,500,000 Jeffersonville, IN, Series 1997A, Weekly VRDNs (Wayne Steel,
Inc.)/(Bank One, Ohio, N.A. LOC) 6,500,000
1,570,000 Richmond, IN, Economic Development Revenue Bonds, Series
1996, Weekly VRDNs (Holland Colors Americas, Inc.
Project)/(Bank One, Indiana, N.A. LOC) 1,570,000
4,000,000 Rushville, IN, Series 1996, Weekly VRDNs (Fujitsu Ten Corp.
of America)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 4,000,000
TOTAL 17,945,000
KENTUCKY-4.7%
8,320,000 2 Kentucky Housing Corp., Variable Rate Certificates, Series
1998 W, 3.25% TOBs (Bank of America NT and SA, San Francisco
LIQ), Optional Tender 6/15/1999 8,320,000
5,000,000 Louisville & Jefferson County, KY Regional Airport
Authority, Series 1996-A, Weekly VRDNs (National City Bank,
Kentucky LOC) 5,000,000
5,000,000 Louisville & Jefferson County, KY Regional Airport
Authority, Series 1997 AA-1, Weekly VRDNs (National City
Bank, Kentucky LOC) 5,000,000
4,400,000 Paris, KY, Weekly VRDNs (Monessen Holdings, LLC)/(Bank One,
Kentucky LOC) 4,400,000
TOTAL 22,720,000
LOUISIANA-0.3%
1,600,000 Ouachita Parish, LA, IDB, Series 1998, Weekly VRDNs (Dixie
Carbonic, Inc.)/(Bank One, Illinois, N.A. LOC) 1,600,000
MAINE-1.2%
4,000,000 Jay, ME, Solid Waste Disposal Revenue Bonds, 4.00% TOBs
(International Paper Co.), Optional Tender 6/1/1999 4,000,000
1,900,000 Trenton, ME, Series 1998, Weekly VRDNs (Hinckley
Co.)/(KeyBank, N.A. LOC) 1,900,000
TOTAL 5,900,000
MARYLAND-1.6%
2,400,000 Harford County, MD, Series 1989, Weekly VRDNs (Harford
Commons Associates Facility)/(First National Bank of
Maryland, Baltimore LOC) 2,400,000
1,386,000 Harford County, MD, Variable Rate Demand/Fixed Rate
Refunding Bond (1989 Issue) Weekly VRDNs (Harford Commons
Associates Facility)/(First National Bank of Maryland,
Baltimore LOC) 1,386,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
MARYLAND-CONTINUED
$ 2,580,000 Maryland State Community Development Administration, Series
1990A, Weekly VRDNs (College Estates)/(First National Bank
of Maryland, Baltimore LOC) $ 2,580,000
1,370,000 Montgomery County, MD Weekly VRDNs (Information Systems and
Networks Corp.)/(PNC Bank, N.A. LOC) 1,370,000
TOTAL 7,736,000
MASSACHUSETTS-0.7%
3,400,000 Massachusetts IFA, IDRB, Series 1995, Weekly VRDNs (Dunsirn
Industries, Inc. Project)/(Bank One, Wisconsin, N.A. LOC) 3,400,000
MINNESOTA-6.1%
1,500,000 Blaine, MN, Series 1997, Weekly VRDNs (Plastic Enterprises,
Inc.)/(Norwest Bank Minnesota, N.A. LOC) 1,500,000
10,195,000 2 Dakota County & Washington County MN Housing & Redevelopment
Authority, MERLOTS, Series J, 3.35% TOBs (United States
Treasury COL)/(First Union National Bank, Charlotte, N.C.
LIQ), Optional Tender 3/1/1999 10,195,000
5,000,000 2 Dakota County, Washington County & Anoka City, MN Housing &
Redevelopment Authority, MERLOTS, Series H, 3.35% TOBs
(United States Treasury COL)/(First Union National Bank,
Charlotte, N.C. LIQ), Optional Tender 3/1/1999 5,000,000
6,000,000 Edgerton, MN, Series 1998, Weekly VRDNs (Fey Industries,
Inc.)/(Norwest Bank Minnesota, N.A. LOC) 6,000,000
2,950,000 Savage, MN, Series 1998, Weekly VRDNs (Fabcon,
Inc.)/(Norwest Bank Minnesota, N.A. LOC) 2,950,000
2,000,000 Springfield, MN, Series 1998, Weekly VRDNs (Ochs Brick
Co.)/(Norwest Bank Minnesota, N.A. LOC) 2,000,000
2,000,000 White Bear Lake, MN, Century Townhomes, Series 1997, 4.55%
TOBs (Westdeutsche Landesbank Girozentrale), Optional Tender
5/1/1999 2,000,000
TOTAL 29,645,000
MISSISSIPPI-5.1%
1,168,000 Greenville, MS, IDA Weekly VRDNs (Mebane Packaging
Corp)/(First Union National Bank, Charlotte, NC LOC) 1,168,000
4,070,000 Mississippi Business Finance Corp., Series 1995, Weekly
VRDNs (Mississippi Baking Company L.L.C. Project)/(First
National Bank of Maryland, Baltimore LOC) 4,070,000
9,995,000 2 Mississippi Home Corp., PT-218B, 3.75% TOBs (GNMA
COL)/(Bayerische Hypotheken-und Vereinsbank AG LIQ),
Mandatory Tender 7/8/1999 9,995,000
9,790,000 Mississippi Regional Housing Authorithy No. II, Series 1998,
3.60% TOBs (Bradford Park Apartments)/(Amsouth Bank N.A.,
Birmingham LOC), Mandatory Tender 10/1/1999 9,790,000
TOTAL 25,023,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
MISSOURI-0.2%
$ 1,000,000 St. Louis, MO, IDA, Series 1997, Weekly VRDNs (Cee Kay
Supply)/(Commerce Bank, Kansas City, N.A. LOC) $ 1,000,000
MULTI STATE-7.4%
20,000,000 Charter Mac Floater Certificates Trust I, (First Tranche)
Weekly VRDNs (MBIA INS)/(Bayerische Landesbank Girozentrale,
Commerzbank AG, Frankfurt and Credit Communal de Belgique,
Brussles LIQs) 20,000,000
10,000,000 Charter Mac Floater Certificates Trust I, (Second Tranche)
Weekly VRDNs (MBIA INS)/(Bayerische Landesbank Girozentrale,
Commerzbank AG, Frankfurt and Credit Communal de Belgique,
Brussles LIQs) 10,000,000
5,684,000 Clipper Tax-Exempt Trust (AMT MultiState), Series A, Weekly
VRDNs (State Street Bank and Trust Co. LIQ) 5,684,000
TOTAL 35,684,000
NEBRASKA-1.7%
2,710,000 Nebraska Investment Finance Authority, Series 1997, Weekly
VRDNs (Transcrypt International, Inc.)/(Norwest Bank
Minnesota, N.A. LOC) 2,710,000
5,700,000 Stanton County, NE, Series 1998, Weekly VRDNs (Nucor
Corporation) 5,700,000
TOTAL 8,410,000
NEVADA-0.1%
600,000 Nevada State Department of Community & Industrial
Development Weekly VRDNs (Kinplex Company Project)/(Credit
Commercial De France, Paris LOC) 600,000
NEW HAMPSHIRE-2.9%
4,000,000 New Hampshire Business Finance Authority, IDRB, Series A,
Weekly VRDNs (Upper Valley Press)/(KeyBank, N.A. LOC) 4,000,000
9,995,000 2 New Hampshire State HFA, Variable Rate Certificates, Series
1998U, 3.68% TOBs (AMBAC INS)/(Bank of America NT and SA, San
Francisco LIQ), Optional Tender 6/1/1999 9,995,000 TOTAL
13,995,000 NEW JERSEY-2.9%
2,812,000 Cedar Grove Township, NJ, 3.80% BANs, 3/8/1999 2,812,338
4,989,000 Galloway Township, NJ, 4.125% BANs, 3/11/1999 4,990,624
4,367,000 Haddonfield, NJ, 4.40% BANs, 6/4/1999 4,375,500
1,900,000 New Jersey EDA, Trust Receipts, Series 1998 FR/RI-34, Weekly
VRDNs (New Jersey-American Water Co., Inc.)/(FGIC INS)/(Bank
of New York, New York LIQ) 1,900,000
TOTAL 14,078,462
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW MEXICO-2.1%
$ 5,330,000 Albuquerque, NM, Series 1996, Weekly VRDNs (Rose's Southwest
Papers, Inc. Project)/(Norwest Bank Minnesota, N.A. LOC) $ 5,330,000
5,000,000 Los Lunas Village, NM, Series 1998, Weekly VRDNs (Wall
Colmonoy Corp.)/(Michigan National Bank, Farmington Hills LOC) 5,000,000
TOTAL 10,330,000
NEW YORK-3.7%
10,000,000 2 New York City, NY, Trust Receipts, Series 1998 FR/RI-A77,
2.90% TOBs (National Westminster Bank, PLC, London LIQ),
Optional Tender 3/12/1999 10,000,000
1,995,000 New York State Mortgage Agency, (PA-422) Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ) 1,995,000
5,900,000 2 Triborough Bridge & Tunnel Authority, NY, Floater
Certificates, Series 1998-72, 3.25% TOBs (FGIC INS)/(Morgan
Stanley, Dean Witter Municipal Funding, Inc. LIQ), Optional
Tender 2/11/1999 5,900,000
TOTAL 17,895,000
NORTH CAROLINA-1.0%
5,000,000 Person County, NC, Industrial Facilities & Pollution Control
Financing Authority Daily VRDNs (Carolina Power & Light
Co.)/(SunTrust Bank, Atlanta LOC) 5,000,000
OHIO-1.4%
6,800,000 Clermont County, OH, Variable Rate IDRB's, Series 1997, Weekly
VRDNs (Buriot International, Inc.)/(KeyBank, N.A.
LOC) 6,800,000
OKLAHOMA-6.0%
8,000,000 Broken Arrow, OK, EDA Weekly VRDNs (Blue Bell
Creameries)/(Banque Nationale de Paris LOC) 8,000,000
13,835,000 Tulsa County, OK, HFA, CDC Municipal Products, Inc. Class A
Certificates, Series 1996E, Weekly VRDNs (GNMA COL)/(CDC
Municipal Products, Inc. LIQ) 13,835,000
7,245,000 Tulsa, OK International Airport, Variable Rate Certificates,
Series 1997 B-1, Weekly VRDNs (MBIA INS)/(Bank of America NT
and SA, San Francisco LIQ) 7,245,000
TOTAL 29,080,000
OREGON-0.6%
2,000,000 Oregon School Boards Association, Pooled Short-Term
Borrowing Program, Series 1998A, 4.00% TRANs, 6/30/1999 2,000,000
660,000 Oregon State, Economic Development Revenue Bonds, Series
1988B, Weekly VRDNs (Domaine Drouhin Oregon, Inc.)/(Wells
Fargo Bank, N.A. LOC) 660,000
TOTAL 2,660,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-2.7%
$ 3,000,000 Clinton County, PA IDA, Solid Waste Disposal Revenue Bonds,
Series 1992A, 3.95% TOBs (International Paper Co.), Optional
Tender 1/15/2000 $ 3,000,000
3,100,000 Pennsylvania EDFA, Series B1, Weekly VRDNs (Erie Plating
Co.)/(PNC Bank, N.A. LOC) 3,100,000
500,000 Pennsylvania State Higher Education Assistance Agency,
Student Loan Adjustable Rate Revenue Bonds, Series 1997A,
Weekly VRDNs (Student Loan Marketing Association LOC) 500,000
6,745,000 2 Philadelphia, PA, IDA, Variable Rate Certificates, Series
1998P-1, 3.75% TOBs (Philadelphia Airport System)/(FGIC
INS)/(Bank of America NT and SA, San Francisco LIQ),
Optional Tender 8/4/1999 6,745,000
TOTAL 13,345,000
SOUTH CAROLINA-2.1%
4,000,000 South Carolina Job Development Authority Weekly VRDNs
(Boozer Lumber Co.)/(SouthTrust Bank of Alabama, Birmingham
LOC) 4,000,000
125,000 South Carolina Job Development Authority, Series 1988A,
Weekly VRDNs (Kent Manufacturing Co.)/(Credit Commercial De
France, Paris LOC) 125,000
300,000 South Carolina Job Development Authority, Series 1988B,
Weekly VRDNs (Seacord Corporation)/(Credit Commercial De
France, Paris LOC) 300,000
500,000 South Carolina Job Development Authority, Series 1990,
Weekly VRDNs (NMFO Associates)/(Wachovia Bank of NC, N.A.,
Winston-Salem LOC) 500,000
950,000 South Carolina Job Development Authority, Series 1990,
Weekly VRDNs (Old Claussen's Bakery)/(Wachovia Bank of NC,
N.A., Winston-Salem LOC) 950,000
550,000 South Carolina Job Development Authority, Series 1990,
Weekly VRDNs (Rice Street Association)/(Wachovia Bank of NC,
N.A., Winston-Salem LOC) 550,000
825,000 South Carolina Job Development Authority, Series B, Weekly
VRDNs (Osmose Wood Preserving)/(Credit Commercial De France,
Paris LOC) 825,000
2,885,000 York County, SC IDA, Industrial Development Revenue Bonds,
Series 1989, Weekly VRDNs (Sediver Inc)/(Banque Nationale de
Paris LOC) 2,885,000
TOTAL 10,135,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
SOUTH DAKOTA-1.0%
$ 3,000,000 South Dakota Housing Development Authority, 1998 Series B,
3.75% BANs, 8/5/1999 $ 3,000,000
675,000 South Dakota Housing Development Authority, CDC Municipal
Products, Inc. Class A Certificates, Series 1996C, Weekly
VRDNs (CDC Municipal Products, Inc. LIQ) 675,000
1,405,000 South Dakota Housing Development Authority, Homeownership
Mortgage Bonds, 1997 Series E, Weekly VRDNs 1,405,000
TOTAL 5,080,000
TENNESSEE-3.4%
4,000,000 Carter County, TN, IDB, Series 1983, Monthly VRDNs (Inland
Container Corporation)/(Temple-Inland, Inc. GTD) 4,000,000
1,500,000 Cheatham County, TN, IDB, Series 1997B, Weekly VRDNs (Triton
Boat Co.)/(First American National Bank, Nashville, TN LOC) 1,500,000
2,000,000 Hawkins County, TN, IDB, Series 1995, Weekly VRDNs (Sekisui
Ta Industries, Inc. Project)/(Bank of Tokyo-Mitsubishi Ltd.
