-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BoyeOPyojvxi6WzsGKqoZPDYPrvolVCKqbuS+OZ20MkndbvxaWI5k764KPEatONh psVkI/kH+rnmxK77wbYciQ== 0000855108-97-000009.txt : 19970106 0000855108-97-000009.hdr.sgml : 19970106 ACCESSION NUMBER: 0000855108-97-000009 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19970103 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FEDERATED MUNICIPAL TRUST CENTRAL INDEX KEY: 0000855108 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-31259 FILM NUMBER: 97500748 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS TOWER CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122887496 497 1 CONNECTICUT MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS The Institutional Service Shares of Connecticut Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Connecticut municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Connecticut, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and Connecticut Dividend and Interest Income Tax consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS SUMMARY OF FUND EXPENSES 1 FINANCIAL HIGHLIGHTS 2 GENERAL INFORMATION 3 INVESTMENT INFORMATION 3 Investment Objective 3 Investment Policies 3 Connecticut Municipal Securities 5 Investment Risks 6 Investment Limitations 6 FUND INFORMATION 7 Management of the Fund 7 Distribution of Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 HOW TO PURCHASE SHARES 9 Special Purchase Features 10 HOW TO REDEEM SHARES 10 Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 11 TAX INFORMATION 12 Federal Income Tax 12 State and Local Taxes 12 PERFORMANCE INFORMATION 13 FINANCIAL STATEMENTS 14 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 25 ADDRESSES 26
SUMMARY OF FUND EXPENSES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable) None Redemption Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None ANNUAL TRUST OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1) 0.29% 12b-1 Fee None Total Other Expenses 0.31% Shareholder Services Fee (after waiver)(2) 0.14% Total Operating Expenses(3) 0.60%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The shareholder services fee has been reduced to reflect the voluntary waiver of a portion of the shareholder services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (3) The total operating expenses would have been 0.92% absent the voluntary waiver of portions of the management fee and the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period $6 $19 $33 $75
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. CONNECTICUT MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 25.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993** 1992 1991 1990(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.03 0.02 0.02 0.03 0.04 0.05 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.04) (0.05) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 TOTAL RETURN(b) 3.02% 3.31% 2.12% 1.96% 2.68% 4.04% 5.54% RATIOS TO AVERAGE NET ASSETS Expenses 0.60% 0.60% 0.59% 0.57% 0.56% 0.56% 0.48%* Net investment income 2.97% 3.26% 2.11% 1.95% 2.66% 3.94% 5.32%* Expense waiver/reimbursement(c) 0.32% 0.30% 0.18% 0.25% 0.30% 0.21% 0.28%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $227,089 $184,718 $190,423 $140,446 $140,118 $140,113 $138,738
* Computed on an annualized basis. ** Prior to November 6, 1992, the Fund provided two classes of shares. (a) Reflects operations for the period from November 1, 1989 (date of initial public investment) to October 31, 1990. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The Fund is designed primarily for financial institutions acting in an agency or fiduciary capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Connecticut taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and Connecticut Dividend and Interest Income Tax consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and the Connecticut Dividend and Interest Income Tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Connecticut and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Connecticut Dividend and Interest Income Tax ("Connecticut Municipal Securities"). Examples of Connecticut Municipal Securities include, but are not limited to: * tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; * bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; * municipal commercial paper and other short-term notes; * variable rate demand notes; * municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and * participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Connecticut Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Connecticut Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other depository institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Connecticut Municipal Securities is subject to the federal alternative minimum tax. CONNECTICUT MUNICIPAL SECURITIES Connecticut Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Connecticut Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Connecticut Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Connecticut Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Connecticut Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Connecticut Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Connecticut Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Connecticut Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Connecticut Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations, the Fund's concentration in Connecticut Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933. These investment limitations cannot be changed without shareholder approval. The following limitation may be changed without shareholder approval. The Fund will not invest more than 10% of the value of its net assets in illiquid securities including repurchase agreements providing for settlement in more than seven days after notice. FUND INFORMATION MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) Shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF SHARES Federated Securities Corp. is the principal distributor for Institutional Service Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of the Institutional Service Shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time, and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities from the value of Fund assets, and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more over a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Connecticut Municipal Cash Trust -- Institutional Service Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Connecticut Municipal Cash Trust -- Institutional Service Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Shareholder Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company, or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $25,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights; except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Connecticut. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. CONNECTICUT TAXES. Under existing Connecticut laws, distributions made by the Fund will not be subject to Connecticut individual income taxes to the extent that such distributions qualify as exempt interest dividends under the Internal Revenue Code, and represent (i) interest on obligations issued by the State of Connecticut, any political subdivision thereof or public instrumentality, state or local authority, district, or similar public entity created under the laws of the State of Connecticut, and (ii) interest on obligations the income of which may not, by federal law, be taxed by a state, such as bonds issued by the government of Puerto Rico. Conversely, to the extent that the distributions made by the Fund are derived from other types of obligations, such dividends will be subject to Connecticut individual income taxes. Distributions from the Fund to a shareholder subject to the Connecticut corporation business tax are not eligible for the dividends received deduction under the Connecticut corporation business tax and therefore are included in the taxable income of a taxpayer to the extent such distributions are treated as either exempt-interest dividends or capital gains dividends for federal income tax purposes. All other distributions from the Fund are eligible for the Connecticut corporation business tax dividends received deduction. PERFORMANCE INFORMATION From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the Fund after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. CONNECTICUT MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- 99.4% CONNECTICUT -- 92.0% $ 2,000,000 Brookfield, CT, 3.73% BANs, 6/12/1997 $ 2,000,352 6,933,170 (b)Clipper Connecticut Tax Exempt Trust, (Series 1994-1) Weekly VRDNs (State Street Bank and Trust Co. LIQ) 6,933,170 2,400,000 Connecticut Development Authority, Weekly VRDNs (Banta Associates)/(Marine Midland Bank N.A., Buffalo, NY LOC) 2,400,000 4,000,000 Connecticut Development Authority, Weekly VRDNs (Capital District Energy Center)/(Canadian Imperial Bank of Commerce, Toronto LOC) 4,000,000 700,000 Connecticut Development Authority, Weekly VRDNs (Capital District Energy Center)/(Canadian Imperial Bank of Commerce, Toronto LOC) 700,000 1,319,200 Connecticut Development Authority, Weekly VRDNs (RSA Corp.)/(Barclays Bank PLC, London LOC) 1,319,200 930,000 Connecticut Development Authority, (Series 1985) Weekly VRDNs (Martin-Brower Company Project)/(ABN AMRO Bank N.V., Amsterdam LOC) 930,000 2,200,000 Connecticut Development Authority, (Series 1986) Weekly VRDNs (United Illuminating Co.)/(Union Bank of Switzerland, Zurich LOC) 2,200,000 8,000,000 Connecticut Development Authority, (Series 1993) Weekly VRDNs (Rand-Whitney Containerboard Limited Partnership)/(Chase Manhattan Bank N.A., New York LOC) 8,000,000 11,000,000 Connecticut Development Authority, (Series A) Weekly VRDNs (Exeter Energy)/(Sanwa Bank Ltd, Osaka LOC) 11,000,000 1,000,000 Connecticut Development Authority, (Series B) Weekly VRDNs (Exeter Energy)/(Sanwa Bank Ltd, Osaka LOC) 1,000,000 7,499,000 Connecticut Development Authority, (Series C) Weekly VRDNs (Exeter Energy)/(Sanwa Bank Ltd, Osaka LOC) 7,499,000 5,000,000 Connecticut Development Authority, PCR (Series 1993A) Weekly VRDNs (Connecticut Light & Power Co.)/(Deutsche Bank, AG LOC) 5,000,000
CONNECTICUT MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED CONNECTICUT -- CONTINUED $ 9,500,000 Connecticut Development Authority, PCR (Series 1993A) Weekly VRDNs (Western Mass Electric Co.)/(Union Bank of Switzerland, Zurich LOC) $ 9,500,000 5,200,000 Connecticut Development Authority, Water Facilities Revenue Bonds (Series 1995) Weekly VRDNs (Bridgeport Hydraulic Co.)/ (Societe Generale, Paris LOC) 5,200,000 1,000,000 Connecticut Development Health Care Facilities Weekly VRDNs (Independence Living)/(Chase Manhattan Bank N.A., New York LOC) 1,000,000 5,300,000 Connecticut Development Health Care Facilities Weekly VRDNs (Independence Living)/(Credit Local de France LOC) 5,300,000 4,000,000 Connecticut Municipal Electric Energy Cooperative, Power Supply System Revenue Bonds (1995 Series A), 3.30% CP (Fleet National Bank, Providence, RI LOC), Mandatory Tender 11/18/1996 4,000,000 6,700,000 Connecticut Municipal Electric Energy Cooperative, Power Supply System Revenue Bonds (1995 Series A), 3.40% CP (Fleet National Bank, Providence, RI LOC), Mandatory Tender 11/18/1996 6,700,000 1,700,000 Connecticut State HEFA Weekly VRDNs (Charlotte Hungerfield Hospital)/(First National Bank of Boston, MA LOC) 1,700,000 3,600,000 Connecticut State HEFA, (Series A) Weekly VRDNs (Forman School Issue)/(National Westminster Bank, PLC, London LOC) 3,600,000 3,875,000 Connecticut State HEFA, (Series L), 3.50% CP (Yale University), Mandatory Tender 11/8/1996 3,875,000 2,900,000 Connecticut State HEFA, (Series M), 3.35% CP (Yale University), Mandatory Tender 12/10/1996 2,900,000 1,000,000 Connecticut State HEFA, (Series N), 3.35% CP (Yale University), Mandatory Tender 12/10/1996 1,000,000 5,500,000 Connecticut State HEFA, (Series N), 3.70% CP (Yale University), Mandatory Tender 1/15/1997 5,500,000 4,000,000 Connecticut State HEFA, (Series P), 3.35% CP (Yale University), Mandatory Tender 12/10/1996 4,000,000 9,950,000 Connecticut State HEFA, 3.55% CP (Windham Community Memorial Hospital)/(Banque Paribas, Paris LOC), Mandatory Tender 11/14/1996 9,950,000
CONNECTICUT MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED CONNECTICUT -- CONTINUED $ 1,000,000 Connecticut State HEFA, Revenue Bonds (Series A) Weekly VRDNs (Pomfret School Issue)/(Credit Local de France LOC) $ 1,000,000 4,255,000 (b)Connecticut State HFA, (PT-81) Weekly VRDNs (Rabobank Nederland, Utrecht LIQ) 4,255,000 7,130,000 Connecticut State HFA, (Series 1990C), 3.65% CP (Morgan Guaranty Trust Co., New York LIQ), Mandatory Tender 2/14/1997 7,130,000 3,245,000 Connecticut State HFA, (Series 1990D), 3.65% CP, Mandatory Tender 1/13/1997 3,245,000 3,100,000 Connecticut State HFA, (Series 1990D), 3.65% CP, Mandatory Tender 12/13/1996 3,100,000 10,000,000 Connecticut State HFA, (Series A-4), 3.65% TOBs, Mandatory Tender 4/10/1997 10,000,000 1,500,000 Connecticut State Transportation Infrastructure Authority Weekly VRDNs (Connecticut State)/(Commerzbank AG, Frankfurt LOC) 1,500,000 4,925,000 Connecticut State, (1996 Series A), 4.00% Bonds, 5/15/1997 4,935,210 12,000,000 Connecticut State, Special Assessment Unemployment Compensation Advance Fund, Revenue Bonds (Series 1993C), 3.90% TOBs (FGIC INS)/(FGIC Securities Purchase, Inc. LIQ), Mandatory Tender 7/1/1997 12,000,000 1,160,000 East Hartford, CT, UT GO, 6.00% Bonds (MBIA INS), 1/15/1997 1,165,685 10,100,000 Hartford, CT Redevelopment Authority Weekly VRDNs (Underwood Towers)/(FSA INS)/(Barclays Bank PLC, London LIQ) 10,100,000 1,575,000 Meriden, CT, (Series A), 4.25% BANs, 2/13/1997 1,577,444 7,550,000 New Britain, CT, 3.52% BANs, 4/15/1997 7,550,648 1,000,000 New Britain, CT, 3.65% BANs, 4/15/1997 1,000,000 1,600,000 New Haven, CT Weekly VRDNs (Starter Sportswear)/(Fleet Bank, N.A. LOC) 1,600,000 7,000,000 New Haven, CT, 4.00% BANs (Fleet National Bank, Providence, R.I. LOC), 5/22/1997 7,009,427 6,000,000 Seymour, CT, 3.65% BANs, 1/21/1997 6,000,651 942,500 Southeastern CT Water Authority, 3.50% GANs, 3/20/1997 943,020
CONNECTICUT MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED CONNECTICUT -- CONTINUED $ 7,500,000 Stamford, CT Housing Authority, Multi-Modal Interchangeable Rate Revenue Bonds (Series 1994) Weekly VRDNs (Morgan Street Project)/ (Deutsche Bank, AG LOC) $ 7,500,000 Total 208,818,807 PUERTO RICO -- 7.4% 2,000,000 Puerto Rico Electric Power Authority, (Series K), 9.375% Bonds (United States Treasury PRF), 7/1/1997 (@102) 2,112,587 5,000,000 Puerto Rico Government Development Bank, 3.60% CP, Mandatory Tender 12/12/1996 5,000,000 5,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory Tender 12/12/1996 5,000,000 2,300,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 1988), 3.40% CP (Inter American University of Puerto Rico)/(Bank of Tokyo- Mitsubishi Ltd. LOC), Mandatory Tender 11/20/1996 2,300,000 2,500,000 Puerto Rico Industrial, Tourist, Education, Medical & Environmental Control Finance Authority, (Series 1994A), 3.80% CP (Inter American University of Puerto Rico)/(Banque Paribas, Paris LOC), Mandatory Tender 1/14/1997 2,500,000 Total 16,912,587 TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 225,731,394
Securities that are subject to Alternative Minimum Tax represent 30.6% of the portfolio as calculated based upon total portfolio market value. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. A NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term rating categories. Securities rated in the highest short-term rating category (and unrated securities of comparable quality) are identified as First Tier securities. Securities rated in the second highest short-term rating category (and unrated securities of comparable quality) are identified as Second Tier securities. The Fund follows applicable regulations in determining whether a security rated by multiple NRSROs in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENT BASED ON TOTAL MARKET VALUE (UNAUDITED) FIRST TIER SECOND TIER 97.34% 2.66% (b) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. At the end of the period, these securities amounted to $11,188,170 which represents 4.9% of net assets. (c) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($227,088,743) at October 31, 1996. The following acronyms are used throughout this portfolio: BANs -- Bond Anticipation Notes CP -- Commercial Paper FGIC -- Financial Guaranty Insurance Company FSA -- Financial Security Assurance GANs -- Grant Anticipation Notes HEFA -- Health and Education Facilities Authority HFA -- Housing Finance Authority INS -- Insured LIQ -- Liquidity Agreement LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance PCA -- Pollution Control Authority PCR -- Pollution Control Revenue PLC -- Public Limited Company PRF -- Prerefunded TOBs -- Tender Option Bonds VRDNs -- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) CONNECTICUT MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 ASSETS: Total investments in securities, at amortized cost and value $ 225,731,394 Cash 553,562 Income receivable 1,336,457 Receivable for shares sold 11,448 Total assets 227,632,861 LIABILITIES: Payable for shares redeemed $ 104,469 Income distribution payable 375,547 Accrued expenses 64,102 Total liabilities 544,118 Net Assets for 227,088,830 shares outstanding $ 227,088,743 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: $227,088,743 / 227,088,830 shares outstanding $1.00
(See Notes which are an integral part of the Financial Statements) CONNECTICUT MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 INVESTMENT INCOME: Interest $ 8,035,591 EXPENSES: Investment advisory fee $ 1,125,360 Administrative personnel and services fee 170,171 Custodian fees 31,063 Transfer and dividend disbursing agent fees and expenses 33,669 Directors'/Trustees' fees 3,051 Auditing fees 12,561 Legal fees 7,068 Portfolio accounting fees 57,364 Shareholder services fee 562,680 Share registration costs 27,414 Printing and postage 7,444 Insurance premiums 5,225 Taxes 4,246 Miscellaneous 1,610 Total expenses 2,048,926 Waivers Waiver of investment advisory fee $(468,496) Waiver of shareholder services fee (236,580) Total waivers (705,076) Net expenses 1,343,850 Net investment income $ 6,691,741
(See Notes which are an integral part of the Financial Statements) CONNECTICUT MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS -- Net investment income $ 6,691,741 $ 6,931,149 DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income (6,691,741) (6,931,149) SHARE TRANSACTIONS -- Proceeds from sale of shares 636,539,589 522,140,169 Net asset value of shares issued to shareholders in payment of distributions declared 2,096,326 1,971,315 Cost of shares redeemed (596,265,388) (529,816,470) Change in net assets resulting from share transactions 42,370,527 (5,704,986) Change in net assets 42,370,527 (5,704,986) NET ASSETS: Beginning of period 184,718,216 190,423,202 End of period $ 227,088,743 $ 184,718,216
(See Notes which are an integral part of the Financial Statements) CONNECTICUT MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 1. ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of Connecticut Municipal Cash Trust (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 current income exempt from federal regular income tax and Connecticut Dividend and Interest Income Tax consistent with stability of principal. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Trust in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS -- The Trust's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. RESTRICTED SECURITIES -- Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1996 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST Clipper Connecticut Tax Exempt Trust 5/6/94-8/16/96 6,933,170 Connecticut State HFA 6/13/96 4,255,000
USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER -- Investment transactions are accounted for on the trade date. 3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). At October 31, 1996, capital paid-in aggregated $227,088,743. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, 1996 1995 Shares sold 636,539,589 522,140,169 Shares issued to shareholders in payment of distributions declared 2,096,326 1,971,315 Shares redeemed (596,265,388) (529,816,470) Net change resulting from share transactions 42,370,527 (5,704,986)
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to .50% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and reimbursement 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 for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25% of average daily net assets of the Fund shares for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES -- FServ maintains the Trust's accounting records for which it receives a fee. The fee is based on the level of the Trust's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS - During the period ended October 31, 1996, 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 $267,630,000 and $267,230,000, respectively. GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 5. CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 60% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 8.6% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Connecticut Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Connecticut Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996 and the related statement of operations for the year then ended the statement of changes in net assets and the financial highlights (see page 2 of the prospectus) for the periods presented. 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 October 31, 1996, 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 Connecticut Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania November 20, 1996 ADDRESSES Connecticut Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, PA 15222-3779 Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 Transfer Agent and Dividend Disbursing Agent Federated Shareholder P.O. Box 8600 Services Company Boston, MA 02266-8600 Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 CONNECTICUT MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End, Management Investment Company Prospectus dated December 31, 1996 [Graphic] Federated Investors Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. [Graphic] Cusip 314229105 9101004 A-SS (12/96) CONNECTICUT MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus of Connecticut Municipal Cash Trust (the ``Fund'), a portfolio of Federated Municipal Trust (the ``Trust') dated December 31, 1996. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-341-7400. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1996 [LOGO] Federated Securities Corp. is the distributor of the Fund and is a subsidiary of Federated Investors. Cusip 314229105 9101004B-SS (12/96) INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1 Repurchase Agreements 2 Credit Enhancement 2 CONNECTICUT INVESTMENT RISKS 2 INVESTMENT LIMITATIONS 2 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 Share Ownership 8 Trustees Compensation 9 Trustee Liability 9 INVESTMENT ADVISORY SERVICES 10 Investment Adviser 10 Advisory Fees 10 BROKERAGE TRANSACTIONS 10 OTHER SERVICES 10 Fund Administration 10 Custodian and Portfolio Accountant 11 Transfer Agent 11 Independent Public Accountants 11 SHAREHOLDER SERVICES 11 DETERMINING NET ASSET VALUE 11 REDEMPTION IN KIND 12 MASSACHUSETTS PARTNERSHIP LAW 12 THE FUND'S TAX STATUS 12 PERFORMANCE INFORMATION 12 Yield 12 Effective Yield 12 Tax-Equivalent Yield 13 Tax-Equivalency Table 13 Total Return 14 Performance Comparisons 14 Economic and Market Information 14 ABOUT FEDERATED INVESTORS 14 Mutual Fund Market 15 Institutional Clients 15 Trust Organizations 15 Broker/Dealers and Bank Broker/Dealer Subsidiaries 15 APPENDIX 16 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security; the issuer of any demand feature applicable to the security; or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an `event of non-appropriation''); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations (`NRSROs'') or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group (`S&P''), MIG-1 or MIG-2 by Moody's Investors Service, Inc. (`Moody's''), or F-1+, F-1, or F-2 by Fitch Investors Service, Inc. (`Fitch'') are all considered rated in one of the two highest short-term rating categories. The Fund will follow applicable regulations in determining whether a security rated by more than one NRSRO can be treated as being in one of the two highest short-term rating categories; currently, such securities must be rated by two NRSROs in one of their two highest rating categories. See `Regulatory Compliance.'' WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund in a dollar amount sufficient to make payment for the securities to be purchased are: segregated on the Fund`s records at the trade date; marked to market daily; and maintained until the transaction is settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the `credit enhancer''), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. CONNECTICUT INVESTMENT RISKS The Fund invests in obligations of Connecticut issuers which results in the Fund's performance being subject to risks associated with the overall conditions present within Connecticut (the `State''). The following information is a brief summary of the recent prevailing economic conditions and a general summary of the State's financial status. This information is based on official statements related to securities that have been offered by Connecticut issuers and from other sources believed to be reliable but should not be relied upon as a complete description of all relevant information. Based on per capita income, Connecticut is the wealthiest of all the states. The State's exceptional wealth and resources are its primary source of credit strength. Connecticut's economy is largely composed of service industries (such as insurance and finance), retail and wholesale trade, and manufacturing (concentrated in defense and transportation). In addition, the State is headquarters for some major corporations and insurance firms. All of these sectors were adversely impacted with the national recession in the early 1990's. Between 1988 and 1992, Connecticut lost 9% of its total employment. The State has experienced a slight recovery, however at a slower pace than the nation. It is expected that a slower economic climate will persist in the near future. Connecticut has a very high level of tax-supported debt. It ranks highest among all states in terms of debt per capita, as well as debt service as a percentage of revenues. In addition to tax-supported debt, Connecticut also has a large unfunded pension liability, and a large unfunded liability in its state managed, second injury, workers compensation program. The Fund's concentration in securities issued by the State and its political subdivisions provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. The ability of the State or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the State; and the underlying fiscal condition of the State and its municipalities. INVESTMENT LIMITATIONS 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 the clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of the value of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of its total assets at the time of the pledge. DIVERSIFICATION OF INVESTMENTS At the close of each quarter of each fiscal year, no more than 25% of the Fund's total assets will be invested in the securities of a single issuer, but, with regard to at least 50% of the Fund's total assets, no more than 5% of the Fund's total assets are to be invested in securities of a single issuer. Under this limitation, each governmental subdivision, including states, territories, possessions of the United States, or their political subdivisions, agencies, authorities, instrumentalities, or similar entities, will be considered a separate issuer if its assets and revenues are separate from those of the government body creating it and the security is backed only by its own assets and revenues. Industrial development bonds backed only by the assets and revenues of a non-governmental user are considered to be issued solely by that user. If in the case of an industrial security, a governmental or other entity guarantees the security, such guarantee would be considered a separate security issued by the guarantor, as well as the other issuer, subject to limited exclusions allowed by the Investment Company Act of 1940. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may acquire publicly or nonpublicly issued Connecticut municipal securities or temporary investments or enter into repurchase agreements, in accordance with its investment objective, policies, and limitations. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities, if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry, or in industrial development bonds or other securities the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above limitations cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities including repurchase agreements providing for settlement in more than seven days notice. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be `cash items.'' Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments , as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director or Trustee of the Funds. Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee, University of Pittsburgh; Director or Trustee of the Funds. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest Florida; formerly, President, Naples Property Management, Inc. and Northgate Village Development Corporation; Director or Trustee of the Funds. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds. Edward L. Flaherty, Jr.@ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region; Director or Trustee of the Funds. Glen R. Johnson* Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. Peter E. Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16, 1942 Trustee Consultant; Former State Representative, Commonwealth of Massachusetts; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation; Director or Trustee of the Funds. Gregor F. Meyer Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director or Trustee of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics; Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., National Defense University, U.S. Space Foundation and Czech Management Center; President Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council for Environmental Policy and Technology, Federal Emergency Management Advisory Board and Czech Management Center; Director or Trustee of the Funds. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/Marketing/Conference Planning, Manchester Craftsmen's Guild; Restaurant Consultant, Frick Art & History Center; Conference Coordinator, University of Pittsburgh Art History Department; Director or Trustee of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated Shareholder Services; Director, Federated Services Company; President or Executive Vice President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Shareholder Services Company; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President , Secretary and Treasurer Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. *This Trustee is deemed to be an ``interested person'' as defined in the Investment Company Act of 1940. @Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board between meetings of the Board. As referred to in the list of Trustees and Officers, `Funds'' includes the following investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated Investment Portfolios; Federated Investment Trust; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 2, 1996, the following shareholders of record owned 5% or more of the outstanding shares of the Connecticut Municipal Cash Trust- Institutional Service Shares: Fleet Securities Corp. owned approximately 54,506,278 shares (21.50%); and First Union National Bank owned approximately 38,619,525 shares (15.24%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 54 other investment companies in the Fund Complex Thomas G. Bigley++ $3,611 $86,331 for the Trust and Trustee 54 other investment companies in the Fund Complex John T. Conroy, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex William J. Copeland $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Peter E. Madden $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Gregor F. Meyer $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex John E. Murray, Jr., $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Wesley W. Posvar $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Marjorie P. Smuts $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1996. #The aggregate compensation is provided for the Trust which is comprised of 16 portfolios. +The information is provided for the last calendar year. ++ Mr. Bigley served on 39 investment companies in the Federated Funds complex from January 1 through September 30, 1995. On October 1, 1995, he was appointed a Trustee on 15 additional Federated Funds. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1996, 1995, and 1994, the adviser earned $1,125,360, $1,064,090, and $961,837, respectively, of which $468,496, $400,553, and $337,400, respectively, were waived. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal years ended October 31, 1996, 1995 and 1994, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative Services served as the Fund's Administrator. Prior to March 1, 1994, Federated Administrative Services, Inc. served as the Fund's Administrator. Both former Administrators are subsidiaries of Federated Investors. For purposes of this Statement of Additional Information, Federated Services Company, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the `Administrators.'' For the fiscal years ended October 31, 1996, 1995, and 1994, the Administrators earned $170,171, $161,103, and $198,789, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. The fee paid for this service is based upon the level of the Fund's average net assets for the period plus out-of- pocket expenses. TRANSFER AGENT Federated Services Company, through its registered transfer agent, Federated Shareholder Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. SHAREHOLDER SERVICES This arrangement permits the payment of fees to Federated Shareholder Services to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Agreement, the Trustees expect that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal year ending October 31,1996, the Fund paid Shareholder Services fees in the amount of $562,680, of which $236,580 was waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the `Rule'') promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the `base period.'' This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. For the seven-day period ended October 31, 1996, the yield for Institutional Service Shares was 2.93%. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. For the seven-day period ended October 31, 1996, the effective yield for Institutional Service Shares was 2.97%. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming 44.10% tax rate (the maximum combined effective federal and state rate for individuals) and assuming that the income is 100% tax exempt. For the seven-day period ended October 31, 1996, the tax-equivalent yield for Institutional Service Shares was 5.24%, TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a `tax- free''investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1996 STATE OF CONNECTICUT TAX BRACKET: FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60% COMBINED FEDERAL AND STATE: 19.50% 32.50% 35.50% 40.50% 44.10% JOINT $1 - $40,101 - $96,901 - $147,701 OVER RETURN: 40,100 96,900 147,700 263,750 $263,750 SINGLE $1 - $24,001 - $58,151 - $121,301 - OVER RETURN: 24,000 58,150 121,300 263,750 $263,750 TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT ---------------------------- 1.50% 1.86% 2.22% 2.33% 2.52% 2.68% 2.00% 2.48% 2.96% 3.10% 3.36% 3.58% 2.50% 3.11% 3.70% 3.88% 4.20% 4.47% 3.00% 3.73% 4.44% 4.65% 5.04% 5.37% 3.50% 4.35% 5.19% 5.43% 5.88% 6.26% 4.00% 4.97% 5.93% 6.20% 6.72% 7.16% 4.50% 5.59% 6.67% 6.98% 7.56% 8.05% 5.00% 6.21% 7.41% 7.75% 8.40% 8.94% 5.50% 6.83% 8.15% 8.53% 9.24% 9.84% 6.00% 7.45% 8.89% 9.30% 10.08% 10.73% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. For the one-year and five-year periods ended October 31, 1996 and for the period from November 1, 1989 (date of initial public investment) through October 31, 1996, the average annual total returns were 3.02%, 2.62% and 3.23%, respectively, for Institutional Service Shares. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. oMONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. Advertising and other promotional literature may include charts, graphs and other illustrations using the Fund`s returns, or returns in general, that demonstrate basic investment concepts such as tax-deferred compounding, dollar-cost averaging and systematic investment. In addition, the Fund can compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, such as bank savings accounts, certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION Advertising and sales literature for the Fund may include discussions of economic, financial and political developments and their effect on the securities market. Such discussions may take the form of commentary on these developments by the Fund portfolio mangers and their views and analysis on how such developments could affect the Funds. In addition, advertising and sales literature may quote statistics and give general information about the mutual fund industry, including growth of the industry, from sources such as the Investment Company Institute. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. These traders handle trillions of dollars in annual trading volume. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1995, Federated Investors managed more than $40.2 billion in assets across approximately 47 money market funds, including 17 government, 10 prime and 20 municipal with assets approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $3 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. Federated's service to financial professionals and institutions has earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for service quality measurement. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (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 rate `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. MOODYS 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 SERVICES, INC. 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. PENNSYLVANIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH SERIES SHARES PROSPECTUS The Cash Series Shares of Pennsylvania Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Pennsylvania municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Pennsylvania, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and personal income taxes imposed by the Commonwealth of Pennsylvania consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--CASH SERIES SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Pennsylvania Municipal Securities 5 Investment Risks 6 Investment Limitations 6 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Cash Series Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ Special Purchase Features 10 HOW TO REDEEM SHARES 10 - ------------------------------------------------------ Special Redemption Features 12 ACCOUNT AND SHARE INFORMATION 12 - ------------------------------------------------------ TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 State and Local Taxes 13 OTHER CLASSES OF SHARES 14 - ------------------------------------------------------ PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 15 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES 16 - ------------------------------------------------------ FINANCIAL STATEMENTS 17 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 33 - ------------------------------------------------------ ADDRESSES 34 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- CASH SERIES SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................................................... None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price).................................................................... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)........................................................... None Redemption Fee (as a percentage of amount redeemed, if applicable)....................................... None Exchange Fee............................................................................................. None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)........................................................................ 0.28% 12b-1 Fee (after waiver) (2)............................................................................. 0.35% Total Other Expenses..................................................................................... 0.42% Shareholder Services Fee................................................................. 0.25% Total Operating Expenses (3)................................................................... 1.05%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The 12b-1 Fee has been reduced to reflect the voluntary waiver of a portion of the 12b-1 fee. The distributor can terminate this voluntary waiver at any time at its sole discretion. The maximum 12b-1 fee is 0.40%. (3) The Total Operating Expenses would have been 1.32% absent the voluntary waivers of portions of the management fee and 12b-1 fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Cash Series Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees. Long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted by this section.