LOC) 2,000,000
200,000 Jackson, TN, IDB, Solid Waste Facility Bonds, Series 1995,
Weekly VRDNs (Florida Steel Corp.)/(Nationsbank, N.A.,
Charlotte LOC) 200,000
2,500,000 Knox County, TN, IDB, Series 1996, Weekly VRDNs (Health
Ventures, Inc. Project)/(SunTrust Bank, Nashville LOC) 2,500,000
2,530,000 Morristown, TN, IDB Weekly VRDNs (Tuff Torq Corp.)/
(Bank of Tokyo-Mitsubishi Ltd. LOC) 2,530,000
900,000 South Pittsburg, TN, IDB, Series 1996, Weekly VRDNs (Lodge
Manufacturing Co. Project)/(SunTrust Bank, Nashville LOC) 900,000
3,000,000 Tennessee Housing Development Agency, Series 1997K, Weekly
VRDNs (Bank of America NT and SA, San Francisco LIQ) 3,000,000
TOTAL 16,630,000
TEXAS-7.1%
1,000,000 Angelina and Neches River Authority, Texas, Solid Waste
Disposal Revenue Bonds, Series 1993, 3.75% CP (Temple-Eastex
Inc.)/(Temple-Inland, Inc. GTD), Mandatory Tender 3/10/1999 1,000,000
3,000,000 Angelina and Neches River Authority, Texas, Solid Waste
Disposal Revenue Bonds, Series 1993, 3.80% CP (Temple-Eastex
Inc.)/(Temple-Inland, Inc. GTD), Mandatory Tender 3/12/1999 3,000,000
1,600,000 Angelina and Neches River Authority, Texas, Waste Disposal
Revenue Bonds, Series 1998, 3.75% CP (Temple-Inland Forest
Products Corp.)/(Temple-Inland, Inc. GTD), Mandatory Tender
3/9/1999 1,600,000
7,500,000 Harris County, TX, HFDC, Revenue Refunding Bonds, Series
1986, 4.35% CP (Young Men's Christian Association of the
Greater Houston Area)/(Bank of Tokyo-Mitsubishi Ltd. LOC),
Mandatory Tender 2/2/1999 7,500,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
TEXAS-CONTINUED
$ 2,400,000 Lubbock, TX, IDC Daily VRDNs (McLane Co.,
Inc.)/(Nationsbank, N.A., Charlotte LOC) $ 2,400,000
8,000,000 McAllen, TX, IDA, Series 1998, Weekly VRDNs (NiTek McAllen,
LLC)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 8,000,000
4,780,000 Saginaw, TX, IDA, Series 1998, Weekly VRDNs (Glad Investing
Partners, Ltd.)/(Bank One, Texas N.A. LOC) 4,780,000
6,000,000 Tarrant County, TX, IDC, Series 1997, Weekly VRDNs (Lear
Operations Corp.)/(Chase Manhattan Bank N.A., New York LOC) 6,000,000
TOTAL 34,280,000
VIRGINIA-2.5%
12,100,000 Virginia Peninsula Port Authority, Series 1997, Daily VRDNs
(Ziegler Coal Holding Co.)/(UBS AG LOC) 12,100,000
WISCONSIN-2.3%
2,000,000 Milwaukee, WI, Series 1997, 3.25% TOBs (Signature Flight
Support Corp.)/(Bayerische Landesbank Girozentrale LOC),
Optional Tender 6/1/1999 2,000,000
1,000,000 New Berlin, WI, Series 1997A, Weekly VRDNs (Sunraider
LLC/New Berlin Plastics, Inc.)/(Bank One, Wisconsin, N.A. LOC) 1,000,000
8,035,000 Wisconsin Housing & Economic Development Authority, PT-90,
Series 1996F, Weekly VRDNs (Banque Nationale de Paris LIQ) 8,035,000
TOTAL 11,035,000
TOTAL INVESTMENTS (AT AMORTIZED COST) 3 $ 483,463,785
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 90.4% of the
portfolio as calculated based upon total portfolio market value.
1 The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ('NRSROs') or unrated securities of comparable quality. An NRSRO's
two highest rating categories are determined without regard for sub-categories
and gradations. For example, securities rated SP-1+, SP- 1, or SP-2 by Standard
& Poor's, MIG-1 or MIG-2 by Moody's Investors Service, Inc., or F-1+, F-1, or
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, 1999, the portfolio securities were rated as follows:
Tier Rating based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
95.69% 4.31%
2 Denotes a restricted security which is subject to restrictions on resale under
Federal Securities laws. At January 31, 1999, these securities amounted to
$66,150,000 which represents 13.6% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($486,265,314) at January 31, 1999.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation
AMT -Alternative Minimum Tax
BAN(s) -Bond Anticipation Note(s)
COL -Collateralized
CP -Commercial Paper
EDA -Economic Development Authority
EDFA -Economic Development Financing Authority EDRB -Economic Development
Revenue Bonds FGIC -Financial Guaranty Insurance Company FSA -Financial Security
Assurance GNMA -Government National Mortgage Association GO -General Obligation
GTD -Guaranty HFA -Housing Finance Authority HFDC -Health Facility Development
Corporation IDA -Industrial Development Authority IDB -Industrial Development
Bond IDC -Industrial Development Corporation IDRB(s)-Industrial Development
Revenue Bond(s) IFA -Industrial Finance Authority INS -Insured LIQ -Liquidity
Agreement LOC(s) -Letter(s) of Credit MBIA -Municipal Bond Investors Assurance
MERLOTS-Municipal Exempt Receipts - Liquidity Optional Tender Series SA -Support
Agreement TOBs -Tender Option Bonds TRANs -Tax and Revenue Anticipation Notes UT
- -Unlimited Tax VRDNs -Variable Rate Demand Notes See Notes which are an
integral part of the Financial Statements
Statement of Assets and Liabilities
JANUARY 31, 1999
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 483,463,785
Cash 779,928
Income receivable 2,914,688
Prepaid expenses 728
TOTAL ASSETS 487,159,129
LIABILITIES:
Payable for shares redeemed $ 23,377
Income distribution payable 834,252
Accrued expenses 36,186
TOTAL LIABILITIES 893,815
Net assets for 486,241,985 shares outstanding $ 486,265,314
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS
PER SHARE:
INSTITUTIONAL SHARES:
$303,906,743 / 303,884,188 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$67,828,653 / 67,828,674 shares outstanding $1.00
INSTITUTIONAL CAPITAL SHARES:
$114,529,918 / 114,529,123 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED JANUARY 31, 1999
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 14,557,221
EXPENSES:
Investment advisory fee $ 803,037
Administrative personnel and services fee 302,822
Custodian fees 6,697
Transfer and dividend disbursing agent fees and expenses 61,219
Directors'/Trustees' fees 6,315
Auditing fees 14,192
Legal fees 20,325
Portfolio accounting fees 106,414
Shareholder services fee-Institutional Shares 672,157
Shareholder services fee-Institutional Service Shares 157,723
Shareholder services fee-Institutional Capital Shares 175,081
Share registration costs 23,701
Printing and postage 15,386
Insurance premiums 29,162
Miscellaneous 1,505
TOTAL EXPENSES 2,395,736
WAIVERS:
Waiver of investment advisory fee $ (636,478)
Waiver of shareholder services fee-Institutional Shares (672,157)
Waiver of shareholder services fee-Institutional
Capital Shares (105,514)
TOTAL WAIVERS (1,414,149)
Net expenses 981,587
Net investment income $ 13,575,634
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 13,575,634 $ 7,984,661
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (9,176,860) (7,088,218)
Institutional Service Shares (2,031,566) (424,504)
Institutional Capital Shares (2,367,208) (472,939)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS
TO SHAREHOLDERS (13,575,634) (7,985,661)
SHARE TRANSACTIONS:
Proceeds from sale of shares 6,671,442,391 4,261,655,577
Net asset value of shares issued to shareholders in payment
of distributions declared 4,797,681 2,454,015
Cost of shares redeemed (6,466,730,133) (4,146,914,995)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 209,509,939 117,194,597
Change in net assets 209,509,939 117,193,597
NET ASSETS:
Beginning of period 276,755,375 159,561,778
End of period $ 486,265,314 $ 276,755,375
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
JANUARY 31, 1999
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 provision for federal taxes is
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, 1999, is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Dakota County & Washington County, MN 1/5/1999 $10,195,000
Dakota County, Washington County & Anoka City, MN 12/1/1998 5,000,000
Kentucky Housing Corp. 11/19/1998 8,320,000
Mississippi Home Corp. 8/17/1998 9,995,000
New Hampshire State HFA 11/19/1998 9,995,000
New York City, NY Trust Receipts 1/19/1999 10,000,000
Philadelphia, PA IDA, Variable Rate 8/27/1998 6,745,000
Triborough Bridge & Tunnel Authority, NY 1/26/1999 5,900,000
</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). At January
31, 1999, capital paid-in aggregated $486,265,314.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL SHARES:
Shares sold 5,212,142,622 3,591,948,985
Shares issued to shareholders in payment of distributions
declared 1,302,615 1,979,575
Shares redeemed (5,127,376,711) (3,535,649,749)
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS 86,068,526 58,278,811
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Shares sold 422,524,378 251,107,687
Shares issued to shareholders in payment of distributions
declared 1,503,612 339,358
Shares redeemed (397,415,401) (210,231,259)
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE
SHARE TRANSACTIONS 26,612,589 41,215,786
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL CAPITAL SHARES:
Shares sold 1,036,775,391 418,598,905
Shares issued to shareholders in payment of distributions
declared 1,991,454 135,082
Shares redeemed (941,938,021) (401,033,987)
NET CHANGE RESULTING FROM INSTITUTIONAL CAPITAL
SHARE TRANSACTIONS 96,828,824 17,700,000
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 209,509,939 117,194,597
</TABLE>
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. Effective March 31, 1999, the Adviser will merge into
Federated Investment Management Company (formerly Federated Advisers). The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser can
modify or terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES FServ, through its
subsidiary FSSC, serves as transfer and dividend disbursing agent for the Fund.
The fee paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended January 31, 1999, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $1,578,571,000 and $2,064,965,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
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 as of January 31,
1999, 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 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, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, 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, 1999, 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 the financial highlights for each of
the periods indicated therein, in conformity with generally accepted accounting
principles.
[Graphic]
Boston, Massachusetts
March 15, 1999
PROSPECTUS
[Graphic]
Municipal Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL SERVICE SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's semi-annual report to shareholders
as it becomes available. To obtain the SAI, semi-annual report and other
information without charge, call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
[Graphic]
Municipal Obligations Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 7364
Cusip 608912200
G01881-06-SS (3/99)
[Graphic]
PROSPECTUS
Municipal Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL CAPITAL SHARES
A money market mutual fund seeking to provide current income exempt from federal
regular income tax consistent with stability of principal.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
MARCH 31, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 2
What are the Fund's Investment Strategies? 3
What are the Principal Securities in
Which the Fund Invests? 3
What are the Specific Risks of Investing in the Fund? 5
What Do Shares Cost? 5
How is the Fund Sold? 6
How to Purchase Shares 6
How to Redeem Shares 8
Account and Share Information 10
Who Manages the Fund? 10
Financial Information 11
Report of Ernst & Young LLP, Independent Auditors 30
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is to provide current income exempt
from all federal regular income tax consistent with stability of principal.
While there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the strategies and policies described in this
prospectus.
This investment objective may be changed by the Fund's Trustees without
shareholder approval.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax exempt securities so that the Fund's annual interest
income is exempt from federal regular income tax. Interest income from the
Fund's investments may be subject to the federal alternative minimum tax for
individuals and corporations.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money by investing in the Fund.
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.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Capital Shares as of the calendar year-end
for each of the last five years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 1% up to 4%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features five distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Institutional Capital Shares for each calendar
year is stated directly at the top of each respective bar, for the calendar
years 1994 through 1998. The percentages noted are: 2.77%, 3.88%, 3.42%, 3.55%
and 3.44%, respectively.
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Institutional Capital
Shares total returns on a yearly basis.
The Fund's Institutional Capital Shares are not sold subject to a sales charge
(load). The total returns displayed above are based upon the net asset value.
Within the period shown in the Chart, the Fund's Institutional Capital Shares
highest quarterly return was 1.00% (quarter ended June 30, 1995). Its lowest
quarterly return was 0.56% (quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURN
The following table represents the Fund's Institutional Capital Shares Average
Annual Total Return through December 31, 1998.
CALENDAR PERIOD FUND
1 Year 3.44%
5 Years 3.41%
Start of Performance 1 3.25%
1 The Fund's Institutional Capital Shares start of performance date was February
8, 1993.
Investors may call the Fund at 1-800-341-7400 to acquire the current 7-Day Net
Yield .
The Fund's Institutional Capital Shares 7-Day Net Yield as of 12/31/98 was
3.65%.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are the Fund's Fees and Expenses?
MUNICIPAL OBLIGATIONS FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Capital Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (Before Waivers) 1 Expenses That are Deducted
From Fund Assets (as percentage of average net assets) Management Fee 2 0.20%
Distribution (12b-1) Fee None Shareholder Services Fee 3 0.25% Other Expenses
0.16% Total Annual Fund Operating Expenses 0.61% 1 Although not contractually
obligated to do so, the adviser and shareholder services provider waived certain
amounts. These are described below along with the net expenses the Fund's
Institutional Capital Shares actually paid for the fiscal year ended January 31,
1999.
Waiver of Fund Expenses 0.31%
Total Actual Annual Fund Operating Expenses (after waivers) 0.30%
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund's Institutional Capital Shares (after the voluntary waiver) was 0.04% for
the year ended January 31, 1999. 3 The shareholder services fee has been
voluntarily reduced. This voluntary reduction can be terminated at any time. The
shareholder services fee paid by the Fund's Institutional Capital Shares (after
the voluntary reduction) was 0.10% for the year ended January 31, 1999.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Institutional Capital Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Capital
Shares for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's Institutional Capital Shares operating
expenses are BEFORE WAIVERS as shown in the table and remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
1 Year $ 62
3 Years $ 195
5 Years $ 340
10 Years $ 762
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high quality tax-exempt securities maturing
in 13 months or less. The average maturity of the Fund's portfolio will be 90
days or less.
The Fund's investment adviser (Adviser) performs a fundamental credit analysis
to develop an approved list of issuers and securities that meet the Adviser's
minimum credit standards. The Adviser targets an average portfolio maturity
based upon its interest rate outlook and the tax-exempt securities available.
The Adviser structures the portfolio by combining variable rate demand
instruments and municipal notes. Depending on the supply of municipal
securities, the Adviser generally shortens the portfolio's maturity when it
expects interest rates to rise and extends the maturity when it expects interest
rates to fall. In order to enhance yield, the Fund's Adviser will seek to invest
a significant portion of the portfolio in tax exempt securities subject to the
alternative minimum tax.
What are the Principal Securities in Which the Fund Invests?
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to regular federal income taxes. Typically, states, counties, cities and
other political subdivisions and authorities issue tax exempt securities. The
market categorizes tax exempt securities by their source of repayment. Fixed
income securities pay interest, dividends or distributions at a specified rate.
The rate may be a fixed percentage of the principal or adjusted periodically. In
addition, the issuer of a fixed income security must repay the principal amount
of the security, normally within a specified time.
The following describes the types of tax exempt securities in which the Fund
invests:
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also pay interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, because their variable
interest rate adjusts in response to changes in market rates, even though their
stated maturity may extend beyond 13 months.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations before collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
INVESTMENT 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 rating
services or be of comparable quality to securities having such ratings.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund, the
principal risks of investing in a municipal money market fund are described
below.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money. Money market funds try to minimize this risk by purchasing
higher quality securities.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the Adviser's credit assessment.
BOND MARKET RISKS
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities issued
or credit enhanced by companies in similar businesses or with other similar
characteristics. As a result, the Fund will be more susceptible to any economic,
business, political, or other developments which generally affect these issuers.
TEMPORARY DEFENSIVE INVESTMENTS
During adverse market conditions, the Fund may temporarily depart from its
principal investment strategies by investing in securities subject to federal
regular income tax. Temporary investments will be of comparable quality to other
securities in which the Fund invests. This may cause the Fund to give up greater
after tax investment returns to maintain the safety of principal. This also may
cause the Fund to receive and distribute taxable income to investors.
What Do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next calculated net asset value (NAV). The Fund does not charge
a front-end sales charge. NAV is determined at 12:00 noon and 3:00 p.m. (Eastern
time) and as of the end of regular trading (normally 4:00 p.m. Eastern time)
each day the NYSE is open.
The required minimum initial investment for Fund Shares is $1,000,000. There is
no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $1,000,000 minimum
is reached within one year of opening the account. An institutional investor's
minimum investment is calculated by combining all accounts it maintains with the
Fund. Accounts established through investment professionals may be subject to a
smaller minimum investment amount. Keep in mind that investment professionals
may charge you fees for their services in connection with your Share
transactions.
How is the Fund Sold?
The Fund offers three share classes: Institutional Shares, Institutional Service
Shares and Institutional Capital Shares, each representing interests in a single
portfolio of securities. This prospectus relates only to Institutional Capital
Shares. Each share class has different expenses, which affect their performance.
Contact your investment professional or call 1-800-341-7400 for more information
concerning the other classes.
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity. The Distributor and its
affiliates may pay out of their assets other amounts (including items of
material value) to investment professionals for marketing and servicing Shares.
The Distributor is a subsidiary of Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 3:00 p.m.
(Eastern time). You will receive that day's dividend if the investment
professional forwards the order to the Fund and the Fund receives payment by
3:00 p.m. (Eastern time). You will become the owner of Shares and receive
dividends when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares after the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check BY A PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). 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.
BY INVEST-BY-PHONE
Once you establish an account, you may use the Fund's Invest-By-Phone privilege
for future Share purchases if you have an account with a bank that is an
Automated Clearing House member. To apply, call the Fund for an authorization
form. You may use Invest-By-Phone to purchase Shares approximately two weeks
from the date you file the form with Federated Shareholder Services Company.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). Investment
professionals are responsible for promptly submitting redemption requests and
providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time) your redemption will be wired to
you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time) your redemption will be wired to you
the following business day. You will receive that day's dividend.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the day
that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests BY PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
ACCOUNT ACTIVITY
You will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
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 pays any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state, and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes. Capital gains and non-exempt
dividends are taxable whether paid in cash or reinvested in the Fund.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.20% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
Share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.
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 30.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998 1997
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.03 0.04 0.03
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.04) (0.03)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 3.40% 3.56% 3.42%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.30% 0.30% 0.30%
Net investment income 3.40% 3.53% 2.90%
Expense waiver/reimbursement 2 0.31% 0.38% 0.35%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $114,535 $17,701 $0.30
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
JANUARY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.4% 1
ALABAMA-0.4%
$ 2,000,000 Birmingham, AL, IDA, Series 1997, Weekly VRDNs (Millcraft,
AL Inc.)/(Regions Bank, Alabama LOC) $ 2,000,000
ARIZONA-1.7%
5,400,000 Eloy, AZ, IDA, Series 1996, Weekly VRDNs (The Marley Cooling
Tower Co.)/(First Union National Bank, Charlotte, N.C. LOC) 5,400,000
715,000 Maricopa County, AZ, IDA, 3.20% CP (Citizens Utilities Co.),
Mandatory Tender 3/5/1999 715,000
2,090,000 Pima County, AZ, IDA, Single Family Mortgage (PA-159) Weekly
VRDNs (GNMA COL)/(Merrill Lynch Capital Services, Inc. LIQ) 2,090,000
TOTAL 8,205,000
ARKANSAS-4.1%
1,000,000 Arkadelphia, AR, IDRBs, Series 1996, Weekly VRDNs (Siplast,
Inc.)/(Den Danske Bank A/S LOC) 1,000,000
9,000,000 Arkansas Development Finance Authority, Series 1995, Weekly
VRDNs (Paco Steel & Engineering Corporation Project)/(Union
Bank of California LOC) 9,000,000
1,800,000 Hope, AR, Solid Waste Disposal Revenue Bonds, Series 1994,
3.70% CP (Temple-Inland Forest Products Corp.)/(Temple-
Inland, Inc. GTD), Mandatory Tender 3/11/1999 1,800,000
8,000,000 Springdale, AR, IDA Weekly VRDNs (Newlywed Food)/(Mellon
Bank N.A., Pittsburgh LOC) 8,000,000
TOTAL 19,800,000
CALIFORNIA-0.8%
4,000,000 California Student Education Loan Marketing Corp., Series
1994A, 3.80% TOBs (Dresdner Bank AG, Frankfurt LOC),
Mandatory Tender 6/1/1999 4,000,000
CONNECTICUT-0.5%
2,450,000 Bridgeport, CT, UT GO, 4.25% BANs, 3/18/1999 2,451,323
FLORIDA-2.0%
9,635,000 Dade County, FL, PT-1083 Weekly VRDNs (Miami International
Airport)/ (FSA INS)/(Merrill Lynch Capital Services, Inc. LOC) 9,635,000
GEORGIA-8.1%
1,100,000 Bowdon, GA Development Authority, Weekly VRDNs (Trintex
Corp.)/(First Union National Bank, Charlotte, N.C. LOC) 1,100,000
6,000,000 Clayton County, GA Development Authority, Series 1994,
Weekly VRDNs (Lear Seating Corp.)/(Chase Manhattan Bank
N.A., New York LOC) 6,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
GEORGIA-CONTINUED
$ 1,500,000 Clayton County, GA Housing Authority, Multifamily Housing
Revenue Bonds, Series 1997, Weekly VRDNs (Hyde Park Club
Apartments)/(KeyBank, N.A. LOC) $ 1,500,000
2,000,000 Franklin County, GA Industrial Building Authority, Series
1995, Weekly VRDNs (Bosal Industries, Inc.)/(Bank of New
York, New York LOC) 2,000,000
2,160,000 Gainesville, GA Redevelopment Authority, IDRB, Series 1986,
Weekly VRDNs (Hotel of Gainesville Associates
Project)/(Regions Bank, Alabama LOC) 2,160,000
4,000,000 Jackson County, GA, IDA, Series 1996, Weekly VRDNs (Buhler
Quality Yarns Corp. Project)/(UBS AG LOC) 4,000,000
5,800,000 Richmond County, GA Development Authority, Series 1999,
Weekly VRDNs (Evergreen Nylon Recycling, LLC)/(Banque
Nationale de Paris LOC) 5,800,000
6,000,000 Richmond County, GA Development Authority, Solid Waste
Disposal Revenue Bonds, Series 1995, Weekly VRDNs (Federal
Paper Board Co., Inc.)/(Wachovia Bank
of NC, N.A., Winston-Salem LOC) 6,000,000
10,750,000 Savannah, GA, EDA, Series 1995A, Weekly VRDNs (Home Depot, Inc.) 10,750,000
TOTAL 39,310,000
HAWAII-1.4%
6,960,000 Hawaii Finance and Development Corp., PT-1049 Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ) 6,960,000
IDAHO-1.5%
7,461,000 Idaho Housing Agency, PA-115, 1994 Series F, Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ) 7,461,000
ILLINOIS-4.4%
7,000,000 Chicago, IL, Chicago Midway Airport Special Facility Revenue
Bonds, Series 1998, 3.25% TOBs (Signature Flight Support
Corp.)/(Bayerische Landesbank Girozentrale LOC), Optional
Tender 6/1/1999 7,000,000
3,000,000 Chicago, IL, Gas Supply Revenue Bonds, 1993 Series B, 3.20%
TOBs (Peoples Gas Light & Coke Company), Optional Tender
12/1/1999 3,000,000
6,000,000 Illinois Development Finance Authority, Series 1997, Weekly
VRDNs (Toyal America, Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 6,000,000
2,575,000 Peoria, IL, Series 1995, Weekly VRDNs (Praise and Leadership
Elementary School)/(Bank One, Illinois, N.A. LOC) 2,575,000
2,360,000 Rockford, IL, EDRB, 3.80% TOBs (Independence Village of
Rockford)/ (Paribas, Paris LOC), Optional Tender 12/1/1999 2,360,000
600,000 Southwestern Illinois Development Authority, Series 1991,
Weekly VRDNs
(Robinson Steel Co.)/(American National Bank, Chicago LOC) 600,000
TOTAL 21,535,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
INDIANA-3.7%
$ 2,250,000 Clarksville, IN, Series 1997, Weekly VRDNs (Metal Sales
Manufacturing Corp)/ (Star Bank, NA, Cincinnati LOC) $ 2,250,000
3,625,000 Elkhart County, IN, Series 1997, Weekly VRDNs (Hart Housing
Group, Inc.)/(KeyBank, N.A. LOC) 3,625,000
6,500,000 Jeffersonville, IN, Series 1997A, Weekly VRDNs
(Wayne Steel, Inc.)/ (Bank One, Ohio, N.A. LOC) 6,500,000
1,570,000 Richmond, IN, Economic Development Revenue Bonds, Series
1996, Weekly VRDNs (Holland Colors Americas, Inc.