EXAMPLE 1 year 3 years 5 years 10 years You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period................................................................ $11 $33 $58 $128
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. PENNSYLVANIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--CASH SERIES SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 33.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993 1992 1991(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------- Net investment income 0.03 0.03 0.02 0.02 0.03 0.03 - ----------------------------------------- LESS DISTRIBUTIONS - ----------------------------------------- Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.03) - ----------------------------------------- --------- --------- --------- --------- --------- ----------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------- --------- --------- --------- --------- --------- ----------- TOTAL RETURN (B) 2.75% 3.02% 1.84% 1.83% 2.67% 3.55% - ----------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------- Expenses 1.05% 1.05% 1.04% 0.97% 0.96% 0.78%* - ----------------------------------------- Net investment income 2.72% 2.98% 1.73% 1.88% 2.64% 3.92%* - ----------------------------------------- Expense waiver/ reimbursement (c) 0.27% 0.28% 0.18% 0.12% 0.12% 0.28%* - ----------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------- Net assets, end of period (000 omitted) $19,825 $28,255 $18,352 $18,561 $24,694 $19,846 - -----------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from January 25, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees have established three classes of shares known as Cash Series Shares, Institutional Shares and Institutional Service Shares. This prospectus relates only to Cash Series Shares of the Fund, which are designed primarily for the retail customers of financial institutions as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Pennsylvania taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Pennsylvania dividend and interest income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Pennsylvania and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Pennsylvania state income tax ("Pennsylvania Municipal Securities"). Examples of Pennsylvania Municipal Securities include, but are not limited to: tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; municipal commercial paper and other short-term notes; variable rate demand notes; municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Pennsylvania Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Pennsylvania Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other depository institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Pennsylvania Municipal Securities is subject to the federal alternative minimum tax. PENNSYLVANIA MUNICIPAL SECURITIES Pennsylvania Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Pennsylvania Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Pennsylvania Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Pennsylvania Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Pennsylvania Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Pennsylvania Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Pennsylvania Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Pennsylvania Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Pennsylvania Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to the risk considerations the Fund's concentration in Pennsylvania Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. The fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933. These investment limitations cannot be changed without shareholder approval. The following limitation may be changed without shareholder approval. The Fund will not invest more than 10% of the value of its net assets in illiquid securities including repurchase agreements providing for settlement in more than seven days after notice. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF CASH SERIES SHARES Federated Securities Corp. is the principal distributor for Cash Series Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in accordance with Rule 12b-1 under the Investment Company Act of 1940 (the "Plan"), the distributor may be paid a fee by the Fund in an amount computed at an annual rate of up to .40% of the average daily net asset value of the Fund. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide sales services or distribution-related support services as agents for their clients or customers. The Plan is a compensation-type Plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Trust Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Plan. In addition, the Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of its shares to obtain certain personal services for shareholders and to maintain shareholder accounts. Under the Shareholder Services Agreement, Federated Shareholders Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions may receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund 's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate as which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Cash Series Shares from the value of Fund assets attributable to Cash Series Shares, and dividing the remainder by the number of Cash Series Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more over a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Federated Municipal Trust--Cash Series Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to Federated Municipal Trust Cash Series Shares. Please include an account number on the check. 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. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 2, 1996, BHC Securities, Inc., Philadelphia, Pennsylvania owned 30.57% of the voting securities of the Fund, and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES In the opinion of Houston, Houston & Donnelly, counsel to the Trust, Fund shares may be subject to personal property taxes imposed by counties, municipalities, and school districts in Pennsylvania to the extent that the portfolio securities in the Fund would be subject to such taxes if owned directly by residents of those jurisdictions. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. PENNSYLVANIA TAXES. Under existing Pennsylvania laws, distributions made by the Fund derived from interest on obligations free from state taxation in Pennsylvania are not subject to Pennsylvania personal income taxes. Distributions made by the Fund will be subject to Pennsylvania personal income taxes to the extent that they are derived from gain realized by the Fund from the sale or exchange of otherwise tax-exempt obligations. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers other classes of shares called Institutional Shares and Institutional Service Shares. Institutional Shares are sold at net asset value primarily to financial institutions acting in a fiduciary or agency capacity and are subject to a minimum initial investment of $25,000 over a 90-day period. Institutional Service Shares are sold at net asset value primarily to financial institutions acting in an agency capacity and are subject to a minimum initial investment of $25,000 over a 90-day period. All classes are subject to certain of the same expenses. Institutional Shares are distributed with no 12b-1 fees but are subject to shareholder services fees. Institutional Service Shares are distributed with no 12b-1 fees but are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the Fund shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. PENNSYLVANIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 33.
YEAR ENDED OCTOBER 31, 1996 1995(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 - ------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------------------------------------------------- Net investment income 0.03 0.01 - ------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS - ------------------------------------------------------------------------------------------- Distributions from net investment income (0.03) (0.01) - ------------------------------------------------------------------------------------------- --------- ----------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 - ------------------------------------------------------------------------------------------- --------- ----------- TOTAL RETURN (B) 3.37% 1.03% - ------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------------------------------- Expenses 0.45% 0.45%* - ------------------------------------------------------------------------------------------- Net investment income 3.27% 3.81%* - ------------------------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.47% 0.46%* - ------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $37,076 $2,529 - -------------------------------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from August 23, 1995 (date of initial public investment) to October 31, 1995. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 33.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993 1992 1991 1990(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------- Net investment income 0.03 0.03 0.02 0.02 0.03 0.05 0.05 - -------------------------------------- LESS DISTRIBUTIONS - -------------------------------------- Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.05) (0.05) - -------------------------------------- --------- --------- --------- --------- --------- --------- ----------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------------------------------- --------- --------- --------- --------- --------- --------- ----------- TOTAL RETURN (B) 3.16% 3.44% 2.25% 2.24% 3.08% 4.64% 5.78% - -------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------- Expenses 0.65% 0.65% 0.64% 0.57% 0.56% 0.55% 0.50%* - -------------------------------------- Net investment income 3.12% 3.38% 2.19% 2.21% 3.04% 4.53% 5.56%* - -------------------------------------- Expense waiver/ reimbursement (c) 0.27% 0.27% 0.02% 0.12% 0.12% 0.11% 0.18%* - -------------------------------------- SUPPLEMENTAL DATA - -------------------------------------- Net assets, end of period (000 omitted) $221,851 $276,407 $229,160 $318,518 $308,200 $317,165 $275,882 - --------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from November 21, 1990 (date of initial public investment) to October 31, 1990. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--99.4% - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--99.4% ----------------------------------------------------------------------------------- $ 7,000,000 Allegheny County, PA HDA, Hosp. Revenue Bonds (Series B 1995) Weekly VRDNs (Allegheny General Hospital)/(Morgan Guaranty Trust Co., New York LOC) $ 7,000,000 ----------------------------------------------------------------------------------- 1,000,000 Allegheny County, PA IDA, (Series 1991) Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd, Osaka LOC) 1,000,000 ----------------------------------------------------------------------------------- 1,300,000 Allegheny County, PA IDA, (Series 1991B) Weekly VRDNs (Shandon, Inc.)/(PNC Bank, N.A. LOC) 1,300,000 ----------------------------------------------------------------------------------- 6,500,000 Allegheny County, PA IDA, 3.70% CP (Duquesne Light Power Co.)/ (Barclays Bank PLC, London LOC), Mandatory Tender 2/21/1997 6,500,000 ----------------------------------------------------------------------------------- 4,850,000 Allegheny County, PA IDA, Commercial Development Revenue Bonds (Series 1992) Weekly VRDNs (Eleven Parkway Center Associates)/(National City, Pennsylvania LOC) 4,850,000 ----------------------------------------------------------------------------------- 5,000,000 Allegheny County, PA IDA, PCR (Series 1992A), 3.75% TOBs (Duquesne Light Power Co.)/(Canadian Imperial Bank of Commerce, Toronto LOC), Optional Tender 11/7/1996 5,000,000 ----------------------------------------------------------------------------------- 5,000,000 Allegheny County, PA Port Authority, (Series A), 3.90% GANs (PNC Bank, N.A. LOC), 6/30/1997 5,000,000 ----------------------------------------------------------------------------------- 3,000,000 Beaver County, PA IDA, PCR Refunding Bonds (1992 Series-E), 3.65% CP (Toledo Edison Co.)/(Toronto-Dominion Bank LOC), Mandatory Tender 12/10/1996 3,000,000 ----------------------------------------------------------------------------------- 4,000,000 Bedford County, PA IDA, IDRB's (Series 1985) Weekly VRDNs (Sepa, Inc. Facility)/(Banque Paribas, Paris LOC) 4,000,000 ----------------------------------------------------------------------------------- 1,210,000 Berks County, PA IDA Weekly VRDNs (ADC Quaker Maid Meats)/ (Corestates Bank N.A., Philadelphia, PA LOC) 1,210,000 ----------------------------------------------------------------------------------- 1,245,000 Berks County, PA IDA Weekly VRDNs (Beacon Container)/ (Corestates Bank N.A., Philadelphia, PA LOC) 1,245,000 ----------------------------------------------------------------------------------- 1,900,000 Berks County, PA IDA, (Series 1988) Weekly VRDNs (Arrow Electronics, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,900,000 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- $ 1,865,000 Berks County, PA IDA, Mfg Facilities Revenue Bonds (Series 1995) Weekly VRDNs (Grafika Commercial Printing, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) $ 1,865,000 ----------------------------------------------------------------------------------- 450,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries A) Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LOC) 450,000 ----------------------------------------------------------------------------------- 1,165,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries B) Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LOC) 1,165,000 ----------------------------------------------------------------------------------- 1,425,000 Berks County, PA IDA, VRD/Fixed Rate Revenue Bonds (Series A of 1996) Weekly VRDNs (Lebanon Valley Mall Co.)/(Corestates Bank, Reading, PA LOC) 1,425,000 ----------------------------------------------------------------------------------- 4,000,000 Berks County, PA, (Series 1996), 4.50% TRANs, 12/31/1996 4,003,152 ----------------------------------------------------------------------------------- 2,445,000 Bucks County, PA IDA Weekly VRDNs (Double H Plastics, Inc.)/ (Corestates Bank N.A., Philadelphia, PA LOC) 2,445,000 ----------------------------------------------------------------------------------- 2,835,000 Bucks County, PA IDA Weekly VRDNs (Pennsylvania Associates)/ (Corestates Bank N.A., Philadelphia, PA LOC) 2,835,000 ----------------------------------------------------------------------------------- 4,500,000 Bucks County, PA IDA, (Series 1991) Weekly VRDNs (Cabot Medical Corp.)/(Corestates Bank N.A., Philadelphia, PA LOC) 4,500,000 ----------------------------------------------------------------------------------- 3,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/ (Sanwa Bank Ltd, Osaka LOC) 3,000,000 ----------------------------------------------------------------------------------- 1,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/ (Sanwa Bank Ltd, Osaka LOC) 1,000,000 ----------------------------------------------------------------------------------- 1,000,000 Butler County, PA IDA, (Series 1992B) Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd, Osaka LOC) 1,000,000 ----------------------------------------------------------------------------------- 1,400,000 Butler County, PA IDA, (Series 1996 A) Weekly VRDNs (Armco, Inc.)/ (Chase Manhattan Bank N.A., New York LOC) 1,400,000 ----------------------------------------------------------------------------------- 5,500,000 Butler County, PA IDA, First Mortgage Revenue Bonds, 10.125% Bonds (St. John Lutheran Care Center)/(United States Treasury PRF), 10/1/1997 (@102) 5,915,633 ----------------------------------------------------------------------------------- $ 2,385,000 Butler County, PA IDA, IDRB (Series 1994) Weekly VRDNs (Lue-Rich Holding Company, Inc. Project)/(ABN AMRO Bank N.V., Amsterdam LOC) $ 2,385,000 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- 2,400,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/ (ABN AMRO Bank N.V., Amsterdam LOC) 2,400,000 ----------------------------------------------------------------------------------- 1,700,000 Carbon County, PA IDA Weekly VRDNs (Summit Management & Utilities, Inc.)/(PNC Bank, N.A. LOC) 1,700,000 ----------------------------------------------------------------------------------- 5,000,000 Carbon County, PA IDA, 3.65% CP (Panther Creek)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 2/19/1997 5,000,000 ----------------------------------------------------------------------------------- 6,825,000 Carbon County, PA IDA, Resource Recovery Bonds, 3.65% CP (Panther Creek)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 2/19/1997 6,825,000 ----------------------------------------------------------------------------------- 5,000,000 Carbon County, PA IDA, Solid Waste Disposal Revenue Notes (Series 1995B), 3.90% RANs (Horsehead Resource Development, Inc.)/(Chase Manhattan Bank N.A., New York LOC), 12/3/1996 5,000,000 ----------------------------------------------------------------------------------- 7,300,000 Clearfield County, PA IDA Weekly VRDNs (Penn Traffic Co.)/(ABN AMRO Bank N.V., Amsterdam LOC) 7,300,000 ----------------------------------------------------------------------------------- 8,000,000 Clinton County, PA IDA, Solid Waste Disposal Revenue Bonds (Series 1992A), 3.80% TOBs (International Paper Co.), Optional Tender 1/15/1997 8,000,000 ----------------------------------------------------------------------------------- 3,000,000 Clinton County, PA, IDA Weekly VRDNs (Armstrong World Industries, Inc.)/(Mellon Bank NA, Pittsburgh LOC) 3,000,000 ----------------------------------------------------------------------------------- 5,000,000 Coatsville, PA School District, 4.25% TRANs, 6/30/1997 5,007,912 ----------------------------------------------------------------------------------- 5,000,000 Commonwealth of Pennsylvania, 4.50% TANs, 6/30/1997 5,025,704 ----------------------------------------------------------------------------------- 1,500,000 Cumberland County, PA IDA, Industrial Development Bonds (Series 1994) Weekly VRDNs (Lane Enterprises, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,500,000 ----------------------------------------------------------------------------------- 3,000,000 Delaware County Authority, PA, Hospital Revenue Bonds (Series of 1996) Weekly VRDNs (Crozer-Chester Medical Center)/(Kredietbank N.V., Brussels LOC) 3,000,000 ----------------------------------------------------------------------------------- $ 6,500,000 Delaware County, PA PCR, (Series C), 3.65% CP (Philadelphia Electric Co.)/(FGIC INS), Mandatory Tender 1/8/1997 $ 6,500,000 ----------------------------------------------------------------------------------- 1,805,000 Downington Area School District, (Series A), 4.00% Bonds, 3/1/1997 1,806,703 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- 3,900,000 East Hempfield Township, PA IDA, (Series 1985) Weekly VRDNs (Yellow Freight System)/(Wachovia Bank of NC, NA, Winston-Salem LOC) 3,900,000 ----------------------------------------------------------------------------------- 5,800,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Vincent Health System)/(Mellon Bank NA, Pittsburgh LOC) 5,800,000 ----------------------------------------------------------------------------------- 400,000 Erie County, PA IDA Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) 400,000 ----------------------------------------------------------------------------------- 325,000 Erie County, PA IDA, (Series 1985) Weekly VRDNs (R. P-C Value, Inc.)/(PNC Bank, N.A. LOC) 325,000 ----------------------------------------------------------------------------------- 500,000 Erie County, PA IDA, (Series B) Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) 500,000 ----------------------------------------------------------------------------------- 1,600,000 Erie County, PA IDA, Multi Mode Revenue Refunding Bonds Weekly VRDNs (Corry Manor, Inc.)/(PNC Bank, N.A. LOC) 1,600,000 ----------------------------------------------------------------------------------- 400,000 Forest County, PA IDA Weekly VRDNs (Industrial Timber & Land Co.)/(National City Bank, Cleveland, OH LOC) 400,000 ----------------------------------------------------------------------------------- 1,155,000 Forest County, PA IDA Weekly VRDNs (Marienville Health Care Facility)/(PNC Bank, N.A. LOC) 1,155,000 ----------------------------------------------------------------------------------- 1,800,000 Franklin County, PA IDA Weekly VRDNs (The Guarriello Limited Partnership)/(PNC Bank, N.A. LOC) 1,800,000 ----------------------------------------------------------------------------------- 2,670,000 Hampton Township, PA School District, 4.19% TRANs, 6/30/1997 2,671,520 ----------------------------------------------------------------------------------- 2,700,000 Lackawanna County, PA IDA, (Series 1992) Weekly VRDNs (Hem Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 2,700,000 ----------------------------------------------------------------------------------- 2,200,000 Lancaster, PA Higher Education Authority, College Revenue Bonds (Series 1995) Weekly VRDNs (Franklin and Marshall College Project) 2,200,000 ----------------------------------------------------------------------------------- 1,356,092 Lawrence County, PA IDA, (Series 1989A) Weekly VRDNs (Ellwood Uddeholm Steel Co.)/(KeyBank, N.A. LOC) 1,356,092 ----------------------------------------------------------------------------------- $ 1,000,000 Lehigh County, PA General Purpose Authority, Revenue Bonds (Series 1990) Weekly VRDNs (Phoebe Terrace, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) $ 1,000,000 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- 2,800,000 Lehigh County, PA IDA, (Series 1989A) Weekly VRDNs (Hershey Pizza Co., Inc.)/(PNC Bank, N.A. LOC) 2,800,000 ----------------------------------------------------------------------------------- 5,000,000 Luzerne Co, PA, 3.85% TRANs, 12/31/1996 5,001,183 ----------------------------------------------------------------------------------- 1,650,000 Marple Township, PA, (Series 1996), 4.25% TRANs, 12/31/1996 1,651,697 ----------------------------------------------------------------------------------- 790,000 McKean County, PA IDA, Multi-Mode Revenue Refunding Bonds Weekly VRDNs (Bradford Manor, Inc.)/(PNC Bank, N.A. LOC) 790,000 ----------------------------------------------------------------------------------- 3,300,000 Monroe County, PA IDA, PCR Weekly VRDNs (Cooper Industries, Inc.)/(Sanwa Bank Ltd, Osaka LOC) 3,300,000 ----------------------------------------------------------------------------------- 1,070,000 Montgomery County, PA Higher Education and Health Authority, (Series 1992) Weekly VRDNs (Pottstown Healthcare Corporation Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,070,000 ----------------------------------------------------------------------------------- 2,600,000 Montgomery County, PA IDA, (Series 1984) Weekly VRDNs (General Signal Corp.)/(Morgan Guaranty Trust Co., New York LOC) 2,600,000 ----------------------------------------------------------------------------------- 1,300,000 Montgomery County, PA IDA, (Series 1992) Weekly VRDNs (RJI Limited Partnership)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,300,000 ----------------------------------------------------------------------------------- 1,635,000 Montgomery County, PA IDA, (Series 84) Weekly VRDNs (Thomas & Betts Corp.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) 1,635,000 ----------------------------------------------------------------------------------- 4,975,000 Moon Township, PA IDA Weekly VRDNs (Airport Hotel Associates)/ (ABN AMRO Bank N.V., Amsterdam LOC) 4,975,000 ----------------------------------------------------------------------------------- 7,000,000 Moon Township, PA IDA, Variable Rate Commercial Development Revenue Bond (Series 1995A) Weekly VRDNs (One Thorn Run Center)/(National City, Pennsylvania LOC) 7,000,000 ----------------------------------------------------------------------------------- 3,500,000 New Castle, PA Area Hospital Authority, (Series 1996) Weekly VRDNs (Jameson Memorial Hospital)/(FSA INS)/(PNC Bank, N.A. LIQ) 3,500,000 ----------------------------------------------------------------------------------- 3,250,000 Norristown, PA, (Series 1996), 3.75% TRANs, 12/31/1996 3,250,000 ----------------------------------------------------------------------------------- $ 9,000,000 Northampton County, PA IDA, 3.70% CP (Citizens Utilities Co.), Mandatory Tender 2/13/1997 $ 9,000,000 ----------------------------------------------------------------------------------- 3,850,000 Northampton County, PA IDA, 3.80% CP (Citizens Utilities Co.), Mandatory Tender 1/16/1997 3,850,000 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- 4,000,000 Northeastern, PA Hospital & Education Authority, VRDB's (Series 1996) Weekly VRDNs (Allhealth Pooled Financing Program)/(Chase Manhattan Bank N.A., New York LOC) 4,000,000 ----------------------------------------------------------------------------------- 1,500,000 Northgate School District, PA, 4.22% TANs, 6/30/1997 1,501,132 ----------------------------------------------------------------------------------- 1,590,000 Northumberland County PA IDA, Revenue Bonds (Series A of 1995) Weekly VRDNs (Furman Farms, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,590,000 ----------------------------------------------------------------------------------- 1,000,000 Penns Manor Area School District, PA, 4.07% TRANs, 6/30/1997 1,000,947 ----------------------------------------------------------------------------------- 1,800,000 Pennsylvania Education Development Authority Weekly VRDNs (Cyrogenics, Inc.)/(PNC Bank, N.A. LOC) 1,800,000 ----------------------------------------------------------------------------------- 2,900,000 Pennsylvania Education Development Authority Weekly VRDNs (Industrial Scientific Corp.)/(Mellon Bank NA, Pittsburgh LOC) 2,900,000 ----------------------------------------------------------------------------------- 675,000 Pennsylvania Education Development Authority Weekly VRDNs (Pioneer Fluid)/(PNC Bank, N.A. LOC) 675,000 ----------------------------------------------------------------------------------- 600,000 Pennsylvania Education Development Authority Weekly VRDNs (RMF Associates)/(PNC Bank, N.A. LOC) 600,000 ----------------------------------------------------------------------------------- 850,000 Pennsylvania Education Development Authority Weekly VRDNs (Reace Associates)/(PNC Bank, N.A. LOC) 850,000 ----------------------------------------------------------------------------------- 450,000 Pennsylvania Education Development Authority, (Series B) Weekly VRDNs (Payne Printing Co.)/(PNC Bank, N.A. LOC) 450,000 ----------------------------------------------------------------------------------- 1,000,000 Pennsylvania Education Development Authority, Economic Development Revenue Bonds (Series 1996C) Weekly VRDNs (Napco, Inc. Project)/(Mellon Bank NA, Pittsburgh LOC) 1,000,000 ----------------------------------------------------------------------------------- 1,075,000 Pennsylvania Education Development Authority, Revenue Bonds (Series G4) Weekly VRDNs (Metamora Products)/(PNC Bank, N.A. LOC) 1,075,000 ----------------------------------------------------------------------------------- $ 300,000 Pennsylvania Education Development Authority, Revenue Bonds Weekly VRDNs (DDI Pharmaceuticals, Inc.)/(PNC Bank, N.A. LOC) $ 300,000 ----------------------------------------------------------------------------------- 500,000 Pennsylvania Education Development Authority, Revenue Bonds Weekly VRDNs (RAM Forest Products)/(PNC Bank, N.A. LOC) 500,000 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- 6,340,000 Pennsylvania Housing Finance Authority, 3.85% TOBs (First National Bank of Chicago LIQ), Optional Tender 4/1/1997 6,340,000 ----------------------------------------------------------------------------------- 960,000 Pennsylvania Housing Finance Authority, Section 8 Assisted Residential Development Refunding Bonds (Series 1992A) Weekly VRDNs (CGIC INS)/(Citibank NA, New York LIQ) 960,000 ----------------------------------------------------------------------------------- 1,960,000 Pennsylvania Housing Finance Authority, Variable Rate Merlots (Series I), 4.15% TOBs, Optional Tender 1/1/1997 1,960,000 ----------------------------------------------------------------------------------- 2,500,000 Pennsylvania State Higher Education Facilities Authority Daily VRDNs (Temple University)/(Morgan Guaranty Trust Co., New York LOC) 2,500,000 ----------------------------------------------------------------------------------- 3,300,000 Pennsylvania State University, Series of 1996, 4.25% BANs, 4/4/1997 3,310,080 ----------------------------------------------------------------------------------- 8,800,000 Philadelphia Redevelopment Authority, Multi-Family Revenue Bonds (Series 1985) Weekly VRDNs (Franklin Town Towers)/(Marine Midland Bank N.A., Buffalo, NY LOC) 8,800,000 ----------------------------------------------------------------------------------- 1,000,000 Philadelphia, PA Hospitals & Higher Education Facilities Authority, Hospital Revenue Bonds (Series A of 1996) Daily VRDNs (Children's Hospital of Philadelphia)/(Morgan Guaranty Trust Co., New York LIQ) 1,000,000 ----------------------------------------------------------------------------------- 2,000,000 Philadelphia, PA, (Series A of 1996-1997), 4.50% TRANs, 6/30/1997 2,006,644 ----------------------------------------------------------------------------------- 2,275,000 Red Lion, PA Area School District, 4.25% TRANs, 6/30/1997 2,280,784 ----------------------------------------------------------------------------------- 2,000,000 Schuylkill County, PA IDA, Manufacturing Facilities Revenue Bonds (Series 1995) Weekly VRDNs (Prime Packing, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 2,000,000 ----------------------------------------------------------------------------------- 2,100,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.65% CP (Scrubgrass Power Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/23/1997 2,100,000 ----------------------------------------------------------------------------------- $ 4,000,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.65% CP (Scrubgrass Power Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 11/12/1996 $ 4,000,000 ----------------------------------------------------------------------------------- 695,000 Washington County, PA Hospital Authority, (Series 1990) Weekly VRDNs (Mac Plastics, Inc.)/(National City Bank, Cleveland, OH LOC) 695,000 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- 2,700,000 Washington County, PA Municipal Authority Facilities, (Series 1985A) Weekly VRDNs (1985-A Pooled Equipment Lease Program)/(Sanwa Bank Ltd, Osaka LOC) 2,700,000 ----------------------------------------------------------------------------------- 1,200,000 Washington County, PA, IDA (Series 1988) Weekly VRDNs (Coca-Cola Co.)/(Mellon Bank NA, Pittsburgh LOC) 1,200,000 ----------------------------------------------------------------------------------- 1,000,000 West Cornwall Township, PA Municipal Authority, Revenue Bonds (Series 1995) Weekly VRDNs (Lebanon Valley Brethern Home Project (PA)/(Meridian Bank N.A., Philadelphia, PA LOC) 1,000,000 ----------------------------------------------------------------------------------- 1,000,000 York County, PA IDA, Variable Rate Demand Ltd. Obligation Revenue Bonds (Series 1996) Weekly VRDNs (Metal Exchange Corp.)/ (Comerica Bank, Detroit, MI LOC) 1,000,000 ----------------------------------------------------------------------------------- -------------- TOTAL INVESTMENTS, AT AMORTIZED COST (B) $ 277,084,183 ----------------------------------------------------------------------------------- --------------
Securities that are subject to the Alternative Minimum Tax represent 37.25% of the portfolio as calculated based upon total portfolio market value. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. A NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term rating categories. Securities rated in the highest short-term rating category (and unrated securities of comparable quality) are identified as First Tier securities. Securities rated in the second highest short-term rating category (and unrated securities of comparable quality) are identified as Second Tier securities. The Fund follows applicable regulations in determining whether a security rated by multiple NRSROs in different rating catefories should be identified as a First or Second Tier security. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER 93.96% 6.04%