Project)/(Bank One, Indiana, N.A. LOC) 1,570,000
4,000,000 Rushville, IN, Series 1996, Weekly VRDNs (Fujitsu Ten Corp.
of America)/
(Bank of Tokyo-Mitsubishi Ltd. LOC) 4,000,000
TOTAL 17,945,000
KENTUCKY-4.7%
8,320,000 2 Kentucky Housing Corp., Variable Rate Certificates, Series
1998 W, 3.25% TOBs (Bank of America NT and SA, San Francisco
LIQ), Optional Tender 6/15/1999 8,320,000
5,000,000 Louisville & Jefferson County, KY Regional Airport
Authority, Series 1996-A, Weekly VRDNs (National City Bank,
Kentucky LOC) 5,000,000
5,000,000 Louisville & Jefferson County, KY Regional Airport
Authority, Series 1997 AA-1, Weekly VRDNs (National City
Bank, Kentucky LOC) 5,000,000
4,400,000 Paris, KY, Weekly VRDNs (Monessen Holdings, LLC)/(Bank One,
Kentucky LOC) 4,400,000
TOTAL 22,720,000
LOUISIANA-0.3%
1,600,000 Ouachita Parish, LA, IDB, Series 1998, Weekly VRDNs (Dixie
Carbonic, Inc.)/ (Bank One, Illinois, N.A. LOC) 1,600,000
MAINE-1.2%
4,000,000 Jay, ME, Solid Waste Disposal Revenue Bonds, 4.00% TOBs
(International Paper Co.), Optional Tender 6/1/1999 4,000,000
1,900,000 Trenton, ME, Series 1998, Weekly VRDNs (Hinckley
Co.)/(KeyBank, N.A. LOC) 1,900,000
TOTAL 5,900,000
MARYLAND-1.6%
2,400,000 Harford County, MD, Series 1989, Weekly VRDNs (Harford
Commons Associates Facility)/(First National Bank of
Maryland, Baltimore LOC) 2,400,000
1,386,000 Harford County, MD, Variable Rate Demand/Fixed Rate
Refunding Bond (1989 Issue) Weekly VRDNs (Harford Commons
Associates Facility)/ (First National Bank of Maryland,
Baltimore LOC) 1,386,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
MARYLAND-CONTINUED
$ 2,580,000 Maryland State Community Development Administration, Series
1990A, Weekly VRDNs (College Estates)/(First National Bank
of Maryland, Baltimore LOC) $ 2,580,000
1,370,000 Montgomery County, MD Weekly VRDNs (Information Systems and
Networks Corp.)/(PNC Bank, N.A. LOC) 1,370,000
TOTAL 7,736,000
MASSACHUSETTS-0.7%
3,400,000 Massachusetts IFA, IDRB, Series 1995, Weekly VRDNs (Dunsirn
Industries, Inc. Project)/(Bank One, Wisconsin, N.A. LOC) 3,400,000
MINNESOTA-6.1%
1,500,000 Blaine, MN, Series 1997, Weekly VRDNs (Plastic Enterprises,
Inc.)/(Norwest Bank Minnesota, N.A. LOC) 1,500,000
10,195,000 2 Dakota County & Washington County MN Housing & Redevelopment
Authority, MERLOTS, Series J, 3.35% TOBs (United States
Treasury COL)/(First Union National Bank, Charlotte, N.C.
LIQ), Optional Tender 3/1/1999 10,195,000
5,000,000 2 Dakota County, Washington County & Anoka City, MN Housing &
Redevelopment Authority, MERLOTS, Series H, 3.35% TOBs
(United States Treasury COL)/(First Union National Bank,
Charlotte, N.C. LIQ), Optional Tender 3/1/1999 5,000,000
6,000,000 Edgerton, MN, Series 1998, Weekly VRDNs (Fey Industries,
Inc.)/(Norwest Bank Minnesota, N.A. LOC) 6,000,000
2,950,000 Savage, MN, Series 1998, Weekly VRDNs (Fabcon,
Inc.)/(Norwest Bank Minnesota, N.A. LOC) 2,950,000
2,000,000 Springfield, MN, Series 1998, Weekly VRDNs (Ochs Brick
Co.)/(Norwest Bank Minnesota, N.A. LOC) 2,000,000
2,000,000 White Bear Lake, MN, Century Townhomes, Series 1997, 4.55%
TOBs (Westdeutsche Landesbank Girozentrale), Optional Tender
5/1/1999 2,000,000
TOTAL 29,645,000
MISSISSIPPI-5.1%
1,168,000 Greenville, MS, IDA Weekly VRDNs (Mebane Packaging
Corp)/(First Union National Bank, Charlotte, NC LOC) 1,168,000
4,070,000 Mississippi Business Finance Corp., Series 1995, Weekly
VRDNs (Mississippi Baking Company L.L.C. Project)/(First
National Bank of Maryland, Baltimore LOC) 4,070,000
9,995,000 2 Mississippi Home Corp., PT-218B, 3.75% TOBs (GNMA
COL)/(Bayerische Hypotheken-und Vereinsbank AG LIQ),
Mandatory Tender 7/8/1999 9,995,000
9,790,000 Mississippi Regional Housing Authorithy No. II, Series 1998,
3.60% TOBs (Bradford Park Apartments)/(Amsouth Bank N.A.,
Birmingham LOC), Mandatory Tender 10/1/1999 9,790,000
TOTAL 25,023,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
MISSOURI-0.2%
$ 1,000,000 St. Louis, MO, IDA, Series 1997, Weekly VRDNs (Cee Kay
Supply)/(Commerce Bank, Kansas City, N.A. LOC) $ 1,000,000
MULTI STATE-7.4%
20,000,000 Charter Mac Floater Certificates Trust I, (First Tranche)
Weekly VRDNs (MBIA INS)/(Bayerische Landesbank Girozentrale,
Commerzbank AG, Frankfurt and Credit Communal de Belgique,
Brussles LIQs) 20,000,000
10,000,000 Charter Mac Floater Certificates Trust I, (Second Tranche)
Weekly VRDNs (MBIA INS)/(Bayerische Landesbank Girozentrale,
Commerzbank AG, Frankfurt and Credit Communal de Belgique,
Brussles LIQs) 10,000,000
5,684,000 Clipper Tax-Exempt Trust (AMT MultiState), Series A, Weekly
VRDNs (State Street Bank and Trust Co. LIQ) 5,684,000
TOTAL 35,684,000
NEBRASKA-1.7%
2,710,000 Nebraska Investment Finance Authority, Series 1997, Weekly
VRDNs (Transcrypt International, Inc.)/(Norwest Bank
Minnesota, N.A. LOC) 2,710,000
5,700,000 Stanton County, NE, Series 1998, Weekly VRDNs (Nucor
Corporation) 5,700,000
TOTAL 8,410,000
NEVADA-0.1%
600,000 Nevada State Department of Community & Industrial
Development Weekly VRDNs (Kinplex Company Project)/(Credit
Commercial De France, Paris LOC) 600,000
NEW HAMPSHIRE-2.9%
4,000,000 New Hampshire Business Finance Authority, IDRB, Series A,
Weekly VRDNs (Upper Valley Press)/(KeyBank, N.A. LOC) 4,000,000
9,995,000 2 New Hampshire State HFA, Variable Rate Certificates, Series
1998U, 3.68% TOBs (AMBAC INS)/(Bank of America NT and SA, San
Francisco LIQ), Optional Tender 6/1/1999 9,995,000 TOTAL
13,995,000 NEW JERSEY-2.9%
2,812,000 Cedar Grove Township, NJ, 3.80% BANs, 3/8/1999 2,812,338
4,989,000 Galloway Township, NJ, 4.125% BANs, 3/11/1999 4,990,624
4,367,000 Haddonfield, NJ, 4.40% BANs, 6/4/1999 4,375,500
1,900,000 New Jersey EDA, Trust Receipts, Series 1998 FR/RI-34, Weekly
VRDNs (New Jersey-American Water Co., Inc.)/(FGIC INS)/(Bank
of New York, New York LIQ) 1,900,000
TOTAL 14,078,462
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
NEW MEXICO-2.1%
$ 5,330,000 Albuquerque, NM, Series 1996, Weekly VRDNs (Rose's Southwest
Papers, Inc. Project)/(Norwest Bank Minnesota, N.A. LOC) $ 5,330,000
5,000,000 Los Lunas Village, NM, Series 1998, Weekly VRDNs (Wall
Colmonoy Corp.)/(Michigan National Bank, Farmington Hills LOC) 5,000,000
TOTAL 10,330,000
NEW YORK-3.7%
10,000,000 2 New York City, NY, Trust Receipts, Series 1998 FR/RI-A77,
2.90% TOBs (National Westminster Bank, PLC, London LIQ),
Optional Tender 3/12/1999 10,000,000
1,995,000 New York State Mortgage Agency, (PA-422) Weekly VRDNs
(Merrill Lynch Capital Services, Inc. LIQ) 1,995,000
5,900,000 2 Triborough Bridge & Tunnel Authority, NY, Floater
Certificates, Series 1998-72, 3.25% TOBs (FGIC INS)/(Morgan
Stanley, Dean Witter Municipal Funding, Inc. LIQ), Optional
Tender 2/11/1999 5,900,000
TOTAL 17,895,000
NORTH CAROLINA-1.0%
5,000,000 Person County, NC, Industrial Facilities & Pollution Control
Financing Authority Daily VRDNs (Carolina Power & Light
Co.)/(SunTrust Bank, Atlanta LOC) 5,000,000
OHIO-1.4%
6,800,000 Clermont County, OH, Variable Rate IDRB's, Series 1997,
Weekly VRDNs (Buriot International, Inc.)/(KeyBank, N.A. LOC) 6,800,000
OKLAHOMA-6.0%
8,000,000 Broken Arrow, OK, EDA Weekly VRDNs (Blue Bell
Creameries)/(Banque Nationale de Paris LOC) 8,000,000
13,835,000 Tulsa County, OK, HFA, CDC Municipal Products, Inc. Class A
Certificates, Series 1996E, Weekly VRDNs (GNMA COL)/(CDC
Municipal Products, Inc. LIQ) 13,835,000
7,245,000 Tulsa, OK International Airport, Variable Rate Certificates,
Series 1997 B-1, Weekly VRDNs (MBIA INS)/(Bank of America NT
and SA, San Francisco LIQ) 7,245,000
TOTAL 29,080,000
OREGON-0.6%
2,000,000 Oregon School Boards Association, Pooled Short-Term
Borrowing Program, Series 1998A, 4.00% TRANs, 6/30/1999 2,000,000
660,000 Oregon State, Economic Development Revenue Bonds, Series
1988B, Weekly VRDNs (Domaine Drouhin Oregon, Inc.)/(Wells
Fargo Bank, N.A. LOC) 660,000
TOTAL 2,660,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
SHORT-TERM MUNICIPALS-continued 1
PENNSYLVANIA-2.7%
$ 3,000,000 Clinton County, PA IDA, Solid Waste Disposal Revenue Bonds,
Series 1992A, 3.95% TOBs (International Paper Co.), Optional
Tender 1/15/2000 $ 3,000,000
3,100,000 Pennsylvania EDFA, Series B1, Weekly VRDNs (Erie Plating
Co.)/
(PNC Bank, N.A. LOC) 3,100,000
500,000 Pennsylvania State Higher Education Assistance Agency,
Student Loan Adjustable Rate Revenue Bonds, Series 1997A,
Weekly VRDNs (Student Loan Marketing Association LOC) 500,000
6,745,000 2 Philadelphia, PA, IDA, Variable Rate Certificates, Series
1998P-1, 3.75% TOBs (Philadelphia Airport System)/(FGIC
INS)/(Bank of America NT and SA, San Francisco LIQ),
Optional Tender 8/4/1999 6,745,000
TOTAL 13,345,000
SOUTH CAROLINA-2.1%
4,000,000 South Carolina Job Development Authority Weekly VRDNs
(Boozer Lumber Co.)/(SouthTrust Bank of Alabama, Birmingham
LOC) 4,000,000
125,000 South Carolina Job Development Authority, Series 1988A,
Weekly VRDNs (Kent Manufacturing Co.)/(Credit Commercial De
France, Paris LOC) 125,000
300,000 South Carolina Job Development Authority, Series 1988B,
Weekly VRDNs (Seacord Corporation)/(Credit Commercial De
France, Paris LOC) 300,000
500,000 South Carolina Job Development Authority, Series 1990,
Weekly VRDNs (NMFO Associates)/(Wachovia Bank of NC, N.A.,
Winston-Salem LOC) 500,000
950,000 South Carolina Job Development Authority, Series 1990,
Weekly VRDNs
(Old Claussen's Bakery)/(Wachovia Bank of NC, N.A., Winston-
Salem LOC) 950,000
550,000 South Carolina Job Development Authority, Series 1990,
Weekly VRDNs (Rice Street Association)/(Wachovia Bank of NC,
N.A., Winston-Salem LOC) 550,000
825,000 South Carolina Job Development Authority, Series B, Weekly
VRDNs (Osmose Wood Preserving)/(Credit Commercial De France,
Paris LOC) 825,000
2,885,000 York County, SC IDA, Industrial Development Revenue Bonds,
Series 1989, Weekly VRDNs (Sediver Inc)/(Banque Nationale de
Paris LOC) 2,885,000
TOTAL 10,135,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
SOUTH DAKOTA-1.0%
$ 3,000,000 South Dakota Housing Development Authority, 1998 Series B,
3.75% BANs, 8/5/1999 $ 3,000,000
675,000 South Dakota Housing Development Authority, CDC Municipal
Products, Inc. Class A Certificates, Series 1996C, Weekly
VRDNs (CDC Municipal Products, Inc. LIQ) 675,000
1,405,000 South Dakota Housing Development Authority, Homeownership
Mortgage Bonds, 1997 Series E, Weekly VRDNs 1,405,000
TOTAL 5,080,000
TENNESSEE-3.4%
4,000,000 Carter County, TN, IDB, Series 1983, Monthly VRDNs (Inland
Container Corporation)/(Temple-Inland, Inc. GTD) 4,000,000
1,500,000 Cheatham County, TN, IDB, Series 1997B, Weekly VRDNs (Triton
Boat Co.)/(First American National Bank, Nashville, TN LOC) 1,500,000
2,000,000 Hawkins County, TN, IDB, Series 1995, Weekly VRDNs (Sekisui
Ta Industries, Inc. Project)/(Bank of Tokyo-Mitsubishi Ltd.
LOC) 2,000,000
200,000 Jackson, TN, IDB, Solid Waste Facility Bonds, Series 1995,
Weekly VRDNs (Florida Steel Corp.)/(Nationsbank, N.A.,
Charlotte LOC) 200,000
2,500,000 Knox County, TN, IDB, Series 1996, Weekly VRDNs (Health
Ventures, Inc. Project)/(SunTrust Bank, Nashville LOC) 2,500,000
2,530,000 Morristown, TN, IDB Weekly VRDNs (Tuff Torq Corp.)/
(Bank of Tokyo-Mitsubishi Ltd. LOC) 2,530,000
900,000 South Pittsburg, TN, IDB, Series 1996, Weekly VRDNs (Lodge
Manufacturing Co. Project)/(SunTrust Bank, Nashville LOC) 900,000
3,000,000 Tennessee Housing Development Agency, Series 1997K, Weekly
VRDNs (Bank of America NT and SA, San Francisco LIQ) 3,000,000
TOTAL 16,630,000
TEXAS-7.1%
1,000,000 Angelina and Neches River Authority, Texas, Solid Waste
Disposal Revenue Bonds, Series 1993, 3.75% CP (Temple-Eastex
Inc.)/(Temple-Inland, Inc. GTD), Mandatory Tender 3/10/1999 1,000,000
3,000,000 Angelina and Neches River Authority, Texas, Solid Waste
Disposal Revenue Bonds, Series 1993, 3.80% CP (Temple-Eastex
Inc.)/(Temple-Inland, Inc. GTD), Mandatory Tender 3/12/1999 3,000,000
1,600,000 Angelina and Neches River Authority, Texas, Waste Disposal
Revenue Bonds, Series 1998, 3.75% CP (Temple-Inland Forest
Products Corp.)/(Temple-Inland, Inc. GTD), Mandatory Tender
3/9/1999 1,600,000
7,500,000 Harris County, TX, HFDC, Revenue Refunding Bonds, Series
1986, 4.35% CP
(Young Men's Christian Association of the Greater Houston
Area)/ (Bank of Tokyo-Mitsubishi Ltd. LOC),
Mandatory Tender 2/2/1999 7,500,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-continued 1
TEXAS-CONTINUED
$ 2,400,000 Lubbock, TX, IDC Daily VRDNs (McLane Co.,
Inc.)/(Nationsbank, N.A.,
Charlotte LOC) $ 2,400,000
8,000,000 McAllen, TX, IDA, Series 1998, Weekly VRDNs (NiTek McAllen,
LLC)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 8,000,000
4,780,000 Saginaw, TX, IDA, Series 1998, Weekly VRDNs (Glad Investing
Partners, Ltd.)/(Bank One, Texas N.A. LOC) 4,780,000
6,000,000 Tarrant County, TX, IDC, Series 1997, Weekly VRDNs (Lear
Operations Corp.)/(Chase Manhattan Bank N.A., New York LOC) 6,000,000
TOTAL 34,280,000
VIRGINIA-2.5%
12,100,000 Virginia Peninsula Port Authority, Series 1997, Daily VRDNs
(Ziegler Coal Holding Co.)/(UBS AG LOC) 12,100,000
WISCONSIN-2.3%
2,000,000 Milwaukee, WI, Series 1997, 3.25% TOBs (Signature Flight
Support Corp.)/(Bayerische Landesbank Girozentrale LOC),
Optional Tender 6/1/1999 2,000,000
1,000,000 New Berlin, WI, Series 1997A, Weekly VRDNs (Sunraider
LLC/New Berlin Plastics, Inc.)/(Bank One, Wisconsin, N.A.
LOC) 1,000,000
8,035,000 Wisconsin Housing & Economic Development Authority, PT-90,
Series 1996F, Weekly VRDNs (Banque Nationale de Paris LIQ) 8,035,000
TOTAL 11,035,000
TOTAL INVESTMENTS (AT AMORTIZED COST) 3 $ 483,463,785
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 90.4% of the
portfolio as calculated based upon total portfolio market value.
1 The Fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ('NRSROs') or unrated securities of comparable quality. An NRSRO's
two highest rating categories are determined without regard for sub-categories
and gradations. For example, securities rated SP-1+, SP- 1, or SP-2 by Standard
& Poor's, MIG-1 or MIG-2 by Moody's Investors Service, Inc., or F-1+, F-1, or
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, 1999, the portfolio securities were rated as follows:
Tier Rating based on Total Market Value (Unaudited)
FIRST TIER SECOND TIER
95.69% 4.31%
2 Denotes a restricted security which is subject to restrictions on resale under
Federal Securities laws. At January 31, 1999, these securities amounted to
$66,150,000 which represents 13.6% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($486,265,314) at January 31, 1999.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation
AMT -Alternative Minimum Tax
BAN(s) -Bond Anticipation Note(s)
COL -Collateralized
CP -Commercial Paper
EDA -Economic Development Authority
EDFA -Economic Development Financing Authority EDRB -Economic Development
Revenue Bonds FGIC -Financial Guaranty Insurance Company FSA -Financial Security
Assurance GNMA -Government National Mortgage Association GO -General Obligation
GTD -Guaranty HFA -Housing Finance Authority HFDC -Health Facility Development
Corporation IDA -Industrial Development Authority IDB -Industrial Development
Bond IDC -Industrial Development Corporation IDRB(s) -Industrial Development
Revenue Bond(s) IFA -Industrial Finance Authority INS -Insured LIQ -Liquidity
Agreement LOC(s) -Letter(s) of Credit MBIA -Municipal Bond Investors Assurance
MERLOTS -Municipal Exempt Receipts - Liquidity Optional Tender Series
SA -Support Agreement
TOBs -Tender Option Bonds
TRANs -Tax and Revenue Anticipation Notes
UT -Unlimited Tax
VRDNs -Variable Rate Demand Notes
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
JANUARY 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $ 483,463,785
Cash 779,928
Income receivable 2,914,688
Prepaid expenses 728
TOTAL ASSETS 487,159,129
LIABILITIES:
Payable for shares redeemed $ 23,377
Income distribution payable 834,252
Accrued expenses 36,186
TOTAL LIABILITIES 893,815
Net assets for 486,241,985 shares outstanding $ 486,265,314
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$303,906,743 / 303,884,188 shares outstanding $1.00
INSTITUTIONAL SERVICE SHARES:
$67,828,653 / 67,828,674 shares outstanding $1.00
INSTITUTIONAL CAPITAL SHARES:
$114,529,918 / 114,529,123 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 14,557,221
EXPENSES:
Investment advisory fee $ 803,037
Administrative personnel and services fee 302,822
Custodian fees 6,697
Transfer and dividend disbursing agent fees and expenses 61,219
Directors'/Trustees' fees 6,315
Auditing fees 14,192
Legal fees 20,325
Portfolio accounting fees 106,414
Shareholder services fee-Institutional Shares 672,157
Shareholder services fee-Institutional Service Shares 157,723
Shareholder services fee-Institutional Capital Shares 175,081
Share registration costs 23,701
Printing and postage 15,386
Insurance premiums 29,162
Miscellaneous 1,505
TOTAL EXPENSES 2,395,736
WAIVERS:
Waiver of investment advisory fee $ (636,478)
Waiver of shareholder services fee-Institutional Shares (672,157)
Waiver of shareholder services fee-Institutional Capital
Shares (105,514)
TOTAL WAIVERS (1,414,149)
Net expenses 981,587
Net investment income $ 13,575,634
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 13,575,634 $ 7,984,661
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (9,176,860) (7,088,218)
Institutional Service Shares (2,031,566) (424,504)
Institutional Capital Shares (2,367,208) (472,939)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS
TO SHAREHOLDERS (13,575,634) (7,985,661)
SHARE TRANSACTIONS:
Proceeds from sale of shares 6,671,442,391 4,261,655,577
Net asset value of shares issued to shareholders in payment
of
distributions declared 4,797,681 2,454,015
Cost of shares redeemed (6,466,730,133) (4,146,914,995)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 209,509,939 117,194,597
Change in net assets 209,509,939 117,193,597
NET ASSETS:
Beginning of period 276,755,375 159,561,778
End of period $ 486,265,314 $ 276,755,375
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
JANUARY 31, 1999
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 provision for federal taxes is
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, 1999, is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Dakota County & Washington County, MN 1/5/1999 $10,195,000
Dakota County, Washington County & Anoka City, MN 12/1/1998 5,000,000
Kentucky Housing Corp. 11/19/1998 8,320,000
Mississippi Home Corp. 8/17/1998 9,995,000
New Hampshire State HFA 11/19/1998 9,995,000
New York City, NY Trust Receipts 1/19/1999 10,000,000
Philadelphia, PA IDA, Variable Rate 8/27/1998 6,745,000
Triborough Bridge & Tunnel Authority, NY 1/26/1999 5,900,000
</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). At January
31, 1999, capital paid-in aggregated $486,265,314.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL SHARES:
Shares sold 5,212,142,622 3,591,948,985
Shares issued to shareholders in payment of distributions
declared 1,302,615 1,979,575
Shares redeemed (5,127,376,711) (3,535,649,749)
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS 86,068,526 58,278,811
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Shares sold 422,524,378 251,107,687
Shares issued to shareholders in payment of distributions
declared 1,503,612 339,358
Shares redeemed (397,415,401) (210,231,259)
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE
SHARE TRANSACTIONS 26,612,589 41,215,786
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INSTITUTIONAL CAPITAL SHARES:
Shares sold 1,036,775,391 418,598,905
Shares issued to shareholders in payment of distributions
declared 1,991,454 135,082
Shares redeemed (941,938,021) (401,033,987)
NET CHANGE RESULTING FROM INSTITUTIONAL CAPITAL
SHARE TRANSACTIONS 96,828,824 17,700,000
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 209,509,939 117,194,597
</TABLE>
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. Effective March 31, 1999, the Adviser will merge into
Federated Investment Management Company (formerly Federated Advisers). The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser can
modify or terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended January 31, 1999, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $1,578,571,000 and $2,064,965,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Report of Ernst & Young LLP, Independent Auditors
TO 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, 1999 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, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, 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, 1999, 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 the financial highlights for each of
the periods indicated therein, in conformity with generally accepted accounting
principles.