(b) Also represents cost for federal tax purposes. - Note: The categories of investments are shown as a percentage of net assets ($278,752,100) at October 31, 1996. The following acronyms are used throughout this portfolio: BANs-- Bond Anticipation Notes CGIC-- Capital Guaranty Insurance Corporation CP-- Commercial Paper FGIC-- Financial Guaranty Insurance Company FSA-- Financial Security Assurance GANs-- Grant Anticipation Notes HDA-- Hospital Development Authority IDA-- Industrial Development Authority IDRB-- Industrial Development Revenue Bond INS-- Insured LIQ-- Liquidity Agreement LOC-- Letter of Credit PCR-- Pollution Control Revenue PLC-- Public Limited Company RANs-- Revenue Anticipation Notes TANs-- Tax Anticipation Notes TOBs-- Tender Option Bonds TRANs-- Tax and Revenue Anticipation Notes VRDB's-- Variable Rate Demand Bonds VRDNs-- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $ 277,084,183 - ------------------------------------------------------------------------------------------------- Cash 212,204 - ------------------------------------------------------------------------------------------------- Income receivable 2,120,548 - ------------------------------------------------------------------------------------------------- Receivable for shares sold 27,513 - ------------------------------------------------------------------------------------------------- -------------- Total assets 279,444,448 - ------------------------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------------- Payable for shares redeemed $ 70,241 - ------------------------------------------------------------------------------------- Income distribution payable 531,620 - ------------------------------------------------------------------------------------- Accrued expenses 90,487 - ------------------------------------------------------------------------------------- ---------- Total liabilities 692,348 - ------------------------------------------------------------------------------------------------- -------------- NET ASSETS for 278,752,100 shares outstanding $ 278,752,100 - ------------------------------------------------------------------------------------------------- -------------- NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------------------------- $221,850,715 / 221,850,715 shares outstanding $1.00 - ------------------------------------------------------------------------------------------------- -------------- CASH SERIES SHARES: - ------------------------------------------------------------------------------------------------- $19,824,886 / 19,824,886 shares outstanding $1.00 - ------------------------------------------------------------------------------------------------- -------------- INSTITUTIONAL SHARES: - ------------------------------------------------------------------------------------------------- $37,076,499 / 37,076,499 shares outstanding $1.00 - ------------------------------------------------------------------------------------------------- --------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------------------------- Interest $ 11,097,104 - ---------------------------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------------- Investment advisory fee $ 1,470,813 - --------------------------------------------------------------------------------------- Administrative personnel and services fee 222,042 - --------------------------------------------------------------------------------------- Custodian fees 45,506 - --------------------------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 64,120 - --------------------------------------------------------------------------------------- Directors'/Trustees' fees 4,077 - --------------------------------------------------------------------------------------- Auditing fees 14,592 - --------------------------------------------------------------------------------------- Legal fees 4,488 - --------------------------------------------------------------------------------------- Portfolio accounting fees 96,483 - --------------------------------------------------------------------------------------- Distribution services fee--Cash Series Shares 74,284 - --------------------------------------------------------------------------------------- Shareholder services fee--Institutional Service Shares 637,806 - --------------------------------------------------------------------------------------- Shareholder services fee--Cash Series Shares 46,427 - --------------------------------------------------------------------------------------- Shareholder services fee--Institutional Shares 51,312 - --------------------------------------------------------------------------------------- Share registration costs 30,773 - --------------------------------------------------------------------------------------- Printing and postage 23,296 - --------------------------------------------------------------------------------------- Insurance premiums 5,783 - --------------------------------------------------------------------------------------- Miscellaneous 3,066 - --------------------------------------------------------------------------------------- ----------- Total expenses 2,794,868 - --------------------------------------------------------------------------------------- Waivers-- - --------------------------------------------------------------------------- Waiver of investment advisory fee $ (647,993) - --------------------------------------------------------------------------- Waiver of distribution services fee--Cash Series Shares (9,312) - --------------------------------------------------------------------------- Waiver of shareholder services fee--Institutional Service Shares (127,561) - --------------------------------------------------------------------------- Waiver of shareholder services fee--Institutional Shares (51,312) - --------------------------------------------------------------------------- ---------- Total waivers (836,178) - --------------------------------------------------------------------------------------- ----------- Net expenses 1,958,690 - ---------------------------------------------------------------------------------------------------- ------------ Net investment income $ 9,138,414 - ---------------------------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED OCTOBER 31, 1996 OCTOBER 31, 1995 INCREASE (DECREASE) IN NET ASSETS: - ---------------------------------------------------------------------- OPERATIONS-- - ---------------------------------------------------------------------- Net investment income $ 9,138,414 $ 9,679,534 - ---------------------------------------------------------------------- -------------------- -------------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ---------------------------------------------------------------------- Distributions from net investment income - ---------------------------------------------------------------------- Institutional Service Shares (7,961,058) (8,951,830) - ---------------------------------------------------------------------- Cash Series Shares (504,436) (718,640) - ---------------------------------------------------------------------- Institutional Shares (672,920) (9,064) - ---------------------------------------------------------------------- -------------------- -------------------- Change in net assets resulting from distributions to shareholders (9,138,414) (9,679,534) - ---------------------------------------------------------------------- -------------------- -------------------- SHARE TRANSACTIONS-- - ---------------------------------------------------------------------- Proceeds from sale of shares 1,005,435,067 1,028,950,579 - ---------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,204,567 2,339,163 - ---------------------------------------------------------------------- Cost of shares redeemed (1,036,079,299) (971,610,388) - ---------------------------------------------------------------------- -------------------- -------------------- Change in net assets resulting from share transactions (28,439,665) 59,679,354 - ---------------------------------------------------------------------- -------------------- -------------------- Change in net assets (28,439,665) 59,679,354 - ---------------------------------------------------------------------- NET ASSETS: - ---------------------------------------------------------------------- Beginning of period 307,191,765 247,512,411 - ---------------------------------------------------------------------- -------------------- -------------------- End of period $ 278,752,100 $ 307,191,765 - ---------------------------------------------------------------------- -------------------- --------------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of Pennsylvania Municipal Cash Trust (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 Fund offers three classes of shares: Institutional Service Shares, Cash Series Shares and Institutional Shares. The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania consistent with stability of principal. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued and 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. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1996, capital paid-in aggregated $278,752,100. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, 1996 1995 -------------- -------------- INSTITUTIONAL SERVICE SHARES - ---------------------------------------------------------------------------------- Shares sold 859,300,895 940,400,092 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,683,244 1,631,397 - ---------------------------------------------------------------------------------- Shares redeemed (915,540,908) (894,784,261) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from Institutional Service share transactions (54,556,769) 47,247,228 - ---------------------------------------------------------------------------------- -------------- -------------- YEAR ENDED OCTOBER 31, 1996 1995 -------------- -------------- CASH SERIES SHARES - ---------------------------------------------------------------------------------- Shares sold 54,089,713 85,377,025 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 485,371 705,513 - ---------------------------------------------------------------------------------- Shares redeemed (63,005,461) (76,179,429) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from Cash Series share transactions (8,430,377) 9,903,109 - ---------------------------------------------------------------------------------- -------------- -------------- YEAR ENDED OCTOBER 31, 1996 1995 -------------- -------------- INSTITUTIONAL SHARES - ---------------------------------------------------------------------------------- Shares sold 92,044,459 3,173,462 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 35,952 2,253 - ---------------------------------------------------------------------------------- Shares redeemed (57,532,930) (646,698) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from Institutional share transactions 34,547,481 2,529,017 - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from share transactions (28,439,665) 59,679,354 - ---------------------------------------------------------------------------------- -------------- --------------
PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.50% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Cash Series Shares. The Plan provides that the Fund may incur distribution expenses up to 0.40% of the average daily net assets of the Cash Series Shares, annually to compensate FSC. The distributor may voluntarily choose to waive any portion of its fee. The distributor can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund shares for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS--During the period ended October 31, 1996, 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 $446,357,000 and $488,200,000, respectively. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. (5) CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 71% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 9% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Pennsylvania Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Pennsylvania Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996, the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see pages 2, 15 and 16 of the prospectus) for the periods presented. 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 October 31, 1996, 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 Pennsylvania Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 13, 1996 ADDRESSES - -------------------------------------------------------------------------------- Pennsylvania Municipal Cash Trust Cash Series Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------------------------------- Investment Adviser ]Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and Trust Company P.O. Box 8600 Boston, MA 02266-8600 - ----------------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Shareholder Services Company P.O. Box 8600 Boston, MA 02266-8600 - ----------------------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - -----------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST CASH SERIES SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 [LOGO OF FEDERATED INVESTORS] Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and a subsidiary of Federated Investors. Cusip 314229881 9101005A-CSS (12/96) PENNSYLVANIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS The Institutional Shares of Pennsylvania Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Pennsylvania municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Pennsylvania, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and personal income taxes imposed by the Commonwealth of Pennsylvania consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SHARES 2 - -- - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Pennsylvania Municipal Securities 5 Investment Risks 6 Investment Limitations 6 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Institutional Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ HOW TO REDEEM SHARES 10 - ------------------------------------------------------ ACCOUNT AND SHARE INFORMATION 11 - ------------------------------------------------------ TAX INFORMATION 12 - ------------------------------------------------------ Federal Income Tax 12 State and Local Taxes 12 OTHER CLASSES OF SHARES 13 - ------------------------------------------------------ PERFORMANCE INFORMATION 13 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--CASH SERIES SHARES 14 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SERVICE SHARES 15 - ------------------------------------------------------ FINANCIAL STATEMENTS 16 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 32 - ------------------------------------------------------ ADDRESSES 33 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).......................... None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price).................................................................. None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable).......................................................................................... None Redemption Fee (as a percentage of amount redeemed, if applicable)..................................... None Exchange Fee........................................................................................... None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)...................................................................... 0.28% 12b-1 Fee.............................................................................................. None Total Other Expenses................................................................................... 0.17% Shareholder Services Fee (after waiver) (2)............................................... 0.00% Total Operating Expenses (3)................................................................. 0.45%
- ------------ (1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The shareholder services fee has been reduced to reflect the voluntary waiver of the shareholder services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (3) The Total Operating Expenses would have been 0.92% absent the voluntary waiver of a portion of the management fee and the voluntary waiver of the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information". Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period................................................................ $5 $14 $25 $57
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. PENNSYLVANIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 33.
YEAR ENDED OCTOBER 31, 1996 1995(A) - ------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 - ------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------------------------------------------------- Net investment income 0.03 0.01 - ------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS - ------------------------------------------------------------------------------------------- Distributions from net investment income (0.03) (0.01) - ------------------------------------------------------------------------------------------- --------- ----------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 - ------------------------------------------------------------------------------------------- --------- ----------- TOTAL RETURN (B) 3.37% 1.03% - ------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------------------------------- Expenses 0.45% 0.45%* - ------------------------------------------------------------------------------------------- Net investment income 3.27% 3.81%* - ------------------------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.47% 0.46%* - ------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $37,076 $2,529 - -------------------------------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from August 23, 1995 (date of initial public investment) to October 31, 1995. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees have established three classes of shares known as Cash Series Shares, Institutional Shares and Institutional Service Shares. This prospectus relates only to Institutional Shares of the Fund, which are designed primarily for financial institutions acting in a fiduciary or agency capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Pennsylvania taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Pennsylvania dividend and interest income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Pennsylvania and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Pennsylvania state income tax, imposed upon non-corporate taxpayers ("Pennsylvania Municipal Securities"). Examples of Pennsylvania Municipal Securities include, but are not limited to: tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; municipal commercial paper and other short-term notes; variable rate demand notes; municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Pennsylvania Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Pennsylvania Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other depository institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Pennsylvania Municipal Securities is subject to the federal alternative minimum tax. PENNSYLVANIA MUNICIPAL SECURITIES Pennsylvania Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Pennsylvania Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Pennsylvania Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Pennsylvania Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Pennsylvania Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Pennsylvania Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Pennsylvania Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Pennsylvania Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Pennsylvania Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to the risk considerations the Fund's concentration in Pennsylvania Municipal Securities may entrail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933. These investment limitations cannot be changed without shareholder approval. The following limitation may be changed without shareholder approval. The Fund will not invest more than 10% of the value of its net assets in illiquid securities including repurchase agreements providing for settlement in more than seven days after notice. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SHARES Federated Securities Corp. is the principal distributor for Institutional Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of its shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions may receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund 's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Institutional Shares from the value of Fund assets attributable to Institutional Shares, and dividing the remainder by the number of Institutional Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased either by wire or by check. The Fund reserves the right to reject any purchase request. To make a purchase, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken by telephone. The minimum initial investment is $25,000. However, an account may be opened with a smaller amount as long as the minimum is reached within 90 days. Minimum investments will be calculated by combining all accounts maintained with the Fund. Financial institutions may impose different minimum investment requirements on their customers. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 (Eastern time) that day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Pennsylvania Municipal Cash Trust--Institutional Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Pennsylvania Municipal Cash Trust--Institutional Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If shares certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company, or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights; except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES In the opinion of Houston, Houston & Donnelly, counsel to the Trust, Fund shares may be subject to personal property taxes imposed by counties, municipalities, and school districts in Pennsylvania to the extent that the portfolio securities in the Fund would be subject to such taxes if owned directly by residents of those jurisdictions. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. PENNSYLVANIA TAXES. Under existing Pennsylvania laws, distributions made by the Fund derived from interest on obligations free from state taxation in Pennsylvania are not subject to Pennsylvania personal income taxes. Distributions made by the Fund will be subject to Pennsylvania personal income taxes to the extent that they are derived from gain realized by the Fund from the sale or exchange of otherwise tax-exempt obligations. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers other classes of shares called Institutional Service Shares and Cash Series Shares. Cash Series Shares are sold primarily to retail customers of financial institutions. Cash Series Shares are sold at net asset value and are subject to a Rule 12b-1 Plan and a Shareholder Services Agreement. Investments in Cash Series Shares are subject to a minimum initial investment of $10,000 over a 90 day period. The Fund also offers another class of shares called Institutional Service Shares. Institutional Service Shares are sold at net asset value primarily to financial institutions acting in an agency capacity and are subject to a minimum initial investment of $25,000 over a 90 day period. All classes are subject to certain of the same expenses. Institutional Service Shares are distributed with no 12b-1 Plan but are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. PENNSYLVANIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--CASH SERIES SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 32.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993 1992 1991(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------- Net investment income 0.03 0.03 0.02 0.02 0.03 0.03 - ------------------------------------------------- LESS DISTRIBUTIONS - ------------------------------------------------- Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.03) - ------------------------------------------------- --------- --------- --------- --------- --------- ----------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------- --------- --------- --------- --------- --------- ----------- TOTAL RETURN (B) 2.75% 3.02% 1.84% 1.83% 2.67% 3.55% - ------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------- Expenses 1.05% 1.05% 1.04% 0.97% 0.96% 0.78%* - ------------------------------------------------- Net investment income 2.72% 2.98% 1.73% 1.88% 2.64% 3.92%* - ------------------------------------------------- Expense waiver/reimbursement (c) 0.27% 0.28% 0.18% 0.12% 0.12% 0.28%* - ------------------------------------------------- SUPPLEMENTAL DATA - ------------------------------------------------- Net assets, end of period (000 omitted) $19,825 $28,255 $18,352 $18,561 $24,694 $19,846 - -------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from January 25, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 32.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993 1992 1991 1990(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------- Net investment income 0.03 0.03 0.02 0.02 0.03 0.05 0.05 - -------------------------------------- LESS DISTRIBUTIONS - -------------------------------------- Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.05) (0.05) - -------------------------------------- --------- --------- --------- --------- --------- --------- ----------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------------------------------- --------- --------- --------- --------- --------- --------- ----------- TOTAL RETURN (B) 3.16% 3.44% 2.25% 2.24% 3.08% 4.64% 5.78% - -------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------- Expenses 0.65% 0.65% 0.64% 0.57% 0.56% 0.55% 0.50%* - -------------------------------------- Net investment income 3.12% 3.38% 2.19% 2.21% 3.04% 4.53% 5.56%* - -------------------------------------- Expense waiver/ reimbursement (c) 0.27% 0.27% 0.02% 0.12% 0.12% 0.11% 0.18%* - -------------------------------------- SUPPLEMENTAL DATA - -------------------------------------- Net assets, end of period (000 omitted) $221,851 $276,407 $229,160 $318,518 $308,200 $317,165 $275,882 - --------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from November 21, 1990 (date of initial public investment) to October 31, 1990. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--99.4% - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--99.4% ----------------------------------------------------------------------------------- $ 7,000,000 Allegheny County, PA HDA, Hosp. Revenue Bonds (Series B 1995) Weekly VRDNs (Allegheny General Hospital)/(Morgan Guaranty Trust Co., New York LOC) $ 7,000,000 ----------------------------------------------------------------------------------- 1,000,000 Allegheny County, PA IDA, (Series 1991) Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd, Osaka LOC) 1,000,000 ----------------------------------------------------------------------------------- 1,300,000 Allegheny County, PA IDA, (Series 1991B) Weekly VRDNs (Shandon, Inc.)/(PNC Bank, N.A. LOC) 1,300,000 ----------------------------------------------------------------------------------- 6,500,000 Allegheny County, PA IDA, 3.70% CP (Duquesne Light Power Co.)/ (Barclays Bank PLC, London LOC), Mandatory Tender 2/21/1997 6,500,000 ----------------------------------------------------------------------------------- 4,850,000 Allegheny County, PA IDA, Commercial Development Revenue Bonds (Series 1992) Weekly VRDNs (Eleven Parkway Center Associates)/(National City, Pennsylvania LOC) 4,850,000 ----------------------------------------------------------------------------------- 5,000,000 Allegheny County, PA IDA, PCR (Series 1992A), 3.75% TOBs (Duquesne Light Power Co.)/(Canadian Imperial Bank of Commerce, Toronto LOC), Optional Tender 11/7/1996 5,000,000 ----------------------------------------------------------------------------------- 5,000,000 Allegheny County, PA Port Authority, (Series A), 3.90% GANs (PNC Bank, N.A. LOC), 6/30/1997 5,000,000 ----------------------------------------------------------------------------------- 3,000,000 Beaver County, PA IDA, PCR Refunding Bonds (1992 Series-E), 3.65% CP (Toledo Edison Co.)/(Toronto-Dominion Bank LOC), Mandatory Tender 12/10/1996 3,000,000 ----------------------------------------------------------------------------------- 4,000,000 Bedford County, PA IDA, IDRB's (Series 1985) Weekly VRDNs (Sepa, Inc. Facility)/(Banque Paribas, Paris LOC) 4,000,000 ----------------------------------------------------------------------------------- 1,210,000 Berks County, PA IDA Weekly VRDNs (ADC Quaker Maid Meats)/ (Corestates Bank N.A., Philadelphia, PA LOC) 1,210,000 ----------------------------------------------------------------------------------- 1,245,000 Berks County, PA IDA Weekly VRDNs (Beacon Container)/ (Corestates Bank N.A., Philadelphia, PA LOC) 1,245,000 ----------------------------------------------------------------------------------- 1,900,000 Berks County, PA IDA, (Series 1988) Weekly VRDNs (Arrow Electronics, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,900,000 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- $ 1,865,000 Berks County, PA IDA, Mfg Facilities Revenue Bonds (Series 1995) Weekly VRDNs (Grafika Commercial Printing, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) $ 1,865,000 ----------------------------------------------------------------------------------- 450,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries A) Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LOC) 450,000 ----------------------------------------------------------------------------------- 1,165,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries B) Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LOC) 1,165,000 ----------------------------------------------------------------------------------- 1,425,000 Berks County, PA IDA, VRD/Fixed Rate Revenue Bonds (Series A of 1996) Weekly VRDNs (Lebanon Valley Mall Co.)/(Corestates, Reading, PA LOC) 1,425,000 ----------------------------------------------------------------------------------- 4,000,000 Berks County, PA, (Series 1996), 4.50% TRANs, 12/31/1996 4,003,152 ----------------------------------------------------------------------------------- 2,445,000 Bucks County, PA IDA Weekly VRDNs (Double H Plastics, Inc.)/ (Corestates Bank N.A., Philadelphia, PA LOC) 2,445,000 ----------------------------------------------------------------------------------- 2,835,000 Bucks County, PA IDA Weekly VRDNs (Pennsylvania Associates)/ (Corestates Bank N.A., Philadelphia, PA LOC) 2,835,000 ----------------------------------------------------------------------------------- 4,500,000 Bucks County, PA IDA, (Series 1991) Weekly VRDNs (Cabot Medical Corp.)/(Corestates Bank N.A., Philadelphia, PA LOC) 4,500,000 ----------------------------------------------------------------------------------- 3,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/ (Sanwa Bank Ltd, Osaka LOC) 3,000,000 ----------------------------------------------------------------------------------- 1,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/ (Sanwa Bank Ltd, Osaka LOC) 1,000,000 ----------------------------------------------------------------------------------- 1,000,000 Butler County, PA IDA, (Series 1992B) Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd, Osaka LOC) 1,000,000 ----------------------------------------------------------------------------------- 1,400,000 Butler County, PA IDA, (Series 1996 A) Weekly VRDNs (Armco, Inc.)/ (Chase Manhattan Bank N.A., New York LOC) 1,400,000 ----------------------------------------------------------------------------------- 5,500,000 Butler County, PA IDA, First Mortgage Revenue Bonds, 10.125% Bonds (St. John Lutheran Care Center)/(United States Treasury PRF), 10/1/1997 (@102) 5,915,633 ----------------------------------------------------------------------------------- $ 2,385,000 Butler County, PA IDA, IDRB (Series 1994) Weekly VRDNs (Lue-Rich Holding Company, Inc. Project)/(ABN AMRO Bank N.V., Amsterdam LOC) $ 2,385,000 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- 2,400,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/ (ABN AMRO Bank N.V., Amsterdam LOC) 2,400,000 ----------------------------------------------------------------------------------- 1,700,000 Carbon County, PA IDA Weekly VRDNs (Summit Management & Utilities, Inc.)/(PNC Bank, N.A. LOC) 1,700,000 ----------------------------------------------------------------------------------- 5,000,000 Carbon County, PA IDA, 3.65% CP (Panther Creek)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 2/19/1997 5,000,000 ----------------------------------------------------------------------------------- 6,825,000 Carbon County, PA IDA, Resource Recovery Bonds, 3.65% CP (Panther Creek)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 2/19/1997 6,825,000 ----------------------------------------------------------------------------------- 5,000,000 Carbon County, PA IDA, Solid Waste Disposal Revenue Notes (Series 1995B), 3.90% RANs (Horsehead Resource Development, Inc.)/(Chase Manhattan Bank N.A., New York LOC), 12/3/1996 5,000,000 ----------------------------------------------------------------------------------- 7,300,000 Clearfield County, PA IDA Weekly VRDNs (Penn Traffic Co.)/(ABN AMRO Bank N.V., Amsterdam LOC) 7,300,000 ----------------------------------------------------------------------------------- 8,000,000 Clinton County, PA IDA, Solid Waste Disposal Revenue Bonds (Series 1992A), 3.80% TOBs (International Paper Co.), Optional Tender 1/15/1997 8,000,000 ----------------------------------------------------------------------------------- 3,000,000 Clinton County, PA, IDA Weekly VRDNs (Armstrong World Industries, Inc.)/(Mellon Bank NA, Pittsburgh LOC) 3,000,000 ----------------------------------------------------------------------------------- 5,000,000 Coatsville, PA School District, 4.25% TRANs, 6/30/1997 5,007,912 ----------------------------------------------------------------------------------- 5,000,000 Commonwealth of Pennsylvania, 4.50% TANs, 6/30/1997 5,025,704 ----------------------------------------------------------------------------------- 1,500,000 Cumberland County, PA IDA, Industrial Development Bonds (Series 1994) Weekly VRDNs (Lane Enterprises, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,500,000 ----------------------------------------------------------------------------------- 3,000,000 Delaware County Authority, PA, Hospital Revenue Bonds (Series of 1996) Weekly VRDNs (Crozer-Chester Medical Center)/(Kredietbank N.V., Brussels LOC) 3,000,000 ----------------------------------------------------------------------------------- $ 6,500,000 Delaware County, PA PCR, (Series C), 3.65% CP (Philadelphia Electric Co.)/(FGIC INS), Mandatory Tender 1/8/1997 $ 6,500,000 ----------------------------------------------------------------------------------- 1,805,000 Downington Area School District, (Series A), 4.00% Bonds, 3/1/1997 1,806,703 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- 3,900,000 East Hempfield Township, PA IDA, (Series 1985) Weekly VRDNs (Yellow Freight System)/(Wachovia Bank of NC, NA, Winston-Salem LOC) 3,900,000 ----------------------------------------------------------------------------------- 5,800,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Vincent Health System)/(Mellon Bank NA, Pittsburgh LOC) 5,800,000 ----------------------------------------------------------------------------------- 400,000 Erie County, PA IDA Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) 400,000 ----------------------------------------------------------------------------------- 325,000 Erie County, PA IDA, (Series 1985) Weekly VRDNs (R. P-C Value, Inc.)/(PNC Bank, N.A. LOC) 325,000 ----------------------------------------------------------------------------------- 500,000 Erie County, PA IDA, (Series B) Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) 500,000 ----------------------------------------------------------------------------------- 1,600,000 Erie County, PA IDA, Multi Mode Revenue Refunding Bonds Weekly VRDNs (Corry Manor, Inc.)/(PNC Bank, N.A. LOC) 1,600,000 ----------------------------------------------------------------------------------- 400,000 Forest County, PA IDA Weekly VRDNs (Industrial Timber & Land Co.)/(National City Bank, Cleveland, OH LOC) 400,000 ----------------------------------------------------------------------------------- 1,155,000 Forest County, PA IDA Weekly VRDNs (Marienville Health Care Facility)/(PNC Bank, N.A. LOC) 1,155,000 ----------------------------------------------------------------------------------- 1,800,000 Franklin County, PA IDA Weekly VRDNs (The Guarriello Limited Partnership)/(PNC Bank, N.A. LOC) 1,800,000 ----------------------------------------------------------------------------------- 2,670,000 Hampton Township, PA School District, 4.19% TRANs, 6/30/1997 2,671,520 ----------------------------------------------------------------------------------- 2,700,000 Lackawanna County, PA IDA, (Series 1992) Weekly VRDNs (Hem Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 2,700,000 ----------------------------------------------------------------------------------- 2,200,000 Lancaster, PA Higher Education Authority, College Revenue Bonds (Series 1995) Weekly VRDNs (Franklin and Marshall College Project) 2,200,000 ----------------------------------------------------------------------------------- 1,356,092 Lawrence County, PA IDA, (Series 1989A) Weekly VRDNs (Ellwood Uddeholm Steel Co.)/(KeyBank, N.A. LOC) 1,356,092 ----------------------------------------------------------------------------------- $ 1,000,000 Lehigh County, PA General Purpose Authority, Revenue Bonds (Series 1990) Weekly VRDNs (Phoebe Terrace, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) $ 1,000,000 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- 2,800,000 Lehigh County, PA IDA, (Series 1989A) Weekly VRDNs (Hershey Pizza Co., Inc.)/(PNC Bank, N.A. LOC) 2,800,000 ----------------------------------------------------------------------------------- 5,000,000 Luzerne Co, PA, 3.85% TRANs, 12/31/1996 5,001,183 ----------------------------------------------------------------------------------- 1,650,000 Marple Township, PA, (Series 1996), 4.25% TRANs, 12/31/1996 1,651,697 ----------------------------------------------------------------------------------- 790,000 McKean County, PA IDA, Multi-Mode Revenue Refunding Bonds Weekly VRDNs (Bradford Manor, Inc.)/(PNC Bank, N.A. LOC) 790,000 ----------------------------------------------------------------------------------- 3,300,000 Monroe County, PA IDA, PCR Weekly VRDNs (Cooper Industries, Inc.)/(Sanwa Bank Ltd, Osaka LOC) 3,300,000 ----------------------------------------------------------------------------------- 1,070,000 Montgomery County, PA Higher Education and Health Authority, (Series 1992) Weekly VRDNs (Pottstown Healthcare Corporation Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,070,000 ----------------------------------------------------------------------------------- 2,600,000 Montgomery County, PA IDA, (Series 1984) Weekly VRDNs (General Signal Corp.)/(Morgan Guaranty Trust Co., New York LOC) 2,600,000 ----------------------------------------------------------------------------------- 1,300,000 Montgomery County, PA IDA, (Series 1992) Weekly VRDNs (RJI Limited Partnership)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,300,000 ----------------------------------------------------------------------------------- 1,635,000 Montgomery County, PA IDA, (Series 84) Weekly VRDNs (Thomas & Betts Corp.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) 1,635,000 ----------------------------------------------------------------------------------- 4,975,000 Moon Township, PA IDA Weekly VRDNs (Airport Hotel Associates)/ (ABN AMRO Bank N.V., Amsterdam LOC) 4,975,000 ----------------------------------------------------------------------------------- 7,000,000 Moon Township, PA IDA, Variable Rate Commercial Development Revenue Bond (Series 1995A) Weekly VRDNs (One Thorn Run Center)/(National City, Pennsylvania LOC) 7,000,000 ----------------------------------------------------------------------------------- 3,500,000 New Castle, PA Area Hospital Authority, (Series 1996) Weekly VRDNs (Jameson Memorial Hospital)/(FSA INS)/(PNC Bank, N.A. LIQ) 3,500,000 ----------------------------------------------------------------------------------- 3,250,000 Norristown, PA, (Series 1996), 3.75% TRANs, 12/31/1996 3,250,000 ----------------------------------------------------------------------------------- $ 9,000,000 Northampton County, PA IDA, 3.70% CP (Citizens Utilities Co.), Mandatory Tender 2/13/1997 $ 9,000,000 ----------------------------------------------------------------------------------- 3,850,000 Northampton County, PA IDA, 3.80% CP (Citizens Utilities Co.), Mandatory Tender 1/16/1997 3,850,000 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- 4,000,000 Northeastern, PA Hospital & Education Authority, VRDB's (Series 1996) Weekly VRDNs (Allhealth Pooled Financing Program)/(Chase Manhattan Bank N.A., New York LOC) 4,000,000 ----------------------------------------------------------------------------------- 1,500,000 Northgate School District, PA, 4.22% TANs, 6/30/1997 1,501,132 ----------------------------------------------------------------------------------- 1,590,000 Northumberland County PA IDA, Revenue Bonds (Series A of 1995) Weekly VRDNs (Furman Farms, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,590,000 ----------------------------------------------------------------------------------- 1,000,000 Penns Manor Area School District, PA, 4.07% TRANs, 6/30/1997 1,000,947 ----------------------------------------------------------------------------------- 1,800,000 Pennsylvania Education Development Authority Weekly VRDNs (Cyrogenics, Inc.)/(PNC Bank, N.A. LOC) 1,800,000 ----------------------------------------------------------------------------------- 2,900,000 Pennsylvania Education Development Authority Weekly VRDNs (Industrial Scientific Corp.)/(Mellon Bank NA, Pittsburgh LOC) 2,900,000 ----------------------------------------------------------------------------------- 675,000 Pennsylvania Education Development Authority Weekly VRDNs (Pioneer Fluid)/(PNC Bank, N.A. LOC) 675,000 ----------------------------------------------------------------------------------- 600,000 Pennsylvania Education Development Authority Weekly VRDNs (RMF Associates)/(PNC Bank, N.A. LOC) 600,000 ----------------------------------------------------------------------------------- 850,000 Pennsylvania Education Development Authority Weekly VRDNs (Reace Associates)/(PNC Bank, N.A. LOC) 850,000 ----------------------------------------------------------------------------------- 450,000 Pennsylvania Education Development Authority, (Series B) Weekly VRDNs (Payne Printing Co.)/(PNC Bank, N.A. LOC) 450,000 ----------------------------------------------------------------------------------- 1,000,000 Pennsylvania Education Development Authority, Economic Development Revenue Bonds (Series 1996C) Weekly VRDNs (Napco, Inc. Project)/(Mellon Bank NA, Pittsburgh LOC) 1,000,000 ----------------------------------------------------------------------------------- 1,075,000 Pennsylvania Education Development Authority, Revenue Bonds (Series G4) Weekly VRDNs (Metamora Products)/(PNC Bank, N.A. LOC) 1,075,000 ----------------------------------------------------------------------------------- $ 300,000 Pennsylvania Education Development Authority, Revenue Bonds Weekly VRDNs (DDI Pharmaceuticals, Inc.)/(PNC Bank, N.A. LOC) $ 300,000 ----------------------------------------------------------------------------------- 500,000 Pennsylvania Education Development Authority, Revenue Bonds Weekly VRDNs (RAM Forest Products)/(PNC Bank, N.A. LOC) 500,000 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- 6,340,000 Pennsylvania Housing Finance Authority, 3.85% TOBs (First National Bank of Chicago LIQ), Optional Tender 4/1/1997 6,340,000 ----------------------------------------------------------------------------------- 960,000 Pennsylvania Housing Finance Authority, Section 8 Assisted Residential Development Refunding Bonds (Series 1992A) Weekly VRDNs (CGIC INS)/(Citibank NA, New York LIQ) 960,000 ----------------------------------------------------------------------------------- 1,960,000 Pennsylvania Housing Finance Authority, Variable Rate Merlots (Series I), 4.15% TOBs, Optional Tender 1/1/1997 1,960,000 ----------------------------------------------------------------------------------- 2,500,000 Pennsylvania State Higher Education Facilities Authority Daily VRDNs (Temple University)/(Morgan Guaranty Trust Co., New York LOC) 2,500,000 ----------------------------------------------------------------------------------- 3,300,000 Pennsylvania State University, Series of 1996, 4.25% BANs, 4/4/1997 3,310,080 ----------------------------------------------------------------------------------- 8,800,000 Philadelphia Redevelopment Authority, Multi-Family Revenue Bonds (Series 1985) Weekly VRDNs (Franklin Town Towers)/(Marine Midland Bank N.A., Buffalo, NY LOC) 8,800,000 ----------------------------------------------------------------------------------- 1,000,000 Philadelphia, PA Hospitals & Higher Education Facilities Authority, Hospital Revenue Bonds (Series A of 1996) Daily VRDNs (Children's Hospital of Philadelphia)/(Morgan Guaranty Trust Co., New York LIQ) 1,000,000 ----------------------------------------------------------------------------------- 2,000,000 Philadelphia, PA, (Series A of 1996-1997), 4.50% TRANs, 6/30/1997 2,006,644 ----------------------------------------------------------------------------------- 2,275,000 Red Lion, PA Area School District, 4.25% TRANs, 6/30/1997 2,280,784 ----------------------------------------------------------------------------------- 2,000,000 Schuylkill County, PA IDA, Manufacturing Facilities Revenue Bonds (Series 1995) Weekly VRDNs (Prime Packing, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 2,000,000 ----------------------------------------------------------------------------------- 2,100,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.65% CP (Scrubgrass Power Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/23/1997 2,100,000 ----------------------------------------------------------------------------------- $ 4,000,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.65% CP (Scrubgrass Power Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 11/12/1996 $ 4,000,000 ----------------------------------------------------------------------------------- 695,000 Washington County, PA Hospital Authority, (Series 1990) Weekly VRDNs (Mac Plastics, Inc.)/(National City Bank, Cleveland, OH LOC) 695,000 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- 2,700,000 Washington County, PA Municipal Authority Facilities, (Series 1985A) Weekly VRDNs (1985-A Pooled Equipment Lease Program)/(Sanwa Bank Ltd, Osaka LOC) 2,700,000 ----------------------------------------------------------------------------------- 1,200,000 Washington County, PA, IDA (Series 1988) Weekly VRDNs (Coca-Cola Co.)/(Mellon Bank NA, Pittsburgh LOC) 1,200,000 ----------------------------------------------------------------------------------- 1,000,000 West Cornwall Township, PA Municipal Authority, Revenue Bonds (Series 1995) Weekly VRDNs (Lebanon Valley Brethern Home Project (PA)/(Meridian, Bank N.A., Philadelphia, PA LOC) 1,000,000 ----------------------------------------------------------------------------------- 1,000,000 York County, PA IDA, Variable Rate Demand Ltd. Obligation Revenue Bonds (Series 1996) Weekly VRDNs (Metal Exchange Corp.)/ (Comerica Bank, Detroit, MI LOC) 1,000,000 ----------------------------------------------------------------------------------- -------------- TOTAL INVESTMENTS, AT AMORTIZED COST (B) $ 277,084,183 ----------------------------------------------------------------------------------- --------------
Securities that are subject to the Alternative Minimum Tax represent 37.25% of the portfolio as calculated based upon total portfolio market value. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. A NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term rating categories. Securities rated in the highest short-term rating category (and unrated securities of comparable quality) are identified as First Tier securities. Securities rated in the second highest short-term rating category (and unrated securities of comparable quality) are identified as Second Tier securities. The Fund follows applicable regulations in determining whether a securitiy rated by multiple NRSROs in different rating catefories should be identified as a First or Second Tier security. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER 93.96% 6.04%
(b) Also represents cost for federal tax purposes. - Note: The categories of investments are shown as a percentage of net assets ($278,752,100) at October 31, 1996. The following acronyms are used throughout this portfolio: BANs-- Bond Anticipation Notes CGIC-- Capital Guaranty Insurance Corporation CP-- Commercial Paper FGIC-- Financial Guaranty Insurance Company FSA-- Financial Security Assurance GANs-- Grant Anticipation Notes HDA-- Hospital Development Authority IDA-- Industrial Development Authority IDRB-- Industrial Development Revenue Bond INS-- Insured LIQ-- Liquidity Agreement LOC-- Letter of Credit PCR-- Pollution Control Revenue PLC-- Public Limited Company RANs-- Revenue Anticipation Notes TANs-- Tax Anticipation Notes TOBs-- Tender Option Bonds TRANs-- Tax and Revenue Anticipation Notes VRDB's-- Variable Rate Demand Bonds VRDNs-- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $ 277,084,183 - ------------------------------------------------------------------------------------------------- Cash 212,204 - ------------------------------------------------------------------------------------------------- Income receivable 2,120,548 - ------------------------------------------------------------------------------------------------- Receivable for shares sold 27,513 - ------------------------------------------------------------------------------------------------- -------------- Total assets 279,444,448 - ------------------------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------------- Payable for shares redeemed $ 70,241 - ------------------------------------------------------------------------------------- Income distribution payable 531,620 - ------------------------------------------------------------------------------------- Accrued expenses 90,487 - ------------------------------------------------------------------------------------- ---------- Total liabilities 692,348 - ------------------------------------------------------------------------------------------------- -------------- NET ASSETS for 278,752,100 shares outstanding $ 278,752,100 - ------------------------------------------------------------------------------------------------- -------------- NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------------------------- $221,850,715 / 221,850,715 shares outstanding $1.00 - ------------------------------------------------------------------------------------------------- -------------- CASH SERIES SHARES: - ------------------------------------------------------------------------------------------------- $19,824,886 / 19,824,886 shares outstanding $1.00 - ------------------------------------------------------------------------------------------------- -------------- INSTITUTIONAL SHARES: - ------------------------------------------------------------------------------------------------- $37,076,499 / 37,076,499 shares outstanding $1.00 - ------------------------------------------------------------------------------------------------- --------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------------------------- Interest $ 11,097,104 - ---------------------------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------------- Investment advisory fee $ 1,470,813 - --------------------------------------------------------------------------------------- Administrative personnel and services fee 222,042 - --------------------------------------------------------------------------------------- Custodian fees 45,506 - --------------------------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 64,120 - --------------------------------------------------------------------------------------- Directors'/Trustees' fees 4,077 - --------------------------------------------------------------------------------------- Auditing fees 14,592 - --------------------------------------------------------------------------------------- Legal fees 4,488 - --------------------------------------------------------------------------------------- Portfolio accounting fees 96,483 - --------------------------------------------------------------------------------------- Distribution services fee--Cash Series Shares 74,284 - --------------------------------------------------------------------------------------- Shareholder services fee--Institutional Service Shares 637,806 - --------------------------------------------------------------------------------------- Shareholder services fee--Cash Series Shares 46,427 - --------------------------------------------------------------------------------------- Shareholder services fee--Institutional Shares 51,312 - --------------------------------------------------------------------------------------- Share registration costs 30,773 - --------------------------------------------------------------------------------------- Printing and postage 23,296 - --------------------------------------------------------------------------------------- Insurance premiums 5,783 - --------------------------------------------------------------------------------------- Miscellaneous 3,066 - --------------------------------------------------------------------------------------- ----------- Total expenses 2,794,868 - --------------------------------------------------------------------------------------- Waivers-- - --------------------------------------------------------------------------- Waiver of investment advisory fee $ (647,993) - --------------------------------------------------------------------------- Waiver of distribution services fee--Cash Series Shares (9,312) - --------------------------------------------------------------------------- Waiver of shareholder services fee--Institutional Service Shares (127,561) - --------------------------------------------------------------------------- Waiver of shareholder services fee--Institutional Shares (51,312) - --------------------------------------------------------------------------- ---------- Total waivers (836,178) - --------------------------------------------------------------------------------------- ----------- Net expenses 1,958,690 - ---------------------------------------------------------------------------------------------------- ------------ Net investment income $ 9,138,414 - ---------------------------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED OCTOBER 31, 1996 OCTOBER 31, 1995 INCREASE (DECREASE) IN NET ASSETS: - ---------------------------------------------------------------------- OPERATIONS-- - ---------------------------------------------------------------------- Net investment income $ 9,138,414 $ 9,679,534 - ---------------------------------------------------------------------- -------------------- -------------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ---------------------------------------------------------------------- Distributions from net investment income - ---------------------------------------------------------------------- Institutional Service Shares (7,961,058) (8,951,830) - ---------------------------------------------------------------------- Cash Series Shares (504,436) (718,640) - ---------------------------------------------------------------------- Institutional Shares (672,920) (9,064) - ---------------------------------------------------------------------- -------------------- -------------------- Change in net assets resulting from distributions to shareholders (9,138,414) (9,679,534) - ---------------------------------------------------------------------- -------------------- -------------------- SHARE TRANSACTIONS-- - ---------------------------------------------------------------------- Proceeds from sale of shares 1,005,435,067 1,028,950,579 - ---------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,204,567 2,339,163 - ---------------------------------------------------------------------- Cost of shares redeemed (1,036,079,299) (971,610,388) - ---------------------------------------------------------------------- -------------------- -------------------- Change in net assets resulting from share transactions (28,439,665) 59,679,354 - ---------------------------------------------------------------------- -------------------- -------------------- Change in net assets (28,439,665) 59,679,354 - ---------------------------------------------------------------------- NET ASSETS: - ---------------------------------------------------------------------- Beginning of period 307,191,765 247,512,411 - ---------------------------------------------------------------------- -------------------- -------------------- End of period $ 278,752,100 $ 307,191,765 - ---------------------------------------------------------------------- -------------------- --------------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of Pennsylvania Municipal Cash Trust (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 Fund offers three classes of shares: Institutional Service Shares, Cash Series Shares and Institutional Shares. The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania consistent with stability of principal. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued and 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. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1996, capital paid-in aggregated $278,752,100. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, 1996 1995 - ---------------------------------------------------------------------------------- -------------- -------------- INSTITUTIONAL SERVICE SHARES - ---------------------------------------------------------------------------------- Shares sold 859,300,895 940,400,092 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,683,244 1,631,397 - ---------------------------------------------------------------------------------- Shares redeemed (915,540,908) (894,784,261) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from Institutional Service share transactions (54,556,769) 47,247,228 - ---------------------------------------------------------------------------------- -------------- -------------- YEAR ENDED OCTOBER 31, 1996 1995 - ---------------------------------------------------------------------------------- -------------- -------------- CASH SERIES SHARES - ---------------------------------------------------------------------------------- Shares sold 54,089,713 85,377,025 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 485,371 705,513 - ---------------------------------------------------------------------------------- Shares redeemed (63,005,461) (76,179,429) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from Cash Series share transactions (8,430,377) 9,903,109 - ---------------------------------------------------------------------------------- -------------- -------------- YEAR ENDED OCTOBER 31, 1996 1995 - ---------------------------------------------------------------------------------- -------------- -------------- INSTITUTIONAL SHARES - ---------------------------------------------------------------------------------- Shares sold 92,044,459 3,173,462 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 35,952 2,253 - ---------------------------------------------------------------------------------- Shares redeemed (57,532,930) (646,698) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from Institutional share transactions 34,547,481 2,529,017 - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from share transactions (28,439,665) 59,679,354 - ---------------------------------------------------------------------------------- -------------- --------------
PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.50% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Cash Series Shares. The Plan provides that the Fund may incur distribution expenses up to 0.40% of the average daily net assets of the Cash Series Shares, annually to compensate FSC. The distributor may voluntarily choose to waive any portion of its fee. The distributor can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund shares for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS--During the period ended October 31, 1996, 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 $446,357,000 and $488,200,000, respectively. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. (5) CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 71% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 9% of total investments. Report of Independent Public Accountants - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Pennsylvania Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Pennsylvania Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996 and the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see pages 2, 14 and 15 of the prospectus) for the periods presented. 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 October 31, 1996, 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 Pennsylvania Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 13, 1996 ADDRESSES - -------------------------------------------------------------------------------- Pennsylvania Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and Trust Company P.O. Box 8600 Boston, MA 02266-8600 - --------------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Shareholder Services Company P.O. Box 8600 Boston, Massachusetts 02266-8600 - --------------------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - ---------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST INSTITUTIONAL SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 [LOGO OF FEDERATED INVESTORS] Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and a subsidiary of Federated Investors. Cusip 314229717 G00214-01-IS (12/96) PENNSYLVANIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS The Institutional Service Shares of Pennsylvania Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Pennsylvania municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Pennsylvania, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and personal income taxes imposed by the Commonwealth of Pennsylvania consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SERVICE SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Pennsylvania Municipal Securities 5 Investment Risks 6 Investment Limitations 6 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Institutional Service Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ Special Purchase Features 10 HOW TO REDEEM SHARES 10 - ------------------------------------------------------ Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 12 - ------------------------------------------------------ TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 State and Local Taxes 13 OTHER CLASSES OF SHARES 14 - ------------------------------------------------------ PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--CASH SERIES SHARES 15 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 16 - ------------------------------------------------------ FINANCIAL STATEMENTS 17 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 33 - ------------------------------------------------------ ADDRESSES 34 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).......................... None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price).................................................................. None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable).......................................................................................... None Redemption Fee (as a percentage of amount redeemed, if applicable)..................................... None Exchange Fee........................................................................................... None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)...................................................................... 0.28% 12b-1 Fee.............................................................................................. None Total Other Expenses................................................................................... 0.37% Shareholder Services Fee (after waiver) (2)............................................... 0.20% Total Operating Expenses (3)................................................................. 0.65%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The shareholder services fee has been reduced to reflect the voluntary waiver of a portion of the shareholders services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (3) The Total Operating Expenses would have been 0.92% absent the voluntary waivers of a portion of the management fee and the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Service Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information". Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period................................................................ $7 $21 $36 $81
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. PENNSYLVANIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 33.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993 1992 1991 1990(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------- Net investment income 0.03 0.03 0.02 0.02 0.03 0.05 0.05 - -------------------------------------- LESS DISTRIBUTIONS - -------------------------------------- Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.05) (0.05) - -------------------------------------- --------- --------- --------- --------- --------- --------- ----------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - -------------------------------------- --------- --------- --------- --------- --------- --------- ----------- TOTAL RETURN (B) 3.16% 3.44% 2.25% 2.24% 3.08% 4.64% 5.78% - -------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------- Expenses 0.65% 0.65% 0.64% 0.57% 0.56% 0.55% 0.50%* - -------------------------------------- Net investment income 3.12% 3.38% 2.19% 2.21% 3.04% 4.53% 5.56%* - -------------------------------------- Expense waiver/ reimbursement (c) 0.27% 0.27% 0.02% 0.12% 0.12% 0.11% 0.18%* - -------------------------------------- SUPPLEMENTAL DATA - -------------------------------------- Net assets, end of period (000 omitted) $221,851 $276,407 $229,160 $318,518 $308,200 $317,165 $275,882 - --------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from November 21, 1990 (date of initial public investment) to October 31, 1990. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees have established three classes of shares known as Cash Series Shares, Institutional Shares, and Institutional Service Shares. This prospectus relates only to Institutional Service Shares of the Fund, which are designed primarily financial institutions acting in a fiduciary or agency capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Pennsylvania taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income and the personal income taxes imposed by the Commonwealth of Pennsylvania consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Pennsylvania dividend and interest income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Pennsylvania and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Pennsylvania state income tax, imposed upon non-corporate taxpayers ("Pennsylvania Municipal Securities"). Examples of Pennsylvania Municipal Securities include, but are not limited to: tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; municipal commercial paper and other short-term notes; variable rate demand notes; municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Pennsylvania Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Pennsylvania Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other depository institutionshaving capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Pennsylvania Municipal Securities is subject to the federal alternative minimum tax. PENNSYLVANIA MUNICIPAL SECURITIES Pennsylvania Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Pennsylvania Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Pennsylvania Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Pennsylvania Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Pennsylvania Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Pennsylvania Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Pennsylvania Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Pennsylvania Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Pennsylvania Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to the risk considerations the Fund's concentration in Pennsylvania Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933. These investment limitations cannot be changed without shareholder approval. These investment limitations cannot be changed without shareholder approval. The following limitation may be changed without shareholder approval. The Fund will not invest more than 10% of the value of its net assets in illiquid securities including repurchase agreements providing for settlement in more than seven days after notice. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES Federated Securities Corp. is the principal distributor for Institutional Service Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of its shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions may receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS .15% on the first $250 million .125% on the next $250 million .10% on the first $250 million .075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Institutional Service Shares from the value of Fund assets attributable to Institutional Service Shares, and dividing the remainder by the number of Institutional Service Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $25,000 or more over a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Pennsylvania Municipal Cash Trust--Institutional Service Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Pennsylvania Municipal Cash Trust--Institutional Service Shares. Please include an account number on the check. 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. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $25,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES In the opinion of Houston, Houston & Donnelly, counsel to the Trust, Fund shares may be subject to personal property taxes imposed by counties, municipalities, and school districts in Pennsylvania to the extent that the portfolio securities in the Fund would be subject to such taxes if owned directly by residents of those jurisdictions. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. PENNSYLVANIA TAXES. Under existing Pennsylvania laws, distributions made by the Fund derived from interest on obligations free from state taxation in Pennsylvania are not subject to Pennsylvania personal income taxes. Distributions made by the Fund will be subject to Pennsylvania personal income taxes to the extent that they are derived from gain realized by the Fund from the sale or exchange of otherwise tax-exempt obligations. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers other classes of shares called Institutional Shares and Cash Series Shares. Institutional Shares are sold at net asset value primarily to financial institutions acting in an agency capacity and are subject to a minimum initial investment of $25,000 over a 90 day period. Cash Series Shares that are sold primarily to retail customers of financial institutions. Investments in Cash Series Shares are subject to a minimum initial investment of $10,000 over a 90-day period. All classes are subject to certain of the same expenses. Institutional Shares are distributed with no 12b-1 Plan but are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. Cash Series Shares are sold at net asset value and are subject to a Rule 12b-1 Plan and a Shareholder Services Agreement. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. PENNSYLVANIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--CASH SERIES SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 33.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993 1992 1991(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------- Net investment income 0.03 0.03 0.02 0.02 0.03 0.03 - ------------------------------------------------- LESS DISTRIBUTIONS - ------------------------------------------------- Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.03) - ------------------------------------------------- --------- --------- --------- --------- --------- ----------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------- --------- --------- --------- --------- --------- ----------- TOTAL RETURN (B) 2.75% 3.02% 1.84% 1.83% 2.67% 3.55% - ------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------- Expenses 1.05% 1.05% 1.04% 0.97% 0.96% 0.78%* - ------------------------------------------------- Net investment income 2.72% 2.98% 1.73% 1.88% 2.64% 3.92%* - ------------------------------------------------- Expense waiver/reimbursement (c) 0.27% 0.28% 0.18% 0.12% 0.12% 0.28%* - ------------------------------------------------- SUPPLEMENTAL DATA - ------------------------------------------------- Net assets, end of period (000 omitted) $19,825 $28,255 $18,352 $18,561 $24,694 $19,846 - -------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from January 25, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 33.
YEAR ENDED OCTOBER 31, 1996 1995(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 - --------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------------------------------------------------------------- Net investment income 0.03 0.01 - --------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS - --------------------------------------------------------------------------------------------- Distributions from net investment income (0.03) (0.01) - --------------------------------------------------------------------------------------------- --------- ----------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 - --------------------------------------------------------------------------------------------- --------- ----------- TOTAL RETURN (B) 3.37% 1.03% - --------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------------------------------------------------------- Expenses 0.45% 0.45%* - --------------------------------------------------------------------------------------------- Net investment income 3.27% 3.81%* - --------------------------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.47% 0.46%* - --------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $37,076 $2,529 - ---------------------------------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from August 23, 1995 (date of initial public investment) to October 31, 1995. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--99.4% - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--99.4% ----------------------------------------------------------------------------------- $ 7,000,000 Allegheny County, PA HDA, Hosp. Revenue Bonds (Series B 1995) Weekly VRDNs (Allegheny General Hospital)/(Morgan Guaranty Trust Co., New York LOC) $ 7,000,000 ----------------------------------------------------------------------------------- 1,000,000 Allegheny County, PA IDA, (Series 1991) Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd, Osaka LOC) 1,000,000 ----------------------------------------------------------------------------------- 1,300,000 Allegheny County, PA IDA, (Series 1991B) Weekly VRDNs (Shandon, Inc.)/(PNC Bank, N.A. LOC) 1,300,000 ----------------------------------------------------------------------------------- 6,500,000 Allegheny County, PA IDA, 3.70% CP (Duquesne Light Power Co.)/ (Barclays Bank PLC, London LOC), Mandatory Tender 2/21/1997 6,500,000 ----------------------------------------------------------------------------------- 4,850,000 Allegheny County, PA IDA, Commercial Development Revenue Bonds (Series 1992) Weekly VRDNs (Eleven Parkway Center Associates)/(National City, Pennsylvania LOC) 4,850,000 ----------------------------------------------------------------------------------- 5,000,000 Allegheny County, PA IDA, PCR (Series 1992A), 3.75% TOBs (Duquesne Light Power Co.)/(Canadian Imperial Bank of Commerce, Toronto LOC), Optional Tender 11/7/1996 5,000,000 ----------------------------------------------------------------------------------- 5,000,000 Allegheny County, PA Port Authority, (Series A), 3.90% GANs (PNC Bank, N.A. LOC), 6/30/1997 5,000,000 ----------------------------------------------------------------------------------- 3,000,000 Beaver County, PA IDA, PCR Refunding Bonds (1992 Series-E), 3.65% CP (Toledo Edison Co.)/(Toronto-Dominion Bank LOC), Mandatory Tender 12/10/1996 3,000,000 ----------------------------------------------------------------------------------- 4,000,000 Bedford County, PA IDA, IDRB's (Series 1985) Weekly VRDNs (Sepa, Inc. Facility)/(Banque Paribas, Paris LOC) 4,000,000 ----------------------------------------------------------------------------------- 1,210,000 Berks County, PA IDA Weekly VRDNs (ADC Quaker Maid Meats)/ (Corestates Bank N.A., Philadelphia, PA LOC) 1,210,000 ----------------------------------------------------------------------------------- 1,245,000 Berks County, PA IDA Weekly VRDNs (Beacon Container)/ (Corestates Bank N.A., Philadelphia, PA LOC) 1,245,000 ----------------------------------------------------------------------------------- 1,900,000 Berks County, PA IDA, (Series 1988) Weekly VRDNs (Arrow Electronics, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,900,000 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- $ 1,865,000 Berks County, PA IDA, Mfg Facilities Revenue Bonds (Series 1995) Weekly VRDNs (Grafika Commercial Printing, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) $ 1,865,000 ----------------------------------------------------------------------------------- 450,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries A) Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LOC) 450,000 ----------------------------------------------------------------------------------- 1,165,000 Berks County, PA IDA, Revenue Bonds (Series 1995A/Subseries B) Weekly VRDNs (Corestates Bank N.A., Philadelphia, PA LOC) 1,165,000 ----------------------------------------------------------------------------------- 1,425,000 Berks County, PA IDA, VRD/Fixed Rate Revenue Bonds (Series A of 1996) Weekly VRDNs (Lebanon Valley Mall Co.)/(Corestates Bank, Reading, PA LOC) 1,425,000 ----------------------------------------------------------------------------------- 4,000,000 Berks County, PA, (Series 1996), 4.50% TRANs, 12/31/1996 4,003,152 ----------------------------------------------------------------------------------- 2,445,000 Bucks County, PA IDA Weekly VRDNs (Double H Plastics, Inc.)/ (Corestates Bank N.A., Philadelphia, PA LOC) 2,445,000 ----------------------------------------------------------------------------------- 2,835,000 Bucks County, PA IDA Weekly VRDNs (Pennsylvania Associates)/ (Corestates Bank N.A., Philadelphia, PA LOC) 2,835,000 ----------------------------------------------------------------------------------- 4,500,000 Bucks County, PA IDA, (Series 1991) Weekly VRDNs (Cabot Medical Corp.)/(Corestates Bank N.A., Philadelphia, PA LOC) 4,500,000 ----------------------------------------------------------------------------------- 3,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/ (Sanwa Bank Ltd, Osaka LOC) 3,000,000 ----------------------------------------------------------------------------------- 1,000,000 Butler County, PA IDA Weekly VRDNs (Mine Safety Appliances Co.)/ (Sanwa Bank Ltd, Osaka LOC) 1,000,000 ----------------------------------------------------------------------------------- 1,000,000 Butler County, PA IDA, (Series 1992B) Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd, Osaka LOC) 1,000,000 ----------------------------------------------------------------------------------- 1,400,000 Butler County, PA IDA, (Series 1996 A) Weekly VRDNs (Armco, Inc.)/ (Chase Manhattan Bank N.A., New York LOC) 1,400,000 ----------------------------------------------------------------------------------- 5,500,000 Butler County, PA IDA, First Mortgage Revenue Bonds, 10.125% Bonds (St. John Lutheran Care Center)/(United States Treasury PRF), 10/1/1997 (@102) 5,915,633 ----------------------------------------------------------------------------------- $ 2,385,000 Butler County, PA IDA, IDRB (Series 1994) Weekly VRDNs (Lue-Rich Holding Company, Inc. Project)/(ABN AMRO Bank N.V., Amsterdam LOC) $ 2,385,000 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- 2,400,000 Cambria County, PA IDA Weekly VRDNs (Cambria Cogeneration)/ (ABN AMRO Bank N.V., Amsterdam LOC) 2,400,000 ----------------------------------------------------------------------------------- 1,700,000 Carbon County, PA IDA Weekly VRDNs (Summit Management & Utilities, Inc.)/(PNC Bank, N.A. LOC) 1,700,000 ----------------------------------------------------------------------------------- 5,000,000 Carbon County, PA IDA, 3.65% CP (Panther Creek)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 2/19/1997 5,000,000 ----------------------------------------------------------------------------------- 6,825,000 Carbon County, PA IDA, Resource Recovery Bonds, 3.65% CP (Panther Creek)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 2/19/1997 6,825,000 ----------------------------------------------------------------------------------- 5,000,000 Carbon County, PA IDA, Solid Waste Disposal Revenue Notes (Series 1995B), 3.90% RANs (Horsehead Resource Development, Inc.)/ (Chase Manhattan Bank N.A., New York LOC), 12/3/1996 5,000,000 ----------------------------------------------------------------------------------- 7,300,000 Clearfield County, PA IDA Weekly VRDNs (Penn Traffic Co.)/ (ABN AMRO Bank N.V., Amsterdam LOC) 7,300,000 ----------------------------------------------------------------------------------- 8,000,000 Clinton County, PA IDA, Solid Waste Disposal Revenue Bonds (Series 1992A), 3.80% TOBs (International Paper Co.), Optional Tender 1/15/1997 8,000,000 ----------------------------------------------------------------------------------- 3,000,000 Clinton County, PA, IDA Weekly VRDNs (Armstrong World Industries, Inc.)/(Mellon Bank NA, Pittsburgh LOC) 3,000,000 ----------------------------------------------------------------------------------- 5,000,000 Coatsville, PA School District, 4.25% TRANs, 6/30/1997 5,007,912 ----------------------------------------------------------------------------------- 5,000,000 Commonwealth of Pennsylvania, 4.50% TANs, 6/30/1997 5,025,704 ----------------------------------------------------------------------------------- 1,500,000 Cumberland County, PA IDA, Industrial Development Bonds (Series 1994) Weekly VRDNs (Lane Enterprises, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,500,000 ----------------------------------------------------------------------------------- 3,000,000 Delaware County Authority, PA, Hospital Revenue Bonds (Series of 1996) Weekly VRDNs (Crozer-Chester Medical Center)/(Kredietbank N.V., Brussels LOC) 3,000,000 ----------------------------------------------------------------------------------- $ 6,500,000 Delaware County, PA PCR, (Series C), 3.65% CP (Philadelphia Electric Co.)/(FGIC INS), Mandatory Tender 1/8/1997 $ 6,500,000 ----------------------------------------------------------------------------------- 1,805,000 Downington Area School District, (Series A), 4.00% Bonds, 3/1/1997 1,806,703 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- 3,900,000 East Hempfield Township, PA IDA, (Series 1985) Weekly VRDNs (Yellow Freight System)/(Wachovia Bank of NC, NA, Winston-Salem LOC) 3,900,000 ----------------------------------------------------------------------------------- 5,800,000 Erie County, PA Hospital Authority Weekly VRDNs (St. Vincent Health System)/(Mellon Bank NA, Pittsburgh LOC) 5,800,000 ----------------------------------------------------------------------------------- 400,000 Erie County, PA IDA Weekly VRDNs (P.H.B. Project)/(PNC Bank, N.A. LOC) 400,000 ----------------------------------------------------------------------------------- 325,000 Erie County, PA IDA, (Series 1985) Weekly VRDNs (R. P-C Value, Inc.)/(PNC Bank, N.A. LOC) 325,000 ----------------------------------------------------------------------------------- 500,000 Erie County, PA IDA, (Series B) Weekly VRDNs (P.H.B. Project)/ (PNC Bank, N.A. LOC) 500,000 ----------------------------------------------------------------------------------- 1,600,000 Erie County, PA IDA, Multi Mode Revenue Refunding Bonds Weekly VRDNs (Corry Manor, Inc.)/(PNC Bank, N.A. LOC) 1,600,000 ----------------------------------------------------------------------------------- 400,000 Forest County, PA IDA Weekly VRDNs (Industrial Timber & Land Co.)/(National City Bank, Cleveland, OH LOC) 400,000 ----------------------------------------------------------------------------------- 1,155,000 Forest County, PA IDA Weekly VRDNs (Marienville Health Care Facility)/(PNC Bank, N.A. LOC) 1,155,000 ----------------------------------------------------------------------------------- 1,800,000 Franklin County, PA IDA Weekly VRDNs (The Guarriello Limited Partnership)/(PNC Bank, N.A. LOC) 1,800,000 ----------------------------------------------------------------------------------- 2,670,000 Hampton Township, PA School District, 4.19% TRANs, 6/30/1997 2,671,520 ----------------------------------------------------------------------------------- 2,700,000 Lackawanna County, PA IDA, (Series 1992) Weekly VRDNs (Hem Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 2,700,000 ----------------------------------------------------------------------------------- 2,200,000 Lancaster, PA Higher Education Authority, College Revenue Bonds (Series 1995) Weekly VRDNs (Franklin and Marshall College Project) 2,200,000 ----------------------------------------------------------------------------------- 1,356,092 Lawrence County, PA IDA, (Series 1989A) Weekly VRDNs (Ellwood Uddeholm Steel Co.)/(KeyBank, N.A. LOC) 1,356,092 ----------------------------------------------------------------------------------- $ 1,000,000 Lehigh County, PA General Purpose Authority, Revenue Bonds (Series 1990) Weekly VRDNs (Phoebe Terrace, Inc.)/(Corestates Bank N.A., Philadelphia, PA LOC) $ 1,000,000 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- 2,800,000 Lehigh County, PA IDA, (Series 1989A) Weekly VRDNs (Hershey Pizza Co., Inc.)/(PNC Bank, N.A. LOC) 2,800,000 ----------------------------------------------------------------------------------- 5,000,000 Luzerne Co, PA, 3.85% TRANs, 12/31/1996 5,001,183 ----------------------------------------------------------------------------------- 1,650,000 Marple Township, PA, (Series 1996), 4.25% TRANs, 12/31/1996 1,651,697 ----------------------------------------------------------------------------------- 790,000 McKean County, PA IDA, Multi-Mode Revenue Refunding Bonds Weekly VRDNs (Bradford Manor, Inc.)/(PNC Bank, N.A. LOC) 790,000 ----------------------------------------------------------------------------------- 3,300,000 Monroe County, PA IDA, PCR Weekly VRDNs (Cooper Industries, Inc.)/(Sanwa Bank Ltd, Osaka LOC) 3,300,000 ----------------------------------------------------------------------------------- 1,070,000 Montgomery County, PA Higher Education and Health Authority, (Series 1992) Weekly VRDNs (Pottstown Healthcare Corporation Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,070,000 ----------------------------------------------------------------------------------- 2,600,000 Montgomery County, PA IDA, (Series 1984) Weekly VRDNs (General Signal Corp.)/(Morgan Guaranty Trust Co., New York LOC) 2,600,000 ----------------------------------------------------------------------------------- 1,300,000 Montgomery County, PA IDA, (Series 1992) Weekly VRDNs (RJI Limited Partnership)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,300,000 ----------------------------------------------------------------------------------- 1,635,000 Montgomery County, PA IDA, (Series 84) Weekly VRDNs (Thomas & Betts Corp.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) 1,635,000 ----------------------------------------------------------------------------------- 4,975,000 Moon Township, PA IDA Weekly VRDNs (Airport Hotel Associates)/ (ABN AMRO Bank N.V., Amsterdam LOC) 4,975,000 ----------------------------------------------------------------------------------- 7,000,000 Moon Township, PA IDA, Variable Rate Commercial Development Revenue Bond (Series 1995A) Weekly VRDNs (One Thorn Run Center)/(National City, Pennsylvania LOC) 7,000,000 ----------------------------------------------------------------------------------- 3,500,000 New Castle, PA Area Hospital Authority, (Series 1996) Weekly VRDNs (Jameson Memorial Hospital)/(FSA INS)/ (PNC Bank, N.A. LIQ) 3,500,000 ----------------------------------------------------------------------------------- 3,250,000 Norristown, PA, (Series 1996), 3.75% TRANs, 12/31/1996 3,250,000 ----------------------------------------------------------------------------------- $ 9,000,000 Northampton County, PA IDA, 3.70% CP (Citizens Utilities Co.), Mandatory Tender 2/13/1997 $ 9,000,000 ----------------------------------------------------------------------------------- 3,850,000 Northampton County, PA IDA, 3.80% CP (Citizens Utilities Co.), Mandatory Tender 1/16/1997 3,850,000 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- 4,000,000 Northeastern, PA Hospital & Education Authority, VRDB's (Series 1996) Weekly VRDNs (Allhealth Pooled Financing Program)/(Chase Manhattan Bank N.A., New York LOC) 4,000,000 ----------------------------------------------------------------------------------- 1,500,000 Northgate School District, PA, 4.22% TANs, 6/30/1997 1,501,132 ----------------------------------------------------------------------------------- 1,590,000 Northumberland County PA IDA, Revenue Bonds (Series A of 1995) Weekly VRDNs (Furman Farms, Inc. Project)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,590,000 ----------------------------------------------------------------------------------- 1,000,000 Penns Manor Area School District, PA, 4.07% TRANs, 6/30/1997 1,000,947 ----------------------------------------------------------------------------------- 1,800,000 Pennsylvania Education Development Authority Weekly VRDNs (Cyrogenics, Inc.)/(PNC Bank, N.A. LOC) 1,800,000 ----------------------------------------------------------------------------------- 2,900,000 Pennsylvania Education Development Authority Weekly VRDNs (Industrial Scientific Corp.)/(Mellon Bank NA, Pittsburgh LOC) 2,900,000 ----------------------------------------------------------------------------------- 675,000 Pennsylvania Education Development Authority Weekly VRDNs (Pioneer Fluid)/(PNC Bank, N.A. LOC) 675,000 ----------------------------------------------------------------------------------- 600,000 Pennsylvania Education Development Authority Weekly VRDNs (RMF Associates)/(PNC Bank, N.A. LOC) 600,000 ----------------------------------------------------------------------------------- 850,000 Pennsylvania Education Development Authority Weekly VRDNs (Reace Associates)/(PNC Bank, N.A. LOC) 850,000 ----------------------------------------------------------------------------------- 450,000 Pennsylvania Education Development Authority, (Series B) Weekly VRDNs (Payne Printing Co.)/(PNC Bank, N.A. LOC) 450,000 ----------------------------------------------------------------------------------- 1,000,000 Pennsylvania Education Development Authority, Economic Development Revenue Bonds (Series 1996C) Weekly VRDNs (Napco, Inc. Project)/(Mellon Bank NA, Pittsburgh LOC) 1,000,000 ----------------------------------------------------------------------------------- 1,075,000 Pennsylvania Education Development Authority, Revenue Bonds (Series G4) Weekly VRDNs (Metamora Products)/ (PNC Bank, N.A. LOC) 1,075,000 ----------------------------------------------------------------------------------- $ 300,000 Pennsylvania Education Development Authority, Revenue Bonds Weekly VRDNs (DDI Pharmaceuticals, Inc.)/(PNC Bank, N.A. LOC) $ 300,000 ----------------------------------------------------------------------------------- 500,000 Pennsylvania Education Development Authority, Revenue Bonds Weekly VRDNs (RAM Forest Products)/(PNC Bank, N.A. LOC) 500,000 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- 6,340,000 Pennsylvania Housing Finance Authority, 3.85% TOBs (First National Bank of Chicago LIQ), Optional Tender 4/1/1997 6,340,000 ----------------------------------------------------------------------------------- 960,000 Pennsylvania Housing Finance Authority, Section 8 Assisted Residential Development Refunding Bonds (Series 1992A) Weekly VRDNs (CGIC INS)/(Citibank NA, New York LIQ) 960,000 ----------------------------------------------------------------------------------- 1,960,000 Pennsylvania Housing Finance Authority, Variable Rate Merlots (Series I), 4.15% TOBs, Optional Tender 1/1/1997 1,960,000 ----------------------------------------------------------------------------------- 2,500,000 Pennsylvania State Higher Education Facilities Authority Daily VRDNs (Temple University)/(Morgan Guaranty Trust Co., New York LOC) 2,500,000 ----------------------------------------------------------------------------------- 3,300,000 Pennsylvania State University, Series of 1996, 4.25% BANs, 4/4/1997 3,310,080 ----------------------------------------------------------------------------------- 8,800,000 Philadelphia Redevelopment Authority, Multi-Family Revenue Bonds (Series 1985) Weekly VRDNs (Franklin Town Towers)/(Marine Midland Bank N.A., Buffalo, NY LOC) 8,800,000 ----------------------------------------------------------------------------------- 1,000,000 Philadelphia, PA Hospitals & Higher Education Facilities Authority, Hospital Revenue Bonds (Series A of 1996) Daily VRDNs (Children's Hospital of Philadelphia)/(Morgan Guaranty Trust Co., New York LIQ) 1,000,000 ----------------------------------------------------------------------------------- 2,000,000 Philadelphia, PA, (Series A of 1996-1997), 4.50% TRANs, 6/30/1997 2,006,644 ----------------------------------------------------------------------------------- 2,275,000 Red Lion, PA Area School District, 4.25% TRANs, 6/30/1997 2,280,784 ----------------------------------------------------------------------------------- 2,000,000 Schuylkill County, PA IDA, Manufacturing Facilities Revenue Bonds (Series 1995) Weekly VRDNs (Prime Packing, Inc. Project)/ (Corestates Bank N.A., Philadelphia, PA LOC) 2,000,000 ----------------------------------------------------------------------------------- 2,100,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.65% CP (Scrubgrass Power Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 1/23/1997 2,100,000 ----------------------------------------------------------------------------------- $ 4,000,000 Venango, PA IDA, Resource Recovery Bonds (Series 1993), 3.65% CP (Scrubgrass Power Corp.)/(National Westminster Bank, PLC, London LOC), Mandatory Tender 11/12/1996 $ 4,000,000 ----------------------------------------------------------------------------------- 695,000 Washington County, PA Hospital Authority, (Series 1990) Weekly VRDNs (Mac Plastics, Inc.)/(National City Bank, Cleveland, OH LOC) 695,000 -----------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (A) SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ----------------------------------------------------------------------------------- 2,700,000 Washington County, PA Municipal Authority Facilities, (Series 1985A) Weekly VRDNs (1985-A Pooled Equipment Lease Program)/(Sanwa Bank Ltd, Osaka LOC) 2,700,000 ----------------------------------------------------------------------------------- 1,200,000 Washington County, PA, IDA (Series 1988) Weekly VRDNs (Coca-Cola Co.)/(Mellon Bank NA, Pittsburgh LOC) 1,200,000 ----------------------------------------------------------------------------------- 1,000,000 West Cornwall Township, PA Municipal Authority, Revenue Bonds (Series 1995) Weekly VRDNs (Lebanon Valley Brethern Home Project (PA)/(Corestates Bank N.A., Philadelphia, PA LOC) 1,000,000 ----------------------------------------------------------------------------------- 1,000,000 York County, PA IDA, Variable Rate Demand Ltd. Obligation Revenue Bonds (Series 1996) Weekly VRDNs (Metal Exchange Corp.)/ (Comerica Bank, Detroit, MI LOC) 1,000,000 ----------------------------------------------------------------------------------- -------------- TOTAL INVESTMENTS, AT AMORTIZED COST (B) $ 277,084,183 ----------------------------------------------------------------------------------- --------------
Securities that are subject to the Alternative Minimum Tax represent 37.25% of the portfolio as calculated based upon total portfolio market value. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. A NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term rating categories. Securities rated in the highest short-term rating category (and unrated securities of comparable quality) are identified as First Tier securities. Securities rated in the second highest short-term rating category (and unrated securities of comparable quality) are identified as Second Tier securities. The Fund follows applicable regulations in determining whether a securitiy rated by multiple NRSROs in different rating catefories should be identified as a First or Second Tier security. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER 93.96% 6.04%
(b) Also represents cost for federal tax purposes. - Note: The categories of investments are shown as a percentage of net assets ($278,752,100) at October 31, 1996. The following acronyms are used throughout this portfolio: BANs-- Bond Anticipation Notes CGIC-- Capital Guaranty Insurance Corporation CP-- Commercial Paper FGIC-- Financial Guaranty Insurance Company FSA-- Financial Security Assurance GANs-- Grant Anticipation Notes HDA-- Hospital Development Authority IDA-- Industrial Development Authority IDRB-- Industrial Development Revenue Bond INS-- Insured LIQ-- Liquidity Agreement LOC-- Letter of Credit PCR-- Pollution Control Revenue PLC-- Public Limited Company RANs-- Revenue Anticipation Notes TANs-- Tax Anticipation Notes TOBs-- Tender Option Bonds TRANs-- Tax and Revenue Anticipation Notes VRDB's-- Variable Rate Demand Bonds VRDNs-- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $ 277,084,183 - ------------------------------------------------------------------------------------------------- Cash 212,204 - ------------------------------------------------------------------------------------------------- Income receivable 2,120,548 - ------------------------------------------------------------------------------------------------- Receivable for shares sold 27,513 - ------------------------------------------------------------------------------------------------- -------------- Total assets 279,444,448 - ------------------------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------------- Payable for shares redeemed $ 70,241 - ------------------------------------------------------------------------------------- Income distribution payable 531,620 - ------------------------------------------------------------------------------------- Accrued expenses 90,487 - ------------------------------------------------------------------------------------- ---------- Total liabilities 692,348 - ------------------------------------------------------------------------------------------------- -------------- NET ASSETS for 278,752,100 shares outstanding $ 278,752,100 - ------------------------------------------------------------------------------------------------- -------------- NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------------------------- $221,850,715 / 221,850,715 shares outstanding $1.00 - ------------------------------------------------------------------------------------------------- -------------- CASH SERIES SHARES: - ------------------------------------------------------------------------------------------------- $19,824,886 / 19,824,886 shares outstanding $1.00 - ------------------------------------------------------------------------------------------------- -------------- INSTITUTIONAL SHARES: - ------------------------------------------------------------------------------------------------- $37,076,499 / 37,076,499 shares outstanding $1.00 - ------------------------------------------------------------------------------------------------- --------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------------------------- Interest $ 11,097,104 - ---------------------------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------------- Investment advisory fee $ 1,470,813 - --------------------------------------------------------------------------------------- Administrative personnel and services fee 222,042 - --------------------------------------------------------------------------------------- Custodian fees 45,506 - --------------------------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 64,120 - --------------------------------------------------------------------------------------- Directors'/Trustees' fees 4,077 - --------------------------------------------------------------------------------------- Auditing fees 14,592 - --------------------------------------------------------------------------------------- Legal fees 4,488 - --------------------------------------------------------------------------------------- Portfolio accounting fees 96,483 - --------------------------------------------------------------------------------------- Distribution services fee--Cash Series Shares 74,284 - --------------------------------------------------------------------------------------- Shareholder services fee--Institutional Service Shares 637,806 - --------------------------------------------------------------------------------------- Shareholder services fee--Cash Series Shares 46,427 - --------------------------------------------------------------------------------------- Shareholder services fee--Institutional Shares 51,312 - --------------------------------------------------------------------------------------- Share registration costs 30,773 - --------------------------------------------------------------------------------------- Printing and postage 23,296 - --------------------------------------------------------------------------------------- Insurance premiums 5,783 - --------------------------------------------------------------------------------------- Miscellaneous 3,066 - --------------------------------------------------------------------------------------- ----------- Total expenses 2,794,868 - --------------------------------------------------------------------------------------- Waivers-- - --------------------------------------------------------------------------- Waiver of investment advisory fee $ (647,993) - --------------------------------------------------------------------------- Waiver of distribution services fee--Cash Series Shares (9,312) - --------------------------------------------------------------------------- Waiver of shareholder services fee--Institutional Service Shares (127,561) - --------------------------------------------------------------------------- Waiver of shareholder services fee--Institutional Shares (51,312) - --------------------------------------------------------------------------- ---------- Total waivers (836,178) - --------------------------------------------------------------------------------------- ----------- Net expenses 1,958,690 - ---------------------------------------------------------------------------------------------------- ------------ Net investment income $ 9,138,414 - ---------------------------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED OCTOBER 31, 1996 OCTOBER 31, 1995 - ---------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: - ---------------------------------------------------------------------- OPERATIONS-- - ---------------------------------------------------------------------- Net investment income $ 9,138,414 $ 9,679,534 - ---------------------------------------------------------------------- -------------------- -------------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ---------------------------------------------------------------------- Distributions from net investment income - ---------------------------------------------------------------------- Institutional Service Shares (7,961,058) (8,951,830) - ---------------------------------------------------------------------- Cash Series Shares (504,436) (718,640) - ---------------------------------------------------------------------- Institutional Shares (672,920) (9,064) - ---------------------------------------------------------------------- -------------------- -------------------- Change in net assets resulting from distributions to shareholders (9,138,414) (9,679,534) - ---------------------------------------------------------------------- -------------------- -------------------- SHARE TRANSACTIONS-- - ---------------------------------------------------------------------- Proceeds from sale of shares 1,005,435,067 1,028,950,579 - ---------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,204,567 2,339,163 - ---------------------------------------------------------------------- Cost of shares redeemed (1,036,079,299) (971,610,388) - ---------------------------------------------------------------------- -------------------- -------------------- Change in net assets resulting from share transactions (28,439,665) 59,679,354 - ---------------------------------------------------------------------- -------------------- -------------------- Change in net assets (28,439,665) 59,679,354 - ---------------------------------------------------------------------- NET ASSETS: - ---------------------------------------------------------------------- Beginning of period 307,191,765 247,512,411 - ---------------------------------------------------------------------- -------------------- -------------------- End of period $ 278,752,100 $ 307,191,765 - ---------------------------------------------------------------------- -------------------- --------------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of Pennsylvania Municipal Cash Trust (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 Fund offers three classes of shares: Institutional Service Shares, Cash Series Shares and Institutional Shares. The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania consistent with stability of principal. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued and 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. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1996 capital paid in aggregated $278,752,100. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, 1996 1995 - ---------------------------------------------------------------------------------- -------------- -------------- INSTITUTIONAL SERVICE SHARES - ---------------------------------------------------------------------------------- Shares sold 859,300,895 940,400,092 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,683,244 1,631,397 - ---------------------------------------------------------------------------------- Shares redeemed (915,540,908) (894,784,261) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from Institutional Service share transactions (54,556,769) 47,247,228 - ---------------------------------------------------------------------------------- -------------- -------------- YEAR ENDED OCTOBER 31, 1996 1995 - ---------------------------------------------------------------------------------- -------------- -------------- CASH SERIES SHARES - ---------------------------------------------------------------------------------- Shares sold 54,089,713 85,377,025 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 485,371 705,513 - ---------------------------------------------------------------------------------- Shares redeemed (63,005,461) (76,179,429) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from Cash Series share transactions (8,430,377) 9,903,109 - ---------------------------------------------------------------------------------- -------------- -------------- YEAR ENDED OCTOBER 31, 1996 1995 - ---------------------------------------------------------------------------------- -------------- -------------- INSTITUTIONAL SHARES - ---------------------------------------------------------------------------------- Shares sold 92,044,459 3,173,462 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 35,952 2,253 - ---------------------------------------------------------------------------------- Shares redeemed (57,532,930) (646,698) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from Institutional share transactions 34,547,481 2,529,017 - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from share transactions (28,439,665) 59,679,354 - ---------------------------------------------------------------------------------- -------------- --------------
PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.50% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Cash Series Shares. The Plan provides that the Fund may incur distribution expenses up to 0.40% of the average daily net assets of the Cash Series Shares, annually to compensate FSC. The distributor may voluntarily choose to waive any portion of its fee. The distributor can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund shares for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS--During the period ended October 31, 1996, 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 $446,357,000 and $488,200,000, respectively. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. (5) CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 71% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 9% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Pennsylvania Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Pennsylvania Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996, the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see pages 2, 15 and 16 of the prospectus) for the periods presented. 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 October 31, 1996, 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 Pennsylvania Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 13, 1996 ADDRESSES - -------------------------------------------------------------------------------- Pennsylvania Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and Trust Company P.O. Box 8600 Boston, MA 02266-8600 - --------------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Shareholder Services Company P.O. Box 8600 Boston, MA 02266-8600 - --------------------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - ---------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST INSTITUTIONAL SERVICE SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 [LOGO OF FEDERATED INVESTORS] Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and a subsidiary of Federated Investors. Cusip 314229204 9101005A-SS (12/96) PENNSYLVANIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH SERIES SHARES INSTITUTIONAL SHARES INSTITUTIONAL SERVICE SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectuses of Pennsylvania Municipal Cash Trust (the ``Fund'), a portfolio of Federated Municipal Trust (the ``Trust') dated December 31, 1996. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-341-7400. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1996 [LOGO] Federated Securities Corp. is the distributor of the Funds and is a subsidiary of Federated Investors. Cusip 314229204 9101005B (12/96) INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1 Repurchase Agreements 2 Credit Enhancement 2 PENNSYLVANIA INVESTMENT RISKS 2 INVESTMENT LIMITATIONS 3 Selling Short and Buying on Margin 3 Issuing Senior Securities and Borrowing Money 3 Pledging Assets 3 Diversification of Investments 3 Lending Cash or Securities 3 Investing in Commodities 3 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 Share Ownership 9 Trustees Compensation 10 Trustee Liability 11 INVESTMENT ADVISORY SERVICES 11 Investment Adviser 11 Advisory Fees 11 BROKERAGE TRANSACTIONS 11 OTHER SERVICES 11 Fund Administration 11 Custodian and Portfolio Accountant 12 Transfer Agent 12 Independent Public Accountants 12 DETERMINING NET ASSET VALUE 12 REDEMPTION IN KIND 13 MASSACHUSETTS PARTNERSHIP LAW 13 THE FUND'S TAX STATUS 13 PERFORMANCE INFORMATION 13 Yield 13 Effective Yield 14 Tax-Equivalent Yield 14 Tax-Equivalency Table 14 Total Return 16 Performance Comparisons 16 Economic and Market Information 16 ABOUT FEDERATED INVESTORS 16 Mutual Fund Market 17 Institutional Clients 17 Trust Organizations 17 Broker/Dealers and Bank Broker/Dealer Subsidiaries 17 APPENDIX 18 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security; the issuer of any demand feature applicable to the security; or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an `event of non-appropriation''); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations (`NRSROs'') or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group (`S&P''), MIG-1 or MIG-2 by Moody's Investors Service, Inc. (`Moody's''), or F-1+, F-1, or F-2 by Fitch Investors Service, Inc. (`Fitch'') are all considered rated in one of the two highest short-term rating categories. The Fund will follow applicable regulations in determining whether a security rated by more than one NRSRO can be treated as being in one of the two highest short-term rating categories; currently, such securities must be rated by two NRSROs in one of their two highest rating categories. See `Regulatory Compliance.'' WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund in a dollar amount sufficient to make payment for the securities to be purchased are: segregated on the Fund`s records at the trade date; marked to market daily; and maintained until the transaction is settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the `credit enhancer''), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. PENNSYLVANIA INVESTMENT RISKS The Fund invests in obligations of Pennsylvania (the "Commonwealth") issuers which result in the Fund's performance being subject to risks associated with the overall conditions present within the Commonwealth. The following information is a brief summary of the prevailing economic conditions and general summary of the Commonwealth's financial condition. This information is based on official statements relating to securities and from other sources believed to be reliable but should not be considered as a complete description of all relevant information. Pennsylvania's economic base is mature but substantial. However, the Commonwealth's historical over-dependence upon manufacturing and mining continues to leave it vulnerable to cyclical economic trends. Recent data shows improvement in employment diversification, however, employment growth still lags the nation. In addition, population growth, as in many industrial states, has remained flat. The Commonwealth's financial position has historically been tied to fluctuations in national economic trends, as well as of that of nearby states. The Commonwealth was hit hard by the recession in the early 1990's and experience operating deficits in both 1990 and 1991. From 1992 to 1995, the Commonwealth was able to improve its financial position by actions including increasing taxes and controlling expenditures, and by the end of fiscal 1995 restored it's unreserved fund balance to $443 million (1.8% of expenditures). However, on a budgetary basis, preliminary results for fiscal 1996 indicate an operating deficit of $253 million. This main cause of the operating deficit was business tax cuts implemented by a new administration. The impact of the business tax cuts will continue to be felt in 1997, during which the Commonwealth projects another operating deficit. However, the Commonwealth does not expect to need to tap the Tax Stabilization Reserve or `Rainy Day'' Fund of $211 million during 1997. The overall credit quality of the Commonwealth is demonstrated by its debt ratings. Pennsylvania maintains an A-1 rating by Moody's Investors Service, Inc. that has been in effect since 1986. Standard & Poor's Ratings Group rates the Commonwealth AA - ; this has remained since 1985. The Fund's concentration in securities issued by the Commonwealth and its political subdivisions provides a greater level of risk than a fund whose assets are diversified across numerous states and municipal issuers. The ability of the Commonwealth or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the Commonwealth; and the underlying fiscal condition of the Commonwealth, its counties, and its municipalities. INVESTMENT LIMITATIONS The Fund will invest in securities for income earnings rather than trading for profit. The Fund will not vary its investments, except to: (i) eliminate unsafe investments and investments not consistent with the preservation of the capital or the tax status of the investments of the Fund; (ii) honor redemption orders, meet anticipated redemption requirements, and negate gains from discount purchases; (iii) maintain a constant net asset value per unit pursuant to, and in compliance with, an order or rule of the United States Securities and Exchange Commission; (iv) reinvest the earnings from securities in like securities; or (v) defray normal administrative expenses (the "Pennsylvania Investment Restrictions"). 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 the clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of the pledge. DIVERSIFICATION OF INVESTMENTS At the close of each quarter of each fiscal year, no more than 25% of the Fund's total assets will be invested in the securities of a single issuer, but, with regard to at least 50% of the Fund's total assets, no more than 5% of the Fund's total assets are to be invested in securities of a single issuer. Under this limitation, each governmental subdivision, including states, territories, possessions of the United States, or their political subdivisions, agencies, authorities, instrumentalities, or similar entities, will be considered a separate issuer if its assets and revenues are separate from those of the government body creating it and the security is backed only by its own assets and revenues. Industrial development bonds backed only by the assets and revenues of a nongovernmental issuer are considered to be issued solely by that issuer. If in the case of an industrial development bond or government-issued security, a governmental or other entity guarantees the security, such guarantee would be considered a separate security issued by the guarantor, as well as the other issuer, subject to limited exclusions allowed by the Investment Company Act of 1940. LENDING CASH OR SECURITIES The Fund will not lend any of its assets except that it may acquire publicly or non publicly issued Pennsylvania municipal securities or temporary investments or enter into repurchase agreements, in accordance with its investment objective, policies and limitations. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. PORTFOLIO TRADING The Fund will invest in securities for income earnings rather than trading for profit. The Fund will not vary its investments, except to: (i) eliminate unsafe investments and investments not consistent with the preservation of the capital or the tax status of the investments of the Fund; (ii) honor redemption orders, meet anticipated redemption requirements, and negate gains from discount purchases; (iii) maintain a constant net asset value per unit pursuant to, and in compliance with, an order or rule of the United States Securities and Exchange Commission; (iv) reinvest the earnings from securities in like securities; or (v) defray normal administrative expenses (the `Pennsylvania Investment Restrictions''). CONCENTRATION OF INVESTMENTS The Fund will not purchase securities if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry or in industrial development bonds or other securities, the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above limitations cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities, including repurchase agreements providing for settlement in more than seven days after notice. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be `cash items.'' Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments, as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director or Trustee of the Funds. Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee, University of Pittsburgh; Director or Trustee of the Funds. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest Florida; formerly, President, Naples Property Management, Inc. and Northgate Village Development Corporation; Director or Trustee of the Funds. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds. Edward L. Flaherty, Jr.@ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region; Director or Trustee of the Funds. Glen R. Johnson* Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. Peter E. Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16, 1942 Trustee Consultant; Former State Representative, Commonwealth of Massachusetts; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation; Director or Trustee of the Funds. Gregor F. Meyer Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director or Trustee of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics; Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., National Defense University, U.S. Space Foundation and Czech Management Center; President Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council for Environmental Policy and Technology, Federal Emergency Management Advisory Board and Czech Management Center; Director or Trustee of the Funds. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/Marketing/Conference Planning, Manchester Craftsmen's Guild; Restaurant Consultant, Frick Art & History Center; Conference Coordinator, University of Pittsburgh Art History Department; Director or Trustee of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated Shareholder Services; Director, Federated Services Company; President or Executive Vice President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Shareholder Services Company; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President , Secretary and Treasurer Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. *This Trustee is deemed to be an ``interested person'' as defined in the Investment Company Act of 1940. @Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board between meetings of the Board. As referred to in the list of Trustees and Officers, `Funds'' includes the following investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated Investment Portfolios; Federated Investment Trust; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 2, 1996, the following shareholders of record owned 5% or more of the outstanding Cash Series Shares of the Federated Municipal Trust: BHC Securities, Inc., (as record owner holding Cash Series Shares for its clients), Philadelphia, PA, owned approximately 8,033,305 shares (30.57%); and Renick Brothers Construction Company, Inc., Slippery Rock, PA, owned approximately 1,154,798 shares (5.85%). As of December 2, 1996, the following shareholders of record owned 5% or more of the outstanding Institutional Shares of the Federated Municipal Trust: The Chase Manhattan Bank, N.A., New York, NY, owned approximately 8,872,797 shares (19.41%); JASCO & Company, Indiana, PA, owned approximately 6,546,761 shares (14.32%); Holiday Company, Holidaysburg, PA, owned approximately 5,813,462 shares (12.71%); Univest & Company, Souderton, PA, owned approximately 4,882,352 shares (10.68%); Finaba Company, Hermitage, PA, owned approximately 4,544,198 shares (9.94%); Raywed, Heritage Trust Company, Erie, PA, owned approximately 2,962,898 shares (6.48%); and B B Securities Company, (as record owner holding Institutional Shares for its clients), Blue Ball, PA, owned approximately 2,438,215 shares (5.33%). As of December 2, 1996, the following shareholders of record owned 5% or more of the outstanding Institutional Service Shares of Federated Municipal Trust: First Union National Bank, Charlotte, NC, owned approximately 46,834,531 shares (20.46%); National City Bank Cleveland, Cleveland, OH, owned approximately 24,751,831 shares (10.81%); Corestates Bank, N.A., owned approximately 22,862,740 shares (9.99%); Mellon Bank Capital Markets, Pittsburgh, PA, owned approximately 13,265,363 shares (5.79%); Keystone Financial Inc., Altoona, PA, owned approximately 12,423,874 shares (5.43%); and Saxon & Company, owned approximately 12,020,657 shares (5.25%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 54 other investment companies in the Fund Complex Thomas G. Bigley++ $3,611 $86,331 for the Trust and Trustee 54 other investment companies in the Fund Complex John T. Conroy, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex William J. Copeland $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Peter E. Madden $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Gregor F. Meyer $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex John E. Murray, Jr., $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Wesley W. Posvar $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Marjorie P. Smuts $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1996. #The aggregate compensation is provided for the Trust which is comprised of 16 portfolios. +The information is provided for the last calendar year. ++ Mr. Bigley served on 39 investment companies in the Federated Funds complex from January 1 through September 30, 1995. On October 1, 1995, he was appointed a Trustee on 15 additional Federated Funds. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Pennsylvania Municipal Cash Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Pennsylvania Municipal Cash Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1996, 1995, and 1994, the adviser earned $1,470,813, $1,445,400, and $1,617,472, respectively, of which $647,993, $222,841, and $53,564, respectively, were voluntarily waived. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal years ended October 31, 1996, 1995, and 1994, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative Services served as the Fund's Administrator. Prior to March 1, 1994, Federated Administrative Services, Inc. served as the Fund's Administrator. Both former Administrators are subsidiaries of Federated Investors. For purposes of this Statement of Additional Information, Federated Services Company and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the `Administrators.'' For the fiscal years ended October 31, 1996, 1995, and 1994, the Administrators earned $222,042, $218,834, and $274,571, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. The fee paid for this service is based upon the level of the Fund's average net assets for the period plus out-of- pocket expenses. TRANSFER AGENT Federated Services Company, through its registered transfer agent, Federated Shareholder Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES With respect to Cash Series Shares, the Fund had adopted a Distribution Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange Commission pursuant to the Investment Company Act of 1940. Additionally, the Fund has adopted a Shareholder Service Agreement with respect to Cash Series Shares, Institutional Shares, and Institutional Service Shares. These arrangements permit the payment of fees to financial institutions, the distributor, and Federated Shareholder Services, to stimulate distribution activities and to cause services to be provided to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities may include, but are not limited to: marketing efforts; providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Plan, the Trustees expect that the Cash Series Shares will be able to achieve a more predictable flow of cash for investment purposes and to meet redemptions. This will facilitate more efficient portfolio management and assist the Fund in seeking to achieve its investment objectives. By identifying potential investors whose needs are served by the Fund `s objectives, and properly servicing these accounts, the Fund may be able to curb sharp fluctuations in rates of redemptions and sales. Other benefits, which may be realized under either arrangement, may include: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal year ended October 31, 1996, Cash Series Shares made payments in the amount of $74,284 pursuant to the Plan, of which $9,312 was voluntarily waived. In addition, for the fiscal year ended October 31, 1996, Cash Series Shares, Institutional Shares and Institutional Service Shares paid shareholder service fees in the amounts of $46,427, $637,806 and $51,312, respectively of which $0, $127,561 and $51,312, respectively were voluntarily waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the `Rule'') promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.50% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the `base period.'' This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. For the seven-day period ended October 31, 1996, the yields for Cash Series Shares, Institutional Shares and Institutional Service Shares were 2.6%, 3.21% and 3.01%, respectively. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. For the seven-day period ended October 31, 1996, the effective yields for Cash Series Shares, Institutional Shares and Institutional Service Shares were 2.64%, 3.26% and 3.05, respectively. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming 42.40% tax rate (the maximum combined effective federal and state rate for individuals) and assuming that the income is 100% tax exempt. For the seven-day period ended October 31, 1996, the tax-equivalent yields for Cash Series Shares, Institutional Shares and Institutional Service Shares were 4.53%, 5.57% and 5.23, respectively. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a `tax- free''investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1996 STATE OF PENNSYLVANIA COMBINED FEDERAL AND STATE INCOME TAX BRACKET: 17.80% 30.80% 33.80% 38.80% 42.40% JOINT $1- $40,101- $96,901- $147,701- OVER RETURN 40,100 96,900 147,700 263,750 $263,750 SINGLE $1- $24,001- $58,151- $121,301- OVER RETURN 24,000 58,150 121,300 263,750 $263,750 TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT 1.50% 1.82% 2.17% 2.27% 2.45% 2.60% 2.00% 2.43% 2.89% 3.02% 3.27% 3.47% 2.50% 3.04% 3.61% 3.78% 4.08% 4.34% 3.00% 3.65% 4.34% 4.53% 4.90% 5.21% 3.50% 4.26% 5.06% 5.29% 5.72% 6.08% 4.00% 4.87% 5.78% 6.04% 6.54% 6.94% 4.50% 5.47% 6.50% 6.80% 7.35% 7.81% 5.00% 6.08% 7.23% 7.55% 8.17% 8.68% 5.50% 6.69% 7.95% 8.31% 8.99% 9.55% 6.00% 7.30% 8.67% 9.06% 9.80% 10.42% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. Cash Series Shares average annual total returns for the one-year and five- year periods ended October 31, 1996 and for the period from January 25, 1991 (date of initial public investment) through October 31, 1996 were 2.75%, 2.42 and 2.68%, respectively. Institutional Shares average annual total returns for the one-year period ended October 31, 1996 and for the period from August 23, 1995(date of initial public investment) through October 31, 1996 were 3.37% and 3.42%, respectively. Institutional Service Shares average annual total returns for the one-year and five-year periods ended October 31, 1996, and for the period from November 21, 1989 (date of initial public investment) through October 31, 1996, were 3.16%, 2.83% and 3.50%, respectively. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. oMONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. Advertising and other promotional literature may include charts, graphs and other illustrations using the Fund`s returns, or returns in general, that demonstrate basic investment concepts such as tax-deferred compounding, dollar-cost averaging and systematic investment. In addition, the Fund can compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, such as bank savings accounts, certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION Advertising and sales literature for the Fund may include discussions of economic, financial and political developments and their effect on the securities market. Such discussions may take the form of commentary on these developments by the Fund portfolio mangers and their views and analysis on how such developments could affect the Funds. In addition, advertising and sales literature may quote statistics and give general information about the mutual fund industry, including growth of the industry, from sources such as the Investment Company Institute. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. These traders handle trillions of dollars in annual trading volume. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1995, Federated Investors managed more than $40.2 billion in assets across approximately 47 money market funds, including 17 government, 10 prime and 20 municipal with assets approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $3 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. Federated's service to financial professionals and institutions has earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for service quality measurement. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (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 rate `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. MOODYS 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 SERVICES, INC. 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. MINNESOTA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH SERIES SHARES PROSPECTUS The Cash Series Shares of Minnesota Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Minnesota municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Minnesota, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and regular personal income taxes imposed by the State of Minnesota consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS SUMMARY OF FUND EXPENSES 1 FINANCIAL HIGHLIGHTS -- CASH SERIES SHARES 2 GENERAL INFORMATION 3 INVESTMENT INFORMATION 3 Investment Policies 3 Minnesota Municipal Securities 5 Investment Risks 6 Investment Limitations 6 FUND INFORMATION 6 Management of the Fund 6 Distribution of Cash Series Shares 7 Adminstration of the Fund 8 NET ASSET VALUE 9 HOW TO PURCHASE SHARES 9 Special Purchase Features 10 HOW TO REDEEM SHARES 10 Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 11 TAX INFORMATION 12 Federal Income Tax 12 State and Local Taxes 12 OTHER CLASSES OF SHARES 13 PERFORMANCE INFORMATION 13 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES 14 FINANCIAL STATEMENTS 15 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 32 ADDRESSES 33 SUMMARY OF FUND EXPENSES
CASH SERIES SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering None price) Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable) None Redemption Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1) 0.14% 12b-1 Fee (after waiver)(2) 0.25% Total Other Expenses 0.41% Shareholder Services Fee 0.25% Total Operating Expenses(3) 0.80%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40% (2) The 12b-1 fee has been reduced to reflect the voluntary waiver of a portion of the 12b-1 fee. The distributor can terminate this voluntary waiver at any time at its sole discretion. The maximum 12b-1 fee is 0.50%. (3) The Total Operating Expenses would have been 1.31% absent the voluntary waivers of portions of the management fee and 12b-1 fee. Long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charge permitted under the rules of the National Association of Security Dealers, Inc. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Cash Series Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period $8 $26 $44 $99
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. MINNESOTA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- CASH SERIES SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 32.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993 1992 1991(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.03 0.02 0.02 0.03 0.04 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.04) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 TOTAL RETURN(B) 2.97% 3.41% 2.17% 2.02% 2.78% 3.60% RATIOS TO AVERAGE NET ASSETS Expenses 0.80% 0.70% 0.71% 0.71% 0.71% 0.64%* Net investment income 2.93% 3.37% 2.15% 2.01% 2.75% 4.11%* Expense waiver/ reimbursement(c) 0.51% 0.62% 0.61% 0.44% 0.44% 0.59%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $235,614 $131,471 $94,335 $67,521 $75,044 $69,747
* Computed on an annualized basis. (a) Reflects operations for the period from January 7, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees has established two classes of shares known as Cash Series Shares and Institutional Shares. This prospectus relates only to Cash Series Shares of the Fund, which are designed primarily for retail customers of financial institutions as a convenient means of accumulating an interest in a professionally managed portfolio investing primarily in short-term municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Minnesota taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION The investment objective of the Fund is current income exempt from federal regular income tax and the regular personal income taxes imposed by the State of Minnesota consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from both federal regular and Minnesota regular personal income taxes. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Minnesota and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Minnesota state income tax imposed upon non-corporate taxpayers ("Minnesota Municipal Securities"). Examples of Minnesota Municipal Securities include, but are not limited to: * tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; * bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; * municipal commercial paper and other short-term notes; * variable rate demand notes; * municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and * participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Minnesota Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Minnesota Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchasesecurities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other depository institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Minnesota Municipal Securities is subject to the federal alternative minimum tax. MINNESOTA MUNICIPAL SECURITIES Minnesota Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Minnesota Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Minnesota Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Minnesota Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Minnesota Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Minnesota Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Minnesota Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Minnesota Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Minnesota Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations, the Fund's concentration in Minnesota Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF CASH SERIES SHARES Federated Securities Corp. is the principal distributor for Cash Series Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in accordance with Rule 12b-1 under the Investment Company Act of 1940 (the "Plan"), the distributor may be paid a fee by the Fund in an amount computed at an annual rate of up to .50% of the average daily net asset value of the Fund. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide sales services or distribution-related support services as agents for their clients or customers. The Plan is a compensation-type Plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Plan. In addition, the Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of its shares to obtain certain personal services for shareholders and to maintain shareholder accounts. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions may receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Distribution Plan and Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below: AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Cash Series Shares from the value of Fund assets attributable to Cash Series Shares, and dividing the remainder by the number of Cash Series Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more over a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. Eastern time to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. Eastern time in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Minnesota Municipal Cash Trust -- Cash Series Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Minnesota Municipal Cash Trust -- Cash Series Shares. Please include an account number on the check. 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. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests received on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Minnesota. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. MINNESOTA TAXES. Under existing Minnesota laws, distributions made by the Fund will be exempt from Minnesota regular personal income taxes provided that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and provided further that 95% of such distributions are derived from interest on obligations issued by the State of Minnesota or any of its political or governmental subdivisions, municipalities, or governmental agencies or instrumentalities. Distributions made by the Fund will also be exempt to the extent that they are derived from interest on federal obligations and are reported federally as dividend income by shareholders. Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to Minnesota regular personal income taxes. Dividends of the Fund are not exempt from Minnesota corporate income taxes. OTHER CLASSES OF SHARES The Fund also offers another class of shares called Institutional Shares. Institutional Shares are sold at net asset value primarily to financial institutions acting in a fiduciary capacity and are subject to a minimum initial investment of $25,000 over a 90-day period. All classes are subject to certain of the same expenses. Institutional Shares are distributed with no 12b-1 fees but are subject to shareholder services fees Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. MINNESOTA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 32.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993 1992 1991 1990(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.04 0.03 0.02 0.03 0.05 0.01 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.04) (0.03) (0.02) (0.03) (0.05) (0.01) NET ASSET VALUE, END OF $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 PERIOD TOTAL RETURN(B) 3.49% 3.82% 2.58% 2.43% 3.19% 4.89% 0.90% RATIOS TO AVERAGE NET ASSETS Expenses 0.30% 0.30% 0.31% 0.31% 0.31% 0.30% 0.01%* Net investment income 3.43% 3.77% 2.55% 2.40% 3.10% 4.73% 6.45%* Expense waiver/ reimbursement(c) 0.51% 0.52% 0.34% 0.34% 0.33% 0.43% 0.69%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $217,443 $212,392 $159,704 $165,865 $245,168 $124,603 $75,904
* Computed on an annualized basis. (a) Reflects operations for the period from September 10, 1990 (date of initial public investment) to October 31, 1990. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- 100.9% MINNESOTA -- 99.6% $ 400,000 Anoka City, MN Solid Waste Disposal Authority, 3.65% CP (United Power Associates)/(National Rural Utilities Cooperative Finance Corp. GTD), Mandatory Tender 12/2/1996 $ 400,000 6,000,000 Anoka City, MN Solid Waste Disposal Authority, 3.75% CP (United Power Associates)/(National Rural Utilities Cooperative Finance Corp. GTD), Mandatory Tender 2/13/1997 6,000,000 2,050,000 Anoka, MN, Multi-Family Housing Revenue Bonds Weekly VRDNs (Walker Plaza Project)/(First Bank NA, Minneapolis LOC) 2,050,000 10,000,000 Anoka-Hennepin, MN ISD 11, GO Certificates of Indebtedness (Series 1996A), 3.44% TANs (Minnesota Tax and Aid Anticipation Borrowing Program GTD), 3/13/1997 10,000,268 3,785,000 Apple Valley, MN, IDRB (Series 1995) Weekly VRDNs (AV Development Company Project)/(Firstar Bank, Minnesota LOC) 3,785,000 2,505,000 Baudette, MN, IDR (Series 1989) Weekly VRDNs (Reid Powell, Inc.)/ (NationsBank, South LOC) 2,505,000 4,000,000 Becker, MN, PCR (Series 1993A & B), 3.60% CP (Northern States Power Co.), Mandatory Tender 11/14/1996 4,000,000 6,500,000 Becker, MN, PCR (Series 1993A & B), 3.70% CP (Northern States Power Co.), Mandatory Tender 11/26/1996 6,500,000 500,000 Beltrami County, MN, Environmental Control Authority Daily VRDNs (Northwood Panelboard Co.)/(Union Bank of Switzerland, Zurich LOC) 500,000 1,400,000 Beltrami County, MN, Environmental Control Authority, (Series 1995) Daily VRDNs (Northwood Panelboard Co.)/(Union Bank of Switzerland, Zurich LOC) 1,400,000 2,855,000 Blaine, MN, Industrial Development Revenue Bonds (Series 1996) Weekly VRDNs (S & S of Minnesota, LLC Project)/(Norwest Bank Minnesota, Minneapolis LOC) 2,855,000 2,000,000 Bloomington, MN Port Authority, Special Tax Revenue Refunding Bonds (Series 1996B) Weekly VRDNs (Mall of America)/(FSA INS)/ (Credit Local de France LIQ) 2,000,000
MINNESOTA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED MINNESOTA -- CONTINUED $ 3,600,000 Bloomington, MN, IDRB (Series 1995) Weekly VRDNs (Now Technologies, Inc. Project)/(Norwest Bank Minnesota, Minneapolis LOC) $ 3,600,000 5,000,000 Bloomington, MN, Multi-Family Housing Weekly VRDNs (Crow/ Bloomington Apartments)/(Citibank NA, New York LOC) 5,000,000 4,400,000 Burnsville, MN, Adjustable Rate IDRBs (Series 1996) Weekly VRDNs (Caire, Inc. Project)/(Bank One, Milwaukee, WI N.A. LOC) 4,400,000 8,080,000 Burnsville, MN, Multi-Family Housing Weekly VRDNs (Berkshire of Burnsville)/(Sumitomo Bank Ltd., Osaka LOC) 8,080,000 1,275,000 Chanhassen, MN IDA, (Series 1995) Weekly VRDNs (Building Management Group, L.L.C. Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,275,000 5,000,000 Cloquet, MN, Industrial Facilities Revenue Bonds (Series 1996A) Weekly VRDNs (Potlatch Corp.)/(Credit Suisse, Zurich LOC) 5,000,000 2,800,000 Coon Rapids, MN Hospital Authority, (Series 1985) Weekly VRDNs (Health Central System)/(First Bank NA, Minneapolis LOC) 2,800,000 2,350,000 Cottage Grove, MN, IDR Refunding Bonds (Series 1995) Weekly VRDNs (Supervalu Inc.)/(Wachovia Bank of Georgia NA, Atlanta LOC) 2,350,000 5,400,000 Crystal, MN IDA Weekly VRDNs (Crystal Gallery Mall, MN)/ (Citibank NA, New York LOC) 5,400,000 10,745,000 Dakota County & Washington County MN Hsg & Redev Auth, Merlots (Series J), 4.20% TOBs (United States Treasury COL)/ (Corestates Bank N.A., Philadelphia, PA LIQ), Optional Tender 3/1/1997 10,745,000 1,655,000 Dakota County, MN Housing & Redevelopment Authority, (Custodial Receipts), 4.20% TOBs (GNMA COL)/(Corestates Bank N.A., Philadelphia, PA LIQ), Optional Tender 3/1/1997 1,655,000 3,000,000 (b)Dakota County, Washington County & Anoka City, MN Housing & Redevelopment Authority, Merlots-Series H, 4.15% TOBs (United States Treasury COL)/(Corestates Bank N.A., Philadelphia, PA LIQ), Optional Tender 12/1/1996 3,000,000 6,750,000 Duluth, MN, Tax and Aid Anticipation Certificates, 4.25% TANs, 12/31/1996 6,754,741
MINNESOTA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED MINNESOTA -- CONTINUED $ 8,000,000 Eagan, MN, Multi-Family Housing (Series 1992A) Weekly VRDNs (Cinnamon Ridge)/(Mellon Bank NA, Pittsburgh LOC) $ 8,000,000 1,000,000 (b)Eden Prairie MN, ISD 272, MN Insured Municipal Securities Trust (Series 1996A), Floating Rate Certificates Weekly VRDNs (MBIA INS)/ (Norwest Bank Minnesota, Minneapolis LIQ) 1,000,000 1,125,000 (b)Eden Prairie MN, ISD 272, MN Insured Municipal Securities Trust (Series 1996B), Floating Rate Certificates Weekly VRDNs (MBIA INS)/ (Norwest Bank Minnesota, Minneapolis LIQ) 1,125,000 855,000 Eden Prairie, MN IDA, #194 Weekly VRDNs (Richard W. Cohen Project)/(Norwest Bank Minnesota, Minneapolis LOC) 855,000 1,340,000 Eden Prairie, MN IDA, (Series 1996) Weekly VRDNs (Challenge Printing, Inc. Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,340,000 41,677 Eden Prairie, MN IDA, (Series 1987) Weekly VRDNs (Minnesota Supply Co.)/(Norwest Bank Minnesota, Minneapolis LOC) 41,677 1,450,000 Eden Prairie, MN IDA, (Series 1995) Weekly VRDNs (Robert Lothenbach Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,450,000 1,025,000 Elk River, MN Weekly VRDNs (Tescom Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,025,000 2,945,000 Farmington, MN, (Series 1996) Weekly VRDNs (Lexington Standard Corporation Project)/(Norwest Bank Minnesota, Minneapolis LOC) 2,945,000 4,025,000 Fridley, MN, (Series 1984) Weekly VRDNs (River Road Investors Project)/(Citibank NA, New York LOC) 4,025,000 7,000,000 Hennepin Co. MN, (Series 1995C) Weekly VRDNs (Hennepin Co. MN GTD) 7,000,000 5,550,000 Hennepin Co. MN, (Series 1996C) Weekly VRDNs 5,550,000 2,500,000 Hennepin Co. MN, GO UT Notes, 4.25% Bonds, 12/1/1996 2,501,899 3,150,000 Hennepin County, MN ISD 286, (Series 1996), 3.38% TANs (Minnesota Tax and Aid Anticipation Borrowing Program GTD), 3/21/1997 3,150,351 5,500,000 Hubbard County, MN, Solid Waste Disposal (Series 1990) Weekly VRDNs (Potlatch Corp.)/(Credit Suisse, Zurich LOC) 5,500,000 3,205,000 Lakeville, MN ISD 194, (Series 1996), 3.90% TRANs, 9/30/1997 3,205,000
MINNESOTA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED MINNESOTA -- CONTINUED $ 1,135,000 Litchfield, MN ISD, Certificates of Indebtedness, 3.33% TANs (Minnesota Tax and Aid Anticipation Borrowing Program GTD), 3/28/1997 $ 1,135,131 2,500,000 (b)MN Insured Municipal Securities Trust, Series 1996H, Floating Rate Certificates Weekly VRDNs (St. Louis Park, MN Health Care Facilities)/(Norwest Bank Minnesota, Minneapolis LIQ)/ (AMBAC INS) 2,500,000 4,000,000 (b)MN Municipal Securities Trust, Series 1996H, Floating Rate Certificates Weekly VRDNs (Rosemount, MN ISD 196)/(FSA INS)/ (Norwest Bank Minnesota, Minneapolis LIQ) 4,000,000 3,900,000 Maple Grove, MN IDA, (Series 1991A) Weekly VRDNs (Eagle Ridge, MN Apartments)/(Sumitomo Bank Ltd., Osaka LOC) 3,900,000 3,000,000 Maple Grove, MN IDA, (Series 1991B) Weekly VRDNs (Eagle Ridge, MN Apartments)/(First Bank NA, Minneapolis LOC) 3,000,000 2,025,000 Maplewood, MN, Multi-Family Housing (Series 1993) Weekly VRDNs (Silver Ridge Project)/(Federal Home Loan Bank of Chicago LOC) 2,025,000 2,610,000 Mendota Heights, MN, Multi-Family Revenue Bonds Weekly VRDNs (Lexington Heights Apartments)/(Sumitomo Bank Ltd., Osaka LOC) 2,610,000 13,755,000 Minneapolis CDA, Refunding Revenue Bonds Weekly VRDNs (Riverplace Project (The Pinnacle Apartments))/(Sumitomo Bank Ltd., Osaka LOC) 13,755,000 8,440,000 Minneapolis CDA, Revenue Refunding Bonds (Series 1995) Weekly VRDNs (Walker Methodist Health Center, Inc. Project)/(First Bank NA, Minneapolis LOC) 8,440,000 700,000 Minneapolis, MN IDA Weekly VRDNs (JTJ Co.)/(First Bank NA, Minneapolis LOC) 700,000 7,000,000 Minneapolis, MN, (Series 1995B) Weekly VRDNs 7,000,000 1,000,000 Minneapolis, MN, Variable Rate Demand Commercial Development Revenue Refunding Bonds (Series 1996) Weekly VRDNs (WNB & Company Project)/(First Bank NA, Minneapolis LOC) 1,000,000 10,100,000 Minneapolis, MN, Variable Rate Housing Revenue Bonds Weekly VRDNs (One Ten Grant Project)/(First Bank NA, Minneapolis LOC) 10,100,000
MINNESOTA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED MINNESOTA -- CONTINUED $ 4,240,000 (b)Minneapolis/St. Paul MN Housing Finance Board, SFM Revenue Bonds, Merlots (Series D), 4.125% TOBs (GNMA COL)/(Corestates Bank NA, Philadelphia, PA LIQ), Optional Tender 1/1/1997 $ 4,240,000 1,066,000 Minneapolis/St. Paul MN Housing Finance Board, Single Family Mortgage Revenue Bonds, 4.25% TOBs (GNMA COL)/(Corestates Bank N.A., Philadelphia, PA LIQ), Optional Tender 2/1/1997 1,066,000 8,000,000 Minnesota State Commissioner of Iron Range Resources & Rehabilitation, (Series 1991) Weekly VRDNs (Louisiana-Pacific Corp.)/ (Wachovia Bank of NC, NA, Winston-Salem LOC) 8,000,000 800,000 Minnesota State HFA, Rental Housing (Series D), 4.15% Bonds (MBIA INS), 8/1/1997 801,712 4,650,000 Minnesota State HFA, Single Family Mortgage Bonds (1995 Series M), 3.50% TOBs (Societe Generale, Paris INV), Mandatory Tender 12/12/1996 4,650,000 400,000 Minnesota State HFA, Single Family Mortgage Bonds (1995 Series O), 3.60% TOBs (Societe Generale, Paris INV), Optional Tender 12/12/1996 400,000 6,500,000 Minnesota State Higher Education Coordinating Board, 1992 (Series C) Weekly VRDNs (First Bank NA, Minneapolis LIQ) 6,500,000 12,700,000 Minnesota State Higher Education Coordinating Board, 1992 (Series C) Weekly VRDNs (First Bank NA, Minneapolis LIQ) 12,700,000 5,400,000 Minnesota State Higher Education Coordinating Board, Supplemental Student Loan Program Refunding Revenue Bonds (Series 1994A) Weekly VRDNs (Norwest Bank Minnesota, Minneapolis LIQ) 5,400,000 4,300,000 Minnesota State Higher Education Facility Authority Weekly VRDNs (Carlton College)/(Swiss Bank Corp., Basle LIQ) 4,300,000 5,000,000 Minnesota State, (Series A), 5.00% Bonds (AMBAC INS), 6/30/1997 5,042,129 1,000,000 Minnesota State, 6.60% Bonds, 8/1/1997 1,019,268 3,825,000 Minnesota State, GO State Various Purpose Bonds, 5.00% Bonds, 11/1/1997 3,868,796 2,000,000 Minnesota State, UT GO Refunding Bonds, 4.70% Bonds, 8/1/1997 2,014,740
MINNESOTA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED MINNESOTA -- CONTINUED $ 8,750,000 Minnesota Tax and Aid Anticipation Borrowing Program, Certificates of Participation (Series 1996A), 4.25% TANs (Minnesota Tax and Aid Anticipation Borrowing Program GTD), 2/21/1997 $ 8,769,474 9,500,000 Minnesota Tax and Aid Anticipation Borrowing Program, Certificates of Participation, Aid Anticipation Series 1996A, 4.50% TANs (Minne- sota Tax and Aid Anticipation Borrowing Program GTD), 8/19/1997 9,540,066 6,600,000 Minnesota Tax and Aid Anticipation Borrowing Program, Certificates of Participation, Aid Anticipation Series 1996B, 4.50% TANs (Minne- sota Tax and Aid Anticipation Borrowing Program GTD), 9/9/1997 6,633,722 1,515,000 Minnetonka, MN, IDRB (Series 1996) Weekly VRDNs (PGI Cos., Inc.)/ (Norwest Bank Minnesota, Minneapolis LOC) 1,515,000 5,900,000 Minnetonka, MN, Multi-Family Housing Revenue Refunding Bonds (Series 1995) Weekly VRDNs (Southampton Apartments Project (MN))/(National Bank of Canada, Montreal LOC) 5,900,000 2,800,000 Moorhead, MN ISD, Certificates of Indebtedness, 3.35% TANs (Minne- sota Tax and Aid Anticipation Borrowing Program GTD), 3/27/1997 2,800,374 2,250,000 (b)N. St. Paul-Maplewood, MN, ISD 622, MN Municipal Securities Trust (Series 1996D), Floating Rate Certificate Weekly VRDNs (Norwest Bank Minnesota, Minneapolis LIQ) 2,250,000 1,300,000 New Brighton, MN, IDR Weekly VRDNs (Unicare Homes, Inc.)/ (Banque Paribas, Paris LOC) 1,300,000 1,000,000 New Hope, MN IDRB, (Series 1994) Weekly VRDNs (Gaines and Hanson Printing Co.)/(Norwest Bank Minnesota, Minneapolis LOC) 1,000,000 3,560,000 New Hope, MN Weekly VRDNs (Paddock Labs)/(Norwest Bank Minnesota, Minneapolis LOC) 3,560,000 2,445,000 Olmsted County, MN Building Authority, Certificates of Participation Weekly VRDNs (Human Services Infrastructure)/(Toronto-Dominion Bank LOC) 2,445,000 2,405,000 Orono, MN ISD 278, GO Certificates of Indebtedness, (Series 1996), 3.53% TANs (Minnesota Tax and Aid Anticipation Borrowing Program GTD), 3/13/1997 2,405,749 1,800,000 Perham, MN IDA Weekly VRDNs (Land O' Lakes, Inc.)/(Rabobank Nederland, Utrecht LOC) 1,800,000
MINNESOTA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED MINNESOTA -- CONTINUED $ 1,320,000 Plymouth, MN Weekly VRDNs (Nuaire, Inc.)/(Norwest Bank Minnesota, Minneapolis LOC) $ 1,320,000 4,500,000 Plymouth, MN, IDRB (Series 1994) Weekly VRDNs (Olympic Steel, Inc.)/(National City Bank, Cleveland, OH LOC) 4,500,000 1,435,000 Port of Austin, MN Weekly VRDNs (Mower House Color)/(Norwest Bank Minnesota, Minneapolis LOC) 1,435,000 14,000,000 Rochester, MN Health Care Facility Authority Weekly VRDNs (Mayo Foundation) 14,000,000 3,000,000 Rochester, MN Health Care Facility Authority Weekly VRDNs (Mayo Foundation) 3,000,000 2,160,000 Rochester, MN Health Care Facility Authority, (Series 1988E), 3.50% CP (Mayo Foundation)/(Credit Suisse, Zurich LIQ), Mandatory Tender 11/13/1996 2,160,000 1,000,000 Rochester, MN Health Care Facility Authority, (Series 1988E), 3.60% CP (Mayo Foundation)/(Credit Suisse, Zurich LIQ), Mandatory Tender 11/20/1996 1,000,000 1,000,000 Rogers, MN IDA Weekly VRDNs (Metal Sales Manufacturing Corp)/ (KeyBank, N.A. LOC) 1,000,000 2,810,000 Rogers, MN IDA, IDRB Weekly VRDNs (DAC Development, LLC Project)/(Norwest Bank Minnesota, Minneapolis LOC) 2,810,000 26,950,000 Rosemount, MN, PCR (Series 1984) Weekly VRDNs (Koch Refining Co.) 26,950,000 7,000,000 Shakopee, MN Hospital Finance Authority Weekly VRDNs (St. Francis Regional Medical Center)/(Citibank NA, New York LOC) 7,000,000 1,500,000 Southern Minnesota Municipal Power Agency, 3.65% CP, Mandatory Tender 2/25/1997 1,500,000 1,547,500 St. Cloud, MN Housing & Redevelopment Authority, Revenue Refunding Bonds (Series 1994A) Weekly VRDNs (Coborn's Incorporated Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,547,500 2,772,500 St. Cloud, MN Housing & Redevelopment Authority, Revenue Refunding Bonds (Series 1994B) Weekly VRDNs (Coborn's Incorporated Project)/(Norwest Bank Minnesota, Minneapolis LOC) 2,772,500
MINNESOTA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED MINNESOTA -- CONTINUED $ 5,000,000 St. Paul, MN Housing & Redevelopment Authority Weekly VRDNs (District Cooling St Paul, Inc.)/(Credit Local de France LOC) $ 5,000,000 500,000 St. Paul, MN Housing & Redevelopment Authority Weekly VRDNs (United Way)/(First Bank NA, Minneapolis LOC) 500,000 1,100,000 St. Paul, MN Housing & Redevelopment Authority, (Series 1994) Weekly VRDNs (Minnesota Children's Museum)/(First Bank NA, Minneapolis LOC) 1,100,000 2,000,000 St. Paul, MN Housing & Redevelopment Authority, District Cooling Revenue Bonds (1995 Series I) Weekly VRDNs (Credit Local de France LOC) 2,000,000 1,300,000 St. Paul, MN Port Authority, (Series 1991) Weekly VRDNs (West Gate Office)/(First Bank NA, Minneapolis LOC) 1,300,000 9,700,000 St. Paul, MN Water Utility, Variable Rate Demand Water Revenue Bonds, Series 1994D Weekly VRDNs 9,700,000 1,000,000 Steele County, MN, IDRB (Series 1994) Weekly VRDNs (Blount, Inc.)/ (NationsBank, South LOC) 1,000,000 4,500,000 Stillwater, MN ISD #834, GO Obligation Aid Anticipation Certificates of Indebtedness (Series 1996), 4.10% TRANs (Minnesota Tax and Aid Anticipation Borrowing Program GTD), 9/30/1997 4,505,802 6,500,000 University of Minnesota, (Series F), 3.75% TOBs (Regents of University of Minnesota), Optional Tender 2/1/1997 6,500,000 4,205,000 Victoria, MN, IDRB, (Series 1996A) Weekly VRDNs (HEI, Inc. Project)/(Norwest Bank Minnesota, Minneapolis LOC) 4,205,000 1,420,000 Victoria, MN, Industrial Development Revenue Bonds, (Series 1996B) Weekly VRDNs (HEI, Inc. Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,420,000 2,315,000 Waseca, MN ISD #829, GO UT Notes, 3.57% TANs, 3/26/1997 2,315,349 12,910,000 Washington County, MN Housing & Redevelopment Authority, (Series 90) Weekly VRDNs (Granada Pond Apartments)/(Sumitomo Bank Ltd., Osaka LOC) 12,910,000 1,405,000 Wells, MN, 4.00% TOBs (Stokely, Inc.)/(NBD Bank, Indiana LOC), Optional Tender 12/1/1996 1,405,000
MINNESOTA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED MINNESOTA -- CONTINUED $ 1,105,000 White Bear, MN Weekly VRDNs (Thermoform Plastic, Inc.)/(Norwest Bank Minnesota, Minneapolis LOC) $ 1,105,000 2,165,000 White Bear, MN, Variable Rate Demand Industrial Revenue Bonds Weekly VRDNs (N.A. Ternes Project)/(Firstar Bank, Minnesota LOC) 2,165,000 2,000,000 Winsted, MN IDA Weekly VRDNs (Sterner Lighting Systems)/(Fleet National Bank, Providence, R.I. LOC) 2,000,000 Total 450,982,248 PUERTO RICO--1.3% 3,700,000 Puerto Rico Government Development Bank, 3.50% CP, Mandatory Tender 12/12/1996 3,700,000 2,000,000 Puerto Rico Industrial, Tourist, Education, Medical & Environmental Control Finance Authority, (Series 1994A), 3.80% CP (Inter American University of Puerto Rico)/(Banque Paribas, Paris LOC), Mandatory Tender 1/13/1997 2,000,000 Total 5,700,000 TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 456,682,248
Securities that are subject to the Alternative Minimum Tax Represent 26.8% of the portfolio as calculated based upon total portfolio market value. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. 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 Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term rating categories. Securities rated in the highest short-term rating category (and unrated securities of comparable quality) are identified as First Tier securities. Securities rated in the second highest short-term rating category (and unrated securities of comparable quality) are identified as Second Tier securities. The Fund follows applicable regulations in determining whether a security rated by multiple NRSROs in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED) FIRST TIER SECOND TIER 100.00% 0.00% (b) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. At October 31, 1996, these securities amounted to $18,115,000 which represents 4.0% of net assets. (c) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($453,057,193) at October 31, 1996. The following acronym(s) are used throughout this portfolio: AMBAC -- American Municipal Bond Assurance Corporation CDA -- Community Development Administration COL -- Collateralized CP -- Commercial Paper FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association GO -- General Obligation GTD -- Guaranty HFA -- Housing Finance Authority IDA -- Industrial Development Authority IDR -- Industrial Development Revenue IDRB -- Industrial Development Revenue Bond INS -- Insured INV -- Investment Agreement ISD -- Independent School District LIQ -- Liquidity Agreement LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance PCR -- Pollution Control Revenue SFM -- Single Family Mortgage TANs -- Tax Anticipation Notes TOBs -- Tender Option Bonds TRANs -- Tax and Revenue Anticipation Notes UT -- Unlimited Tax VRDNs -- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 ASSETS: Total investments in securities, at amortized cost and value $ 456,682,248 Cash 51,607,820 Income receivable 3,147,493 Receivable for shares sold 5,522 Total assets 511,443,083 LIABILITIES: Payable for investments purchased $ 57,474,240 Payable for shares redeemed 170,140 Income distribution payable 600,768 Accrued expenses 140,742 Total liabilities 58,385,890 Net Assets for 453,057,193 shares outstanding $ 453,057,193 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: INSTITUTIONAL SHARES: $217,443,044 / 217,443,044 shares outstanding $1.00 CASH SERIES SHARES: $235,614,149 / 235,614,149 shares outstanding $1.00
(See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 INVESTMENT INCOME: Interest $15,092,730 EXPENSES: Investment advisory fee $ 1,616,197 Administrative personnel and services fee 305,489 Custodian fees 65,627 Transfer and dividend disbursing agent fees and expenses 118,998 Directors'/Trustees' fees 4,530 Auditing fees 13,561 Legal fees 12,199 Portfolio accounting fees 98,168 Distribution services fee -- Cash Series Shares 897,310 Shareholder services fee -- Institutional Shares 561,584 Shareholder services fee -- Cash Series Shares 448,655 Share registration costs 22,700 Printing and postage 13,988 Insurance premiums 6,621 Taxes 1,608 Miscellaneous 3,063 Total expenses 4,190,298 Waivers -- Waiver of investment advisory fee $ (1,058,480) Waiver of distribution services fee -- Cash Series Shares (448,655) Waiver of shareholder services fee -- Institutional (561,584) Shares Total waivers (2,068,719) Net expenses 2,121,579 Net investment income $12,971,151