[Graphic]
Boston, Massachusetts
March 15, 1999
Municipal Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL CAPITAL SHARES
MARCH 31, 1999
A Statement of Additional Information (SAI) dated March 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's semi-annual report to shareholders
as it becomes available. To obtain the SAI, semi-annual report and other
information without charge, call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
[Graphic]
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-7364
Cusip 608912309
G01881-09 (3/99)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Municipal Obligations Fund
A Portfolio of Money Market Obligations Trust II
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
INSTITUTIONAL CAPITAL SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Institutional Shares, Institutional
Service Shares, and Institutional Capital Shares of Municipal Obligations Fund
(Fund), dated March 31, 1999. Obtain the prospectuses without charge by calling
1-800-341-7400.
MARCH 31, 1999
[Graphic]
Municipal Obligations Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
G01881-12 (3/99)
CONTENTS
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
What Do Shares Cost? 3
How is the Fund Sold? 3
Subaccounting Services 3
Redemption in Kind 4
Massachusetts Partnership Law 4
Account and Share Information 4
Tax Information 4
Who Manages and Provides Services to the Fund? 5
How Does the Fund Measure Performance? 8
Who is Federated Investors, Inc.? 11
Investment Ratings 12
Addresses 14
How is the Fund Organized?
The Fund is a diversified portfolio of Money Market Obligations Trust II
(Trust). The Trust is an open-end, management investment company that was
established under the laws of the Commonwealth of Massachusetts on November 16,
1992. The Trust may offer separate series of shares representing interests in
separate portfolios of securities. On November 15, 1996, the Trust changed its
name from Lehman Brothers Institutional Funds Group Trust to Money Market
Obligations Trust II, and the Fund changed its name from Municipal Money Market
Fund to Municipal Obligations Fund.
The Board of Trustees (the Board) has established three classes of shares of the
Fund, known as Institutional Shares, Institutional Service Shares, and
Institutional Capital Shares (Shares). This SAI relates to all classes of the
above-mentioned Shares. The Fund's investment adviser is Federated Investment
Management Company (Adviser). Effective March 31, 1999, Federated Management,
Adviser to the Fund, merged into Federated Investment Management Company
(formerly Federated Advisers).
Securities in Which the Fund Invests
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
GENERAL OBLIGATION BONDS
General obligation bonds are supported by the issuer's power to exact property
or other taxes. The issuer must impose and collect taxes sufficient to pay
principal and interest on the bonds. However, the issuer's authority to impose
additional taxes may be limited by its charter or state law.
SPECIAL REVENUE BONDS
Special revenue bonds are payable solely from specific revenues received by the
issuer such as specific taxes, assessments, tolls, or fees. Bondholders may not
collect from the municipality's general taxes or revenues. For example, a
municipality may issue bonds to build a toll road, and pledge the tolls to repay
the bonds. Therefore, a shortfall in the tolls normally would result in a
default on the bonds.
PRIVATE ACTIVITY BONDS
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds from its
bonds to the company using the factory, and the company would agree to make loan
payments sufficient to repay the bonds. The bonds would be payable solely from
the company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
The interest on many types of private activity bonds is subject to the federal
alternative minimum tax (AMT). The Fund may invest in bonds subject to AMT, as
discussed in "Securities Descriptions and Techniques" in this SAI.
MUNICIPAL LEASES
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor (the Fund) can resell the equipment or facility but may
lose money on the sale.
The Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs). However, the Fund may also invest directly in individual leases.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
INVESTMENT RATINGS
A nationally recognized rating service'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., or F-1+, F-1, or F-2 by Fitch IBCA, Inc. 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 rating service can be treated as being in one of the two
highest short-term rating categories; currently, such securities must be rated
by two rating services in one of their two highest rating categories. See
"Regulatory Compliance."
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The principal
risks of investing in a municipal money market fund are described in the Fund's
prospectus. An additional risk factor is outlined below.
TAX RISKS
In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
Changes or proposed changes in federal tax laws may cause the prices of
municipal securities to fall.
FUNDAMENTAL INVESTMENT POLICIES
As a fundamental investment policy, at least 80% of the Fund's annual interest
income will be exempt from federal regular income tax.
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 unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
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 SAI, 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 nationally recognized rating services, 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.
DETERMINING MARKET VALUE OF SECURITIES
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.
What Do Shares Cost?
The net asset value (NAV) for each class of Shares may differ due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution- related
or shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
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.
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.
Account and Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of March 4, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Society Asset Management Inc.,
Cleveland, Ohio, 5.42% of Institutional Shares; Publix Super Market, Lakeland,
Florida, 5.28% of Institutional Shares; Evergreen Florida, c/o State Street Bank
& Trust, North Quincy, Massachusetts, 8.16% of Institutional Shares; Evergreen
Select Int Tax Ex Bond Fd, Charlotte, North Carolina, 6.18% of Institutional
Shares; Cenco, Birmingham, Alabama, 18.69% of Institutional Shares; Houvis &
Co., First American National Bank, Nashville, Tennessee, 6.90% of Institutional
Shares; Balcor Holding Corporation, Oklahoma City, Oklahoma, 5.71% of
Institutional Service Shares; Kirchman Corporation, Orlando, Florida, 5.15% of
Institutional Service Shares; S. Daniel Abraham, Carl Tsang, Palm Beach,
Florida, 16.73% of Institutional Service Shares; The Mark Travel Corp.,
Milwaukee, Wisconsin, 23.25% of Institutional Service Shares; Parker/Hunter
Inc., Pittsburgh, Pennsylvania, 12.08% of Institutional Capital Shares;
Franchise Development Team Inc., Milford, Connecticut, 16.46% of Institutional
Capital Shares; Laciba & Co., Lake City Bank, Warsaw, Indiana, 44.49% of
Institutional Capital Shares; and Excel Industries, Elkhart, Indiana, 16.15% of
Institutional Capital Shares.
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of three
funds and the Federated Fund Complex is comprised of 54 investment companies,
whose investment advisers are affiliated with the Fund's Adviser.
As of March 4, 1999, the Fund's Board and Officers as a group owned less than 1%
of the Fund's outstanding Institutional, Institutional Service, and
Institutional Capital Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+ Chief Executive Officer and Director or Trustee of the $0 $0 for the Trust
Birth Date:
July 28, 1924 Federated and 54 other investment
Federated
Investors Tower Fund Complex; Chairman and Director, Federated Investors, companies in the
1001 Liberty Avenue Inc.; Fund Complex
Pittsburgh, PA Chairman and Trustee, Federated Investment Management
CHAIRMAN AND TRUSTEE Company; Chairman and Director, Federated Investment
Counseling
and Federated Global Investment Management Corp.; Chairman,
Passport Research, Ltd.
THOMAS G. BIGLEY Director or Trustee of the Federated Fund Complex; Director, $3,092.74 $113,860.22 for the Trust
Birth Date:
February 3, 1934 Member of Executive Committee, Children's Hospital of and 54 other investment
15 Old Timber Trail Pittsburgh; companies in the
Pittsburgh, PA formerly: Senior Partner, Ernst & Young LLP; Director, MED Fund Complex
TRUSTEE 3000
Group, Inc.; Director, Member of Executive Committee,
University of Pittsburgh.
JOHN T. CONROY, JR. Director or Trustee of the Federated Fund Complex; $3,402.52 $125,264.48 for the Trust
Birth Date:
June 23, 1937 President, and 54 other investment
Wood/IPC
Commercial Dept. Investment Properties Corporation; Senior Vice President, companies in the
John R.
Wood Associates, John R. Wood Fund Complex
Inc. Realtors
3255 Tamiami
Trail North and Associates, Inc., Realtors; Partner or Trustee in
Naples, FL private real estate
TRUSTEE ventures in Southwest Florida; formerly: President, Naples
Property
Management, Inc. and Northgate Village Development
Corporation.
NICHOLAS CONSTANTAKIS Director or Trustee of the Federated Fund Complex; formerly: $2,671.50 $47,958.02 for the Trust
Birth Date:
September 3, 1939 Partner, and 29 other investment
175 Woodshire Drive Andersen Worldwide SC. companies in the
Pittsburgh, PA Fund Complex
TRUSTEE
WILLIAM J. COPELAND Director or Trustee of the Federated Fund Complex; Director $3,402.52 $125,264.48 for the Trust
Birth Date:
July 4, 1918 and Member of the Executive Committee, Michael Baker, Inc.; and 54 other investment
One PNC
Plaza-23rd Floor formerly: companies in the
Pittsburgh, PA Vice Chairman and Director, PNC Bank, NA, and PNC Bank Corp.; Fund Complex
TRUSTEE Director, Ryan Homes, Inc.
Previous Positions: Director, United Refinery; Director,
Forbes Fund;
Chairman, Pittsburgh Foundation; Chairman, Pittsburgh Civic
Light Opera.
JOHN F. CUNNINGHAM++ Director or Trustee of some of the Federated Funds; $0 $0 for the Trust
Birth Date:
March 5, 1943 Chairman, President and Chief Executive Officer, Cunningham and 26 other investment
companies in the
353 El Brillo Way & Co., Inc.; Trustee Associate, Boston College; Director, Fund Complex
Palm Beach, FL EMC Corporation; formerly: Director,
TRUSTEE Redgate Communications.
Previous Positions: Chairman of the Board and Chief
Executive Officer, Computer Consoles, Inc.; President and
Chief Operating Officer, Wang Laboratories; Director, First
National Bank of Boston; Director, Apollo Computer, Inc.
J. CHRISTOPHER
DONAHUE*+ President or Executive Vice President of the Federated Fund $0 $0 for the Trust
Birth Date:
April 11, 1949 Complex; Director or Trustee of some of the Funds in the and 16 other investment
companies in the
Federated
Investors Tower Federated Fund Complex; President and Director, Federated Fund Complex
1001 Liberty Avenue Investors, Inc.; President and Trustee, Federated Investment
Pittsburgh, PA Management Company; President and Director, Federated
PRESIDENT AND TRUSTEE Investment Counseling and Federated Global Investment
Management Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services Company; Director,
Federated Services Company.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
LAWRENCE D.
ELLIS, M.D.* Director or Trustee of the Federated Fund Complex; Professor $3,092.74 $113,860.22 for the
Birth Date:
October 11, 1932 of Medicine, University of Pittsburgh; Medical Director, Trust and
3471 Fifth Avenue University of Pittsburgh Medical Center - Downtown; 54 other investment
companies
Suite 1111 Hematologist, Oncologist, and Internist, University of in the Fund Complex
Pittsburgh, PA Pittsburgh Medical Center; Member, National Board of
TRUSTEE Trustees, Leukemia Society of America.
PETER E. MADDEN Director or Trustee of the Federated Fund Complex; formerly: $3,092.74 $113,860.22 for the
Trust and 54 other
investment companies
Birth Date:
March 16, 1942 Representative, Commonwealth of Massachusetts in the
One Royal Palm Way General Court; President, State Street Bank and Trust Fund Complex
100 Royal Palm Way Company
Palm Beach, FL and State Street Corporation.
TRUSTEE Previous Positions: Director, VISA USA and VISA
International; Chairman and Director, Massachusetts Bankers
Association;
Director, Depository Trust Corporation.
CHARLES F.
MANSFIELD, JR.++ Director or Trustee of some of the Federated Funds; $0 $0 for the Trust
Birth Date:
April 10, 1945 Management Consultant. and 26 other investment
80 South Road Previous Positions: Chief Executive Officer, PBTC companies in the
Westhampton
Beach, NY International Bank; Chief Financial Officer of Retail Fund Complex
TRUSTEE Banking Sector, Chase Manhattan Bank; Senior Vice President,
Marine Midland Bank; Vice President, Citibank; Assistant
Professor of Banking and Finance, Frank G. Zarb School of
Business, Hofstra University.
JOHN E. MURRAY, JR.,. Director or Trustee of the Federated Fund Complex; $3,092.74 $113,860.22 for the Trust
J.D., S.J.D Birth Date:
December 20, 1932 President, Law Professor, Duquesne University; Consulting and 54 other in the
President,
Duquesne University Partner, Mollica & Murray. investment companies
Pittsburgh, PA Previous Positions: Dean and Professor of Law, University of Fund Complex
TRUSTEE Pittsburgh School of Law; Dean and Professor of Law,
Villanova University School of Law.
MARJORIE P. SMUTS Director or Trustee of the Federated Fund Complex; Public $3,092.74 $113,860.22 for the
Birth Date:
June 21, 1935 Relations/Marketing/Conference Planning. Trust and
4905 Bayard Street Previous Positions: National Spokesperson, Aluminum Company 54 other investment companies
Pittsburgh, PA of America; business owner. in the Fund Complex
TRUSTEE
JOHN S. WALSH++ Director or Trustee of some of the Federated Funds; $0 $0 for the Trust and
Birth Date:
November 28, 1957 President and Director, Heat Wagon, Inc.; President and 23 other investment companies
in the
2007 Sherwood Drive Director, Manufacturers Products, Inc.; President, Portable Fund Complex
Valparaiso, IN Heater Parts, a division of Manufacturers Products, Inc.;
TRUSTEE Director, Walsh & Kelly, Inc.; formerly: Vice President,
Walsh & Kelly, Inc.
EDWARD C. GONZALES Trustee or Director of some of the Funds in the Federated $0 $0 for the Trust
Birth Date:
October 22, 1930 Fund Complex; President, Executive Vice President and and 1 other investment company
in the
Federated
Investors Tower Treasurer of some of the Funds in the Federated Fund Complex; Fund Complex
1001 Liberty Avenue Vice Chairman, Federated Investors, Inc.; Vice President,
Pittsburgh, PA Federated Investment Management Company, and Federated
EXECUTIVE
VICE PRESIDENT Investment Counseling, Federated Global Investment
Management Corp. and Passport Research, Ltd.; Executive Vice
President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company.
JOHN W. MCGONIGLE Executive Vice President and Secretary of the Federated $0 $0 for the Trust
Birth Date:
October 26, 1938 Fund Complex; Executive Vice President, Secretary, and and 54 other investment
companies in the
Federated Investors
Tower Director, Federated Investors, Inc.; Trustee, Federated Fund Complex
1001 Liberty Avenue Investment Management Company; Director, Federated
Pittsburgh, PA Investment Counseling and Federated Global Investment EXECUTIVE
VICE PRESIDENT AND S Management Corp.; Director, Federated Services Company;
SECRETARY Director, Federated Securities Corp.
RICHARD B. FISHER President or Vice President of some of the Funds in the $0 $0 for the Trust
Birth Date:
May 17, 1923 Federated Fund Complex; Director or Trustee of some of the and 6 other investment
companies in the
Federated
Investors Tower Funds in the Federated Fund Complex; Executive Vice Fund Complex
1001 Liberty Avenue President, Federated Investors, Inc.; Chairman and Director,
Pittsburgh, PA Federated Securities Corp.
VICE PRESIDENT
RICHARD J. THOMAS Treasurer of the Federated Fund Complex; Vice President- $0 $0 for the Trust
Birth Date:
June 17, 1954 Funds Financial Services Division, Federated Investors, and 54 other investment
companies in the
Federated
Investors Tower Inc.; formerly: various management positions within Funds Fund Complex
1001 Liberty Avenue Financial Services Division of Federated Investors, Inc.
Pittsburgh, PA
TREASURER
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
WILLIAM D.
DAWSON, III Chief Investment Officer of this Fund and various other $0 $0 for the Trust
Birth Date:
March 3, 1949 Funds in the Federated Fund Complex; Executive Vice and 41 other investment
companies in the
Federated
Investors Tower President, Federated Investment Counseling, Federated Global Fund Complex
1001 Liberty Avenue Investment Management Corp., Federated Investment Management
Pittsburgh, PA Company, and Passport Research, Ltd.; Registered
CHIEF
INVESTMENT OFFICER Representative, Federated Securities Corp.;
Portfolio Manager, Federated Administrative Services; Vice
President, Federated Investors, Inc.; formerly: Executive
Vice President and Senior Vice President, Federated
Investment Counseling Institutional Portfolio Management
Services Division; Senior Vice President, Federated
Investment Management Companyand Passport Research, Ltd.
DEBORAH A.
CUNNINGHAM Deborah A. Cunningham is Vice President of the Trust. $0 $0 for the Trust
Birth Date:
September 15, 1959 Ms. Cunningham joined Federated in 1981 and has been a and 6 other investment
companies in the
Federated
Investors Tower Senior Portfolio Manager Fund Complex 1001 Liberty Avenue and a
Senior Vice President of the Fund's Adviser since 1997.
Pittsburgh, PA Ms. Cunningham served as a Portfolio Manager and a Vice
VICE PRESIDENT President
of the Adviser from 1993 until 1996. Ms. Cunningham is a
Chartered Financial Analyst and received her M.S.B.A. in
Finance from
Robert Morris College.
MARY JO OCHSON Mary Jo Ochson is Vice President of the Trust. Ms. Ochson $0 $0 for the Trust
Birth Date:
September 12, 1953 joined Federated in 1982 and has been a Senior Portfolio and 7 other investment
companies in the
Federated
Investors Tower Manager and a Senior Vice President of the Fund's Adviser Fund Complex
1001 Liberty Avenue since 1996. From 1988 through 1995, Ms. Ochson served as a
Pittsburgh, PA Portfolio Manager and a
VICE PRESIDENT Vice President of the Fund's Adviser. Ms. Ochson is a
Chartered Financial Analyst and received her M.B.A. in
Finance from the
University of Pittsburgh.
</TABLE>
+ Mr. Donahue is the father of J. Christopher Donahue, President and
Trustee of the Trust.
++ Messrs. Cunningham, Mansfield and Walsh became members of the Board on
January 1, 1999. They did not earn any fees for serving the Fund Complex since
these fees are reported as of the end of the last calendar year. They did not
receive any fees as of the fiscal year end of the Trust.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust or any Fund shareholder 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 (former
adviser), New York, New York, served as the Fund's Adviser.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED
FUNDS 0.150 of 1% on the first $250 million 0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million 0.075 of 1% 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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
Prior to November 15, 1996, FDISG (former administrator), a subsidiary of First
Data Corporation, Boston, Massachusetts, served as the Fund's
administrator.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by
shareholders.
INDEPENDENT AUDITORS
Ernst & Young LLP is the independent auditor for the Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JANUARY 31 1999 1998 1997 1
<S> <C> <C> <C>
Advisory Fee Earned 2 $803,037 $447,960 $76,352
Advisory Fee Reduction 636,478 447,960 76,352
Administrative Fee 3 302,822 190,864 19,609
SHAREHOLDER SERVICES FEE:
Institutional Shares $0 - -
Institutional Service Shares 157,723 - -
Institutional Capital Shares 69,567 - -
</TABLE>
1 For the period from November 15, 1996 to January 31, 1997.
2 For the period from February 1, 1996 to November 14, 1996, the former adviser
earned $287,184.
3 For the period from February 1, 1996 to November 14, 1996, the former
administrator earned $143,592.
Fees are allocated among classes based on their pro rata share of Fund assets,
except for shareholder services fees, which are borne only by the applicable
class of Shares.
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year, five-year and the start of performance
periods ended January 31, 1999.
Yield, Effective Yield, and Tax-Equivalent Yield given for the 7-day period
ended January 31, 1999.
<TABLE>
<CAPTION>
7 -DAY START OF PERFORMANCE
SHARE CLASS PERIOD 1 YEAR 5 YEARS ON FEBRUARY 8, 1993
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES:
Total Return 3.53% 3.57% 3.39%
Yield 3.03% - - -
Effective Yield 3.07% - - -
Tax-Equivalent Yield 5.02% - - -
INSTITUTIONAL SERVICE SHARES:
Total Return 3.27% 3.31% 3.13%
Yield 2.78% - - -
Effective Yield 2.82% - - -
Tax-Equivalent Yield 4.60% - - -
INSTITUTIONAL
CAPITAL SHARES:
Total Return 3.40% 3.43% 3.25%
Yield 2.91% - - -
Effective Yield 2.95% - - -
Tax-Equivalent Yield 4.82% - - -
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares 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 NAV 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated 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. The effective yield is calculated by compounding the unannualized
base-period return by: adding one to the base-period return; raising the sum to
the 365/7th power; and subtracting one from the result. The tax-equivalent yield
of Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the municipal securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998 MULTISTATE MUNICIPAL FUND
FEDERAL INCOME TAX BRACKET: 15.00% 28.00% 31.00% 36.00% 39.60%
<S> <C> <C> <C> <C> <C>
Joint Return $1-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 OVER $283,150
Single Return $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 OVER $283,150
TAX-EXEMPT YIELD: TAXABLE YIELD EQUIVALENT:
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
* charts, graphs, and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
* information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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
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
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 10
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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 27 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value- oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/agency, and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion, and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated 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,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime, and 23 municipal with assets
approximating $41.6 billion, $22.8 billion, and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.
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 $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, 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 advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include 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,
Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (S&P) note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1-Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2-Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS)
RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-l+, AA/A-I+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1-This highest category 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.
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 highest 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.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION
RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG). (See below.) The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1-This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2-This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS)
RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-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.
P-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.
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 sometime in the future.
NR-Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1)-The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2)-The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3)-The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
FITCH INVESTORS SERVICE, L.P. SHORT-TERM DEBT RATING DEFINITIONS
F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1-Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2-Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Addresses
MUNICIPAL OBLIGATIONS FUND
Institutional Shares
Institutional Service Shares
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 Investment Management Company
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
200 Clarendon Street
Boston, MA 02116-5072
PART C. OTHER INFORMATION.
Item 23. Exhibits
(a) (i) Copy of Declaration of Trust of the
Registrant; (4)
(ii) Amendment No. 1 to the Declaration of
Trust; (4)
(iii) Designation and establishment of Series;(4)
(iv) Form of Certificate pertaining to
Classification of Shares dated
February 18, 1994; (1)
(v) Form of Amendment No. 2 to Declaration of
Trust; +
(b) (i) Amended and Restated By-Laws of the
Registrant; (4)
(ii) Copy of Amendment No. 1 to the By-Laws; (13)
(iii) Copy of Amendment No. 2 to the By-Laws; (14)
(iv) Copy of Amendment No. 3 to the By-Laws; (14)
(v) Copy of Amendment No. 4 to the By-Laws; (14)
(c) Copy of Specimen Share Certificate; (4)
(d) Conformed copy of Investment Advisory Contract; (11)
(e) (i) Copy of Distributor's Contract of the
Registrant; (11)
(ii) 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);
(f) Not applicable;
(g) (i) Conformed copy of Custodian
Contract; (13)
(ii) Conformed copy of Custody Fee
Schedule; (13)
+ 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).
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed March 24, 1998. (File Nos. 33-55034 and
811-7364).
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed January 29, 1999. (File Nos. 33-55034
and 811-7364).
<PAGE>
(h) (i) Conformed Copy of Amended and Restated Agreement for
Fund Accounting Services, Administrative Services,
Transfer Agency Services, and Custody Services
Procurement;
(13)
(ii) Conformed copy of Amended and Restated Shareholder
Services Agreement; (13)
(iii) The responses described in Item
23(e)(iii) are hereby incorporated by reference.
(i) Opinion and Consent of Counsel as to Legality
of Shares being Registered; (12) (j) (i) Conformed
copy of Consent of Independent Auditors; +
(ii) Consent of Counsel; (10)
(k) Not applicable;
(l) Purchase Agreement between Registrant and Shearson Lehman
Brothers Inc.; (4)
(m) Not applicable;
(n) Copy of Financial Data Schedules; +
(o) 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);
(p) (i) Power of Attorney of the Registrant; (13)
(ii) Power of Attorney of Chief Investment
Officer of the Registrant; (14)
(iii) Power of Attorney of Treasurer of the
Registrant; (14)
(iv) Power of Attorney of Trustee of the
Registrant; (14)
(v) Power of Attorney of Trustee of the
Registrant; (14)
(vi) Power of Attorney of Trustee of the
Registrant; (14)
Item 24. Persons Controlled by or Under Common Control with Registrant:
None
Item 25. 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).
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).
12. Filed as part of the Registrant's Registration Statement effective February
3, 1993.
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed March 24, 1998. (File Nos. 33-55034 and
811-7364).
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed January 29, 1999. (File Nos. 33-55034
and 811-7364).
<PAGE>
Item 26. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment adviser,
see the section entitled "Who Manages the Fund?"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 "Who Manages and Provides
Services to the Fund?" 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: Joseph M. Balestrino
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Sandra L. McInerney
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
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 M. Kowit
Jeff A. Kozemchak
Richard J. Lazarchic
Steven Lehman
Marian R. Marinack
Keith J. Sabol
Frank Semack
Aash M. Shah
Christopher Smith
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
Marc Halperin
<PAGE>
Assistant Vice Presidents: Nancy J. Belz
Robert E. Cauley
Lee R. Cunningham, II
B. Anthony Delserone, Jr.
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
John C. Kerber
Grant K. McKay
Natalie F. Metz
Joseph M. Natoli
John Sheehy
Michael W. Sirianni
Leonardo A. Vila
Lori A. Wolff
Gary Farwell
Secretary: G. Andrew Bonnewell
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine M. Newcamp
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment
adviser is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779. These individuals are also
officers of a majority of the investment advisers to the
investment companies in the Federated Fund Complex described in
Part B of this Registration Statement.
Item 27. 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:
Automated Government Money Trust; Cash Trust Series II; Cash Trust Series, Inc.;
CCB Funds; 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 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.; Fixed Income Securities, Inc.; ; Hibernia Funds;
Independence One Mutual Funds; Intermediate Municipal Trust; International
Series, Inc.; Investment Series Funds, Inc.; 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; Regions Funds; RIGGS Funds; SouthTrust Funds; Tax-Free
Instruments Trust; The Planters Funds; The Wachovia Funds; The Wachovia
Municipal Funds; Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; World Investment Series, Inc.; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; DG Investor Series; High Yield Cash Trust; Investment Series
Trust; Star Funds; Targeted Duration Trust; The Virtus Funds; Trust for
Financial Institutions;
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
(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
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, President
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary --
Federated Investors Tower and Assistant Treasurer
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew W. Brown Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark Carroll Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Steven R. Cohen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert J. Deuberry Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark A. Gessner Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Tad Gullickson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Dayna C. Haferkamp Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher A. Layton Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael H. Liss Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Thomas P. Moretti Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward Segura Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert N. Bauman Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John T. Glickson Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew S. Hardin Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley, III Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Leslie K. Ross Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(c) Not applicable
</TABLE>
<PAGE>
Item 28. 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:
<TABLE>
<CAPTION>
<S> <C> <C>
Registrant Federated Investors Tower
1001 Liberty Avenue
..............................Pittsburgh, PA 15222-3779
(Notices should be sent to
the Agent for Service at
above address)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Federated Shareholder Federated Investors Tower
Services Company .............1001 Liberty Avenue
("Transfer Agent, Dividend Pittsburgh, PA 15237-7000
Disbursing Agent and
Portfolio Recordkeeper")
Federated Services Company Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Investment Federated Investors Tower
Management Company 1001 Liberty Avenue
("Adviser") Pittsburgh, PA 15222-3779
State Street Bank and P.O. Box 8600
Trust Company Boston, MA 02266-8600
("Custodian")
</TABLE>
Item 29. Management Services: Not applicable.
Item 30. 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.
<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 of the requirements for effectiveness of this
Amendment to its 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
30th day of March, 1999.
MONEY MARKET OBLIGATIONS TRUST II
BY: /s/ Nicholas J. Seitanakis
Nicholas J. Seitanakis, Assistant Secretary
Attorney in Fact for John F. Donahue
March 30, 1999
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:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME TITLE DATE
By: /s/ Nicholas J. Seitanakis
Nicholas J. Seitanakis Attorney In Fact March 30, 1999
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
J. Christopher Donahue* President and Trustee
William D. Dawson III* Chief Investment Officer
Richard J. Thomas* Treasurer
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
Nicholas P. Constantakis* Trustee
William J. Copeland* Trustee
John F. Cunningham* Trustee
Lawrence D. Ellis, M.D.* Trustee
Peter E. Madden* Trustee
Charles F. Mansfield, Jr.* Trustee
John E. Murray, Jr.* Trustee
Marjorie P. Smuts* Trustee
John S. Walsh* Trustee
* By Power of Attorney
</TABLE>
Exhibit 23(a)(v) 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 23(j)(i) under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Independent
Auditor" and to the use of our report dated March 15, 1999, in Post-Effective
Amendment Number 17 to the Registration Statement (Form N-1A Number 33-55034)
and the related Prospectus of Money Market Obligations Trust II, dated March 31,
1999.
By: ERNST & YOUNG LLP
Ernst & Young LLP
Boston, Massachusetts
March 29, 1999
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> PRIME CASH OBLIGATIONS FUND - INSTITUTIONAL SHARES
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jan-31-1999
<PERIOD-END> Jan-31-1999
<INVESTMENTS-AT-COST> 2,946,959,534
<INVESTMENTS-AT-VALUE> 2,946,959,534
<RECEIVABLES> 10,663,126
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,957,622,660
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,312,958
<TOTAL-LIABILITIES> 7,312,958
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,950,309,702
<SHARES-COMMON-STOCK> 1,825,266,173
<SHARES-COMMON-PRIOR> 1,100,619,513
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,825,266,173
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 128,409,170
<OTHER-INCOME> 0
<EXPENSES-NET> (6,399,564)
<NET-INVESTMENT-INCOME> 122,009,606
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 122,009,606
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (73,059,518)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23,532,773,371
<NUMBER-OF-SHARES-REDEEMED> (22,852,260,827)
<SHARES-REINVESTED> 44,134,116
<NET-CHANGE-IN-ASSETS> 789,866,578
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,676,382
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,058,448
<AVERAGE-NET-ASSETS> 1,379,805,774
<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> 0.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> PRIME CASH OBLIGATIONS FUND - INSTITUTIONAL SERVICE SHARES
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jan-31-1999
<PERIOD-END> Jan-31-1999
<INVESTMENTS-AT-COST> 2,946,959,534
<INVESTMENTS-AT-VALUE> 2,946,959,534
<RECEIVABLES> 10,663,126
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,957,622,660
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,312,958
<TOTAL-LIABILITIES> 7,312,958
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,950,309,702
<SHARES-COMMON-STOCK> 894,850,895
<SHARES-COMMON-PRIOR> 668,664,748
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 894,850,895
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 128,409,170
<OTHER-INCOME> 0
<EXPENSES-NET> (6,399,564)
<NET-INVESTMENT-INCOME> 122,009,606
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 122,009,606
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (36,684,622)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,290,975,466
<NUMBER-OF-SHARES-REDEEMED> (7,070,064,987)
<SHARES-REINVESTED> 5,275,668
<NET-CHANGE-IN-ASSETS> 789,866,578
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,676,382
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,058,448
<AVERAGE-NET-ASSETS> 721,421,260
<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> 013
<NAME> PRIME CASH OBLIGATIONS FUND - INSTITUTIONAL CAPITAL SHARES
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jan-31-1999
<PERIOD-END> Jan-31-1999
<INVESTMENTS-AT-COST> 2,946,959,534
<INVESTMENTS-AT-VALUE> 2,946,959,534
<RECEIVABLES> 10,663,126
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,957,622,660
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,312,958
<TOTAL-LIABILITIES> 7,312,958
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,950,309,702
<SHARES-COMMON-STOCK> 230,192,634
<SHARES-COMMON-PRIOR> 391,158,863
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 230,192,634
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 128,409,170
<OTHER-INCOME> 0
<EXPENSES-NET> (6,399,564)
<NET-INVESTMENT-INCOME> 122,009,606
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 122,009,606
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,265,466)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,339,167,903
<NUMBER-OF-SHARES-REDEEMED> (2,506,236,739)
<SHARES-REINVESTED> 6,102,607
<NET-CHANGE-IN-ASSETS> 789,866,578
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,676,382
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,058,448
<AVERAGE-NET-ASSETS> 236,964,108
<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> 021
<NAME> PRIME VALUE OBLIGATIONS FUND - INSTITUTIONAL SHARES
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jan-31-1999
<PERIOD-END> Jan-31-1999
<INVESTMENTS-AT-COST> 2,173,741,108
<INVESTMENTS-AT-VALUE> 2,173,741,108
<RECEIVABLES> 8,695,808
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 12,042
<TOTAL-ASSETS> 2,182,448,958
<PAYABLE-FOR-SECURITIES> 10,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,056,057
<TOTAL-LIABILITIES> 13,056,057
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,169,392,901
<SHARES-COMMON-STOCK> 1,474,123,184
<SHARES-COMMON-PRIOR> 865,742,169
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,474,123,184
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 90,324,831
<OTHER-INCOME> 0
<EXPENSES-NET> (3,784,667)
<NET-INVESTMENT-INCOME> 86,540,164
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 86,540,164
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (60,707,164)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,781,464,858
<NUMBER-OF-SHARES-REDEEMED> (19,207,430,021)
<SHARES-REINVESTED> 34,346,178
<NET-CHANGE-IN-ASSETS> 911,196,948
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<NUMBER> 022
<NAME> PRIME VALUE OBLIGATIONS FUND - INSTITUTIONAL SERVICE SHARES
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<NAME> PRIME VALUE OBLIGATIONS FUND - INSTITUTIONAL CAPITAL SHARES
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</TABLE>
<TABLE> <S> <C>
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<ARTICLE> 6
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<NUMBER> 081
<NAME> MUNICIPAL OBLIGATIONS FUND - INSTITUTIONAL SHARES
<PERIOD-TYPE> 12-MOS
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</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 082
<NAME> MUNICIPAL OBLIGATIONS FUND - INSTITUTIONAL SERVICE SHARES
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jan-31-1999
<PERIOD-END> Jan-31-1999
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<NAME> MUNICIPAL OBLIGATIONS FUND - INSTITUTIONAL CAPITAL SHARES
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