(See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS -- Net investment income $ 12,971,151 $ 12,302,404 DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income Institutional Shares (7,706,768) (8,269,227) Cash Series Shares (5,264,383) (4,033,177) Change in net assets resulting from distributions to shareholders (12,971,151) (12,302,404) SHARE TRANSACTIONS -- Proceeds from sale of shares 1,294,216,493 1,040,754,759 Net asset value of shares issued to shareholders in payment of distributions declared 5,465,115 4,384,166 Cost of shares redeemed (1,190,487,756) (955,314,263) Change in net assets resulting from share transactions 109,193,852 89,824,662 Change in net assets 109,193,852 89,824,662 NET ASSETS: Beginning of period 343,863,341 254,038,679 End of period $ 453,057,193 $ 343,863,341
(See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 1. ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of Minnesota Municipal Cash Trust (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 Fund offers two classes of shares: Institutional Shares and Cash Series Shares. The investment objective of the Fund is current income exempt from federal regular income tax and the regular personal income taxes imposed by the State of Minnesota consistent with stability of principal. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS -- The Fund use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. RESTRICTED SECURITIES -- Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees (the "Trustees"). The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1996 is as follows:
ACQUISITION ACQUISITION SECURITY DATE COST Dakota County, Washington County & Anoka City, MN Housing & Redevelopment Authority, Merlots - Series H 08/29/96 3,000,000 Minneapolis/St. Paul, MN Housing Finance Board, SMF Revenue Bonds (Series D) 10/01/96 4,240,000 Eden Prairie, MN ISD 272, MN Insured Municipal Securities Trust (Series 1996A) 07/11/96 1,000,000 Eden Prairie, MN ISD 272, MN Insured Municipal Securities Trust (Series 1996B) 07/11/96 1,125,000 MN Insured Municipal Securities Trust Series, Series 1996H, (St. Louis Park, MN Health Care Facilities) Floating Rate Certificates 07/01/96 2,500,000 MN Municipal Securities Trust Series, Series 1996H, (Rosemount, MN I.S.D. 196) Floating Rate Certificates 05/01/96 4,000,000 N. St. Paul-Maplewood-Oakdale ISD 622, MN Insured Municipal Securities Trust (Series 1996D) 07/11/96 2,250,000
USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER -- Investment transactions are accounted for on the trade date. 3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1996, capital paid-in aggregated $453,057,193. Transactions is shares were as follows:
YEAR ENDED OCTOBER 31, INSTITUTIONAL SHARES 1996 1995 Shares sold 547,719,129 546,893,719 Shares issued to shareholders in payment of distributions 301,311 425,031 declared Shares redeemed (542,969,267) (494,630,825) Net change resulting from Institutional Share transactions 5,051,173 52,687,925 YEAR ENDED OCTOBER 31, CASH SERIES SHARES 1996 1995 Shares sold 746,497,364 493,861,040 Shares issued to shareholders in payment of distributions 5,163,804 3,959,135 declared Shares redeemed (647,518,489) (460,683,438) Net change resulting from Cash Series Share transactions 104,142,679 37,136,737 Net change resulting from fund share transactions 109,193,852 89,824,662
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to .40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Cash Series Shares. The Plan provides that the Fund may incur distribution expenses up to .50% of the average daily net assets of the Cash Series Shares, annually, to compensate FSC. FSC may voluntarily choose to waive a portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25% of average daily net assets of each class of shares for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. For fiscal year ended, October 31, 1996, the Institutional Shares fully waived its shareholder services fee. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, 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 $635,984,740 and $593,880,000, respectively. GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 5. CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 73.8% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 7.8% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (MINNESOTA MUNICIPAL CASH TRUST): We have audited the accompanying statement of assets and liabilities of Minnesota Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996, the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights (see pages 2 and 14 of the prospectus) for the periods presented. 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 October 31, 1996, by correspondence with the custodian and broker. 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 Minnesota Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 13, 1996 ADDRESSES Minnesota Municipal Cash Trust Cash Series Shares Federated Investors Tower Pittsburgh, PA 15222-3779 Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 Transfer Agent and Dividend Disbursing Agent Federated Shareholder P.O. Box 8600 Services Company Boston, MA 02266-8600 Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 MINNESOTA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH SERIES SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 [Graphic] Federated Investors Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. Cusip 314229873 0082715A-CSS (12/96) MINNESOTA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS The Institutional Shares of Minnesota Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Minnesota municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Minnesota, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and regular personal income taxes imposed by the State of Minnesota consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS SUMMARY OF FUND EXPENSES 1 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES 2 GENERAL INFORMATION 3 INVESTMENT INFORMATION 3 Investment Objective 3 Investment Policies 3 Minnesota Municipal Securities 5 Investment Risks 6 Investment Limitations 6 FUND INFORMATION 7 Management of the Fund 7 Distribution of Institutional Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 HOW TO PURCHASE SHARES 9 HOW TO REDEEM SHARES 10 ACCOUNT AND SHARE INFORMATION 11 TAX INFORMATION 11 Federal Income Tax 11 State and Local Taxes 12 OTHER CLASSES OF SHARES 12 PERFORMANCE INFORMATION 13 FINANCIAL HIGHLIGHTS -- CASH SERIES SHARES 14 FINANCIAL STATEMENTS 15 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 32 ADDRESSES 33 SUMMARY OF FUND EXPENSES
INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable) None Redemption Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1) 0.14% 12b-1 Fee None Total Other Expenses 0.16% Shareholder Services Fee (after waiver)(2) 0.00% Total Operating Expenses(3) 0.30%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The shareholder services fee has been reduced to reflect the voluntary waiver of a portion of the shareholder services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (3) The Total Operating Expenses would have been 0.81% absent the voluntary waivers of a portion of the management fee and the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period $3 $10 $17 $38
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. MINNESOTA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 32.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993 1992 1991 1990(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.04 0.03 0.02 0.03 0.05 0.01 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.04) (0.03) (0.02) (0.03) (0.05) (0.01) NET ASSET VALUE, END OF $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 PERIOD TOTAL RETURN(B) 3.49% 3.82% 2.58% 2.43% 3.19% 4.89% 0.90% RATIOS TO AVERAGE NET ASSETS Expenses 0.30% 0.30% 0.31% 0.31% 0.31% 0.30% 0.01%* Net investment income 3.43% 3.77% 2.55% 2.40% 3.10% 4.73% 6.45%* Expense waiver/ reimbursement(c) 0.51% 0.52% 0.34% 0.34% 0.33% 0.43% 0.69%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $217,443 $212,392 $159,704 $165,865 $245,168 $124,603 $75,904
* Computed on an annualized basis. (a) Reflects operations for the period from September 10, 1990 (date of initial public investment) to October 31, 1990. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees has established two classes of shares known as Institutional Shares and Cash Series Shares. This prospectus relates only to Institutional Shares of the Fund, which are designed primarily for financial institutions acting in a fiduciary capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing primarily in short-term municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Minnesota taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the regular personal income taxes imposed by the State of Minnesota consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from both federal regular income tax and Minnesota regular personal income taxes. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Minnesota and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Minnesota state income tax imposed upon non-corporate taxpayers ("Minnesota Municipal Securities"). Examples of Minnesota Municipal Securities include, but are not limited to: * tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; * bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; * municipal commercial paper and other short-term notes; * variable rate demand notes; * municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and * participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Minnesota Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Minnesota Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other depository institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Minnesota Municipal Securities is subject to the federal alternative minimum tax. MINNESOTA MUNICIPAL SECURITIES Minnesota Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Minnesota Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Minnesota Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Minnesota Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Minnesota Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Minnesota Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Minnesota Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Minnesota Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Minnesota Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations, the Fund's concentration in Minnesota Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of its total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40% of the Fund's average daily net assets. The may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SHARES Federated Securities Corp. is the principal distributor for Institutional Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of its shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions may receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund 's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below: AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Institutional Shares from the value of Fund assets attributable to Institutional Shares, and dividing the remainder by the number of Institutional Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased either by wire or by check. The Fund reserves the right to reject any purchase request. To make a purchase, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken by telephone. The minimum initial investment is $25,000. However, an account may be opened with a smaller amount as long as the minimum is reached within 90 days. Minimum investments will be calculated by combining all accounts maintained with the Fund. Financial institutions may impose different minimum investment requirements on their customers. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Minnesota Municipal Cash Trust -- Institutional Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Minnesota Municipal Cash Trust -- Institutional Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. HOW TO REDEEM SHARES Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. ACCOUNT AND SHARE INFORMATION DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 12, 1996, VAR & Company, Saint Paul, MN, owned 61.75% of the Institutional Shares of the Fund, and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Minnesota. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. MINNESOTA TAXES. Under existing Minnesota laws, distributions made by the Fund will be exempt from Minnesota regular personal income taxes provided that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and provided further that 95% of such distributions are derived from interest on obligations issued by the State of Minnesota or any of its political or governmental subdivisions, municipalities, or governmental agencies or instrumentalities. Distributions made by the Fund will also be exempt to the extent that they are derived from interest on federal obligations and are reported federally as dividend income by shareholders. Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to Minnesota regular personal income taxes. Dividends of the Fund are not exempt from Minnesota corporate income taxes. OTHER CLASSES OF SHARES The Fund also offers another class of shares called Cash Series Shares. Cash Series Shares are sold at net asset value primarily to retail customers of financial institutions and are subject to a minimum initial investment of $10,000 over a 90-day period. All classes are subject to certain of the same expenses. Cash Series Shares are distributed under a 12b-1 Plan adopted by the Fund and also are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. MINNESOTA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- CASH SERIES SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 32.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993 1992 1991(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.03 0.02 0.02 0.03 0.04 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.04) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 TOTAL RETURN(B) 2.97% 3.41% 2.17% 2.02% 2.78% 3.60% RATIOS TO AVERAGE NET ASSETS Expenses 0.80% 0.70% 0.71% 0.71% 0.71% 0.64%* Net investment income 2.93% 3.37% 2.15% 2.01% 2.75% 4.11%* Expense waiver/ reimbursement(c) 0.51% 0.62% 0.61% 0.44% 0.44% 0.59%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $235,614 $131,471 $94,335 $67,521 $75,044 $69,747
* Computed on an annualized basis. (a) Reflects operations for the period from January 7, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- 100.9% MINNESOTA -- 99.6% $ 400,000 Anoka City, MN Solid Waste Disposal Authority, 3.65% CP (United Power Associates)/(National Rural Utilities Cooperative Finance Corp. GTD), Mandatory Tender 12/2/1996 $ 400,000 6,000,000 Anoka City, MN Solid Waste Disposal Authority, 3.75% CP (United Power Associates)/(National Rural Utilities Cooperative Finance Corp. GTD), Mandatory Tender 2/13/1997 6,000,000 2,050,000 Anoka, MN, Multi-Family Housing Revenue Bonds Weekly VRDNs (Walker Plaza Project)/(First Bank NA, Minneapolis LOC) 2,050,000 10,000,000 Anoka-Hennepin, MN ISD 11, GO Certificates of Indebtedness (Series 1996A), 3.44% TANs (Minnesota Tax and Aid Anticipation Borrowing Program GTD), 3/13/1997 10,000,268 3,785,000 Apple Valley, MN, IDRB (Series 1995) Weekly VRDNs (AV Development Company Project)/(Firstar Bank, Minnesota LOC) 3,785,000 2,505,000 Baudette, MN, IDR (Series 1989) Weekly VRDNs (Reid Powell, Inc.)/ (NationsBank, South LOC) 2,505,000 4,000,000 Becker, MN, PCR (Series 1993A & B), 3.60% CP (Northern States Power Co.), Mandatory Tender 11/14/1996 4,000,000 6,500,000 Becker, MN, PCR (Series 1993A & B), 3.70% CP (Northern States Power Co.), Mandatory Tender 11/26/1996 6,500,000 500,000 Beltrami County, MN, Environmental Control Authority Daily VRDNs (Northwood Panelboard Co.)/(Union Bank of Switzerland, Zurich LOC) 500,000 1,400,000 Beltrami County, MN, Environmental Control Authority, (Series 1995) Daily VRDNs (Northwood Panelboard Co.)/(Union Bank of Switzerland, Zurich LOC) 1,400,000 2,855,000 Blaine, MN, Industrial Development Revenue Bonds (Series 1996) Weekly VRDNs (S & S of Minnesota, LLC Project)/(Norwest Bank Minnesota, Minneapolis LOC) 2,855,000 2,000,000 Bloomington, MN Port Authority, Special Tax Revenue Refunding Bonds (Series 1996B) Weekly VRDNs (Mall of America)/(FSA INS)/ (Credit Local de France LIQ) 2,000,000
MINNESOTA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED MINNESOTA -- CONTINUED $ 3,600,000 Bloomington, MN, IDRB (Series 1995) Weekly VRDNs (Now Technologies, Inc. Project)/(Norwest Bank Minnesota, Minneapolis LOC) $ 3,600,000 5,000,000 Bloomington, MN, Multi-Family Housing Weekly VRDNs (Crow/ Bloomington Apartments)/(Citibank NA, New York LOC) 5,000,000 4,400,000 Burnsville, MN, Adjustable Rate IDRBs (Series 1996) Weekly VRDNs (Caire, Inc. Project)/(Bank One, Milwaukee, WI N.A. LOC) 4,400,000 8,080,000 Burnsville, MN, Multi-Family Housing Weekly VRDNs (Berkshire of Burnsville)/(Sumitomo Bank Ltd., Osaka LOC) 8,080,000 1,275,000 Chanhassen, MN IDA, (Series 1995) Weekly VRDNs (Building Management Group, L.L.C. Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,275,000 5,000,000 Cloquet, MN, Industrial Facilities Revenue Bonds (Series 1996A) Weekly VRDNs (Potlatch Corp.)/(Credit Suisse, Zurich LOC) 5,000,000 2,800,000 Coon Rapids, MN Hospital Authority, (Series 1985) Weekly VRDNs (Health Central System)/(First Bank NA, Minneapolis LOC) 2,800,000 2,350,000 Cottage Grove, MN, IDR Refunding Bonds (Series 1995) Weekly VRDNs (Supervalu Inc.)/(Wachovia Bank of Georgia NA, Atlanta LOC) 2,350,000 5,400,000 Crystal, MN IDA Weekly VRDNs (Crystal Gallery Mall, MN)/ (Citibank NA, New York LOC) 5,400,000 10,745,000 Dakota County & Washington County MN Hsg & Redev Auth, Merlots (Series J), 4.20% TOBs (United States Treasury COL)/ (Corestates Bank N.A., Philadelphia, PA LIQ), Optional Tender 3/1/1997 10,745,000 1,655,000 Dakota County, MN Housing & Redevelopment Authority, (Custodial Receipts), 4.20% TOBs (GNMA COL)/(Corestates Bank N.A., Philadelphia, PA LIQ), Optional Tender 3/1/1997 1,655,000 3,000,000 (b)Dakota County, Washington County & Anoka City, MN Housing & Redevelopment Authority, Merlots-Series H, 4.15% TOBs (United States Treasury COL)/(Corestates Bank N.A., Philadelphia, PA LIQ), Optional Tender 12/1/1996 3,000,000 6,750,000 Duluth, MN, Tax and Aid Anticipation Certificates, 4.25% TANs, 12/31/1996 6,754,741
MINNESOTA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED MINNESOTA -- CONTINUED $ 8,000,000 Eagan, MN, Multi-Family Housing (Series 1992A) Weekly VRDNs (Cinnamon Ridge)/(Mellon Bank NA, Pittsburgh LOC) $ 8,000,000 1,000,000 (b)Eden Prairie MN, ISD 272, MN Insured Municipal Securities Trust (Series 1996A), Floating Rate Certificates Weekly VRDNs (MBIA INS)/ (Norwest Bank Minnesota, Minneapolis LIQ) 1,000,000 1,125,000 (b)Eden Prairie MN, ISD 272, MN Insured Municipal Securities Trust (Series 1996B), Floating Rate Certificates Weekly VRDNs (MBIA INS)/ (Norwest Bank Minnesota, Minneapolis LIQ) 1,125,000 855,000 Eden Prairie, MN IDA, #194 Weekly VRDNs (Richard W. Cohen Project)/(Norwest Bank Minnesota, Minneapolis LOC) 855,000 1,340,000 Eden Prairie, MN IDA, (Series 1996) Weekly VRDNs (Challenge Printing, Inc. Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,340,000 41,677 Eden Prairie, MN IDA, (Series 1987) Weekly VRDNs (Minnesota Supply Co.)/(Norwest Bank Minnesota, Minneapolis LOC) 41,677 1,450,000 Eden Prairie, MN IDA, (Series 1995) Weekly VRDNs (Robert Lothenbach Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,450,000 1,025,000 Elk River, MN Weekly VRDNs (Tescom Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,025,000 2,945,000 Farmington, MN, (Series 1996) Weekly VRDNs (Lexington Standard Corporation Project)/(Norwest Bank Minnesota, Minneapolis LOC) 2,945,000 4,025,000 Fridley, MN, (Series 1984) Weekly VRDNs (River Road Investors Project)/(Citibank NA, New York LOC) 4,025,000 7,000,000 Hennepin Co. MN, (Series 1995C) Weekly VRDNs (Hennepin Co. MN GTD) 7,000,000 5,550,000 Hennepin Co. MN, (Series 1996C) Weekly VRDNs 5,550,000 2,500,000 Hennepin Co. MN, GO UT Notes, 4.25% Bonds, 12/1/1996 2,501,899 3,150,000 Hennepin County, MN ISD 286, (Series 1996), 3.38% TANs (Minnesota Tax and Aid Anticipation Borrowing Program GTD), 3/21/1997 3,150,351 5,500,000 Hubbard County, MN, Solid Waste Disposal (Series 1990) Weekly VRDNs (Potlatch Corp.)/(Credit Suisse, Zurich LOC) 5,500,000 3,205,000 Lakeville, MN ISD 194, (Series 1996), 3.90% TRANs, 9/30/1997 3,205,000
MINNESOTA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED MINNESOTA -- CONTINUED $ 1,135,000 Litchfield, MN ISD, Certificates of Indebtedness, 3.33% TANs (Minnesota Tax and Aid Anticipation Borrowing Program GTD), 3/28/1997 $ 1,135,131 2,500,000 (b)MN Insured Municipal Securities Trust, Series 1996H, Floating Rate Certificates Weekly VRDNs (St. Louis Park, MN Health Care Facilities)/(Norwest Bank Minnesota, Minneapolis LIQ)/ (AMBAC INS) 2,500,000 4,000,000 (b)MN Municipal Securities Trust, Series 1996H, Floating Rate Certificates Weekly VRDNs (Rosemount, MN ISD 196)/(FSA INS)/ (Norwest Bank Minnesota, Minneapolis LIQ) 4,000,000 3,900,000 Maple Grove, MN IDA, (Series 1991A) Weekly VRDNs (Eagle Ridge, MN Apartments)/(Sumitomo Bank Ltd., Osaka LOC) 3,900,000 3,000,000 Maple Grove, MN IDA, (Series 1991B) Weekly VRDNs (Eagle Ridge, MN Apartments)/(First Bank NA, Minneapolis LOC) 3,000,000 2,025,000 Maplewood, MN, Multi-Family Housing (Series 1993) Weekly VRDNs (Silver Ridge Project)/(Federal Home Loan Bank of Chicago LOC) 2,025,000 2,610,000 Mendota Heights, MN, Multi-Family Revenue Bonds Weekly VRDNs (Lexington Heights Apartments)/(Sumitomo Bank Ltd., Osaka LOC) 2,610,000 13,755,000 Minneapolis CDA, Refunding Revenue Bonds Weekly VRDNs (Riverplace Project (The Pinnacle Apartments))/(Sumitomo Bank Ltd., Osaka LOC) 13,755,000 8,440,000 Minneapolis CDA, Revenue Refunding Bonds (Series 1995) Weekly VRDNs (Walker Methodist Health Center, Inc. Project)/(First Bank NA, Minneapolis LOC) 8,440,000 700,000 Minneapolis, MN IDA Weekly VRDNs (JTJ Co.)/(First Bank NA, Minneapolis LOC) 700,000 7,000,000 Minneapolis, MN, (Series 1995B) Weekly VRDNs 7,000,000 1,000,000 Minneapolis, MN, Variable Rate Demand Commercial Development Revenue Refunding Bonds (Series 1996) Weekly VRDNs (WNB & Company Project)/(First Bank NA, Minneapolis LOC) 1,000,000 10,100,000 Minneapolis, MN, Variable Rate Housing Revenue Bonds Weekly VRDNs (One Ten Grant Project)/(First Bank NA, Minneapolis LOC) 10,100,000
MINNESOTA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED MINNESOTA -- CONTINUED $ 4,240,000 (b)Minneapolis/St. Paul MN Housing Finance Board, SFM Revenue Bonds, Merlots (Series D), 4.125% TOBs (GNMA COL)/(Corestates Bank NA, Philadelphia, PA LIQ), Optional Tender 1/1/1997 $ 4,240,000 1,066,000 Minneapolis/St. Paul MN Housing Finance Board, Single Family Mortgage Revenue Bonds, 4.25% TOBs (GNMA COL)/(Corestates Bank N.A., Philadelphia, PA LIQ), Optional Tender 2/1/1997 1,066,000 8,000,000 Minnesota State Commissioner of Iron Range Resources & Rehabilitation, (Series 1991) Weekly VRDNs (Louisiana-Pacific Corp.)/ (Wachovia Bank of NC, NA, Winston-Salem LOC) 8,000,000 800,000 Minnesota State HFA, Rental Housing (Series D), 4.15% Bonds (MBIA INS), 8/1/1997 801,712 4,650,000 Minnesota State HFA, Single Family Mortgage Bonds (1995 Series M), 3.50% TOBs (Societe Generale, Paris INV), Mandatory Tender 12/12/1996 4,650,000 400,000 Minnesota State HFA, Single Family Mortgage Bonds (1995 Series O), 3.60% TOBs (Societe Generale, Paris INV), Optional Tender 12/12/1996 400,000 6,500,000 Minnesota State Higher Education Coordinating Board, 1992 (Series C) Weekly VRDNs (First Bank NA, Minneapolis LIQ) 6,500,000 12,700,000 Minnesota State Higher Education Coordinating Board, 1992 (Series C) Weekly VRDNs (First Bank NA, Minneapolis LIQ) 12,700,000 5,400,000 Minnesota State Higher Education Coordinating Board, Supplemental Student Loan Program Refunding Revenue Bonds (Series 1994A) Weekly VRDNs (Norwest Bank Minnesota, Minneapolis LIQ) 5,400,000 4,300,000 Minnesota State Higher Education Facility Authority Weekly VRDNs (Carlton College)/(Swiss Bank Corp., Basle LIQ) 4,300,000 5,000,000 Minnesota State, (Series A), 5.00% Bonds (AMBAC INS), 6/30/1997 5,042,129 1,000,000 Minnesota State, 6.60% Bonds, 8/1/1997 1,019,268 3,825,000 Minnesota State, GO State Various Purpose Bonds, 5.00% Bonds, 11/1/1997 3,868,796 2,000,000 Minnesota State, UT GO Refunding Bonds, 4.70% Bonds, 8/1/1997 2,014,740
MINNESOTA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED MINNESOTA -- CONTINUED $ 8,750,000 Minnesota Tax and Aid Anticipation Borrowing Program, Certificates of Participation (Series 1996A), 4.25% TANs (Minnesota Tax and Aid Anticipation Borrowing Program GTD), 2/21/1997 $ 8,769,474 9,500,000 Minnesota Tax and Aid Anticipation Borrowing Program, Certificates of Participation, Aid Anticipation Series 1996A, 4.50% TANs (Minne- sota Tax and Aid Anticipation Borrowing Program GTD), 8/19/1997 9,540,066 6,600,000 Minnesota Tax and Aid Anticipation Borrowing Program, Certificates of Participation, Aid Anticipation Series 1996B, 4.50% TANs (Minne- sota Tax and Aid Anticipation Borrowing Program GTD), 9/9/1997 6,633,722 1,515,000 Minnetonka, MN, IDRB (Series 1996) Weekly VRDNs (PGI Cos., Inc.)/ (Norwest Bank Minnesota, Minneapolis LOC) 1,515,000 5,900,000 Minnetonka, MN, Multi-Family Housing Revenue Refunding Bonds (Series 1995) Weekly VRDNs (Southampton Apartments Project (MN))/(National Bank of Canada, Montreal LOC) 5,900,000 2,800,000 Moorhead, MN ISD, Certificates of Indebtedness, 3.35% TANs (Minne- sota Tax and Aid Anticipation Borrowing Program GTD), 3/27/1997 2,800,374 2,250,000 (b)N. St. Paul-Maplewood, MN, ISD 622, MN Municipal Securities Trust (Series 1996D), Floating Rate Certificate Weekly VRDNs (Norwest Bank Minnesota, Minneapolis LIQ) 2,250,000 1,300,000 New Brighton, MN, IDR Weekly VRDNs (Unicare Homes, Inc.)/ (Banque Paribas, Paris LOC) 1,300,000 1,000,000 New Hope, MN IDRB, (Series 1994) Weekly VRDNs (Gaines and Hanson Printing Co.)/(Norwest Bank Minnesota, Minneapolis LOC) 1,000,000 3,560,000 New Hope, MN Weekly VRDNs (Paddock Labs)/(Norwest Bank Minnesota, Minneapolis LOC) 3,560,000 2,445,000 Olmsted County, MN Building Authority, Certificates of Participation Weekly VRDNs (Human Services Infrastructure)/(Toronto-Dominion Bank LOC) 2,445,000 2,405,000 Orono, MN ISD 278, GO Certificates of Indebtedness, (Series 1996), 3.53% TANs (Minnesota Tax and Aid Anticipation Borrowing Program GTD), 3/13/1997 2,405,749 1,800,000 Perham, MN IDA Weekly VRDNs (Land O' Lakes, Inc.)/(Rabobank Nederland, Utrecht LOC) 1,800,000
MINNESOTA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED MINNESOTA -- CONTINUED $ 1,320,000 Plymouth, MN Weekly VRDNs (Nuaire, Inc.)/(Norwest Bank Minnesota, Minneapolis LOC) $ 1,320,000 4,500,000 Plymouth, MN, IDRB (Series 1994) Weekly VRDNs (Olympic Steel, Inc.)/(National City Bank, Cleveland, OH LOC) 4,500,000 1,435,000 Port of Austin, MN Weekly VRDNs (Mower House Color)/(Norwest Bank Minnesota, Minneapolis LOC) 1,435,000 14,000,000 Rochester, MN Health Care Facility Authority Weekly VRDNs (Mayo Foundation) 14,000,000 3,000,000 Rochester, MN Health Care Facility Authority Weekly VRDNs (Mayo Foundation) 3,000,000 2,160,000 Rochester, MN Health Care Facility Authority, (Series 1988E), 3.50% CP (Mayo Foundation)/(Credit Suisse, Zurich LIQ), Mandatory Tender 11/13/1996 2,160,000 1,000,000 Rochester, MN Health Care Facility Authority, (Series 1988E), 3.60% CP (Mayo Foundation)/(Credit Suisse, Zurich LIQ), Mandatory Tender 11/20/1996 1,000,000 1,000,000 Rogers, MN IDA Weekly VRDNs (Metal Sales Manufacturing Corp)/ (KeyBank, N.A. LOC) 1,000,000 2,810,000 Rogers, MN IDA, IDRB Weekly VRDNs (DAC Development, LLC Project)/(Norwest Bank Minnesota, Minneapolis LOC) 2,810,000 26,950,000 Rosemount, MN, PCR (Series 1984) Weekly VRDNs (Koch Refining Co.) 26,950,000 7,000,000 Shakopee, MN Hospital Finance Authority Weekly VRDNs (St. Francis Regional Medical Center)/(Citibank NA, New York LOC) 7,000,000 1,500,000 Southern Minnesota Municipal Power Agency, 3.65% CP, Mandatory Tender 2/25/1997 1,500,000 1,547,500 St. Cloud, MN Housing & Redevelopment Authority, Revenue Refunding Bonds (Series 1994A) Weekly VRDNs (Coborn's Incorporated Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,547,500 2,772,500 St. Cloud, MN Housing & Redevelopment Authority, Revenue Refunding Bonds (Series 1994B) Weekly VRDNs (Coborn's Incorporated Project)/(Norwest Bank Minnesota, Minneapolis LOC) 2,772,500
MINNESOTA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED MINNESOTA -- CONTINUED $ 5,000,000 St. Paul, MN Housing & Redevelopment Authority Weekly VRDNs (District Cooling St Paul, Inc.)/(Credit Local de France LOC) $ 5,000,000 500,000 St. Paul, MN Housing & Redevelopment Authority Weekly VRDNs (United Way)/(First Bank NA, Minneapolis LOC) 500,000 1,100,000 St. Paul, MN Housing & Redevelopment Authority, (Series 1994) Weekly VRDNs (Minnesota Children's Museum)/(First Bank NA, Minneapolis LOC) 1,100,000 2,000,000 St. Paul, MN Housing & Redevelopment Authority, District Cooling Revenue Bonds (1995 Series I) Weekly VRDNs (Credit Local de France LOC) 2,000,000 1,300,000 St. Paul, MN Port Authority, (Series 1991) Weekly VRDNs (West Gate Office)/(First Bank NA, Minneapolis LOC) 1,300,000 9,700,000 St. Paul, MN Water Utility, Variable Rate Demand Water Revenue Bonds, Series 1994D Weekly VRDNs 9,700,000 1,000,000 Steele County, MN, IDRB (Series 1994) Weekly VRDNs (Blount, Inc.)/ (NationsBank, South LOC) 1,000,000 4,500,000 Stillwater, MN ISD #834, GO Obligation Aid Anticipation Certificates of Indebtedness (Series 1996), 4.10% TRANs (Minnesota Tax and Aid Anticipation Borrowing Program GTD), 9/30/1997 4,505,802 6,500,000 University of Minnesota, (Series F), 3.75% TOBs (Regents of University of Minnesota), Optional Tender 2/1/1997 6,500,000 4,205,000 Victoria, MN, IDRB, (Series 1996A) Weekly VRDNs (HEI, Inc. Project)/(Norwest Bank Minnesota, Minneapolis LOC) 4,205,000 1,420,000 Victoria, MN, Industrial Development Revenue Bonds, (Series 1996B) Weekly VRDNs (HEI, Inc. Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,420,000 2,315,000 Waseca, MN ISD #829, GO UT Notes, 3.57% TANs, 3/26/1997 2,315,349 12,910,000 Washington County, MN Housing & Redevelopment Authority, (Series 90) Weekly VRDNs (Granada Pond Apartments)/(Sumitomo Bank Ltd., Osaka LOC) 12,910,000 1,405,000 Wells, MN, 4.00% TOBs (Stokely, Inc.)/(NBD Bank, Indiana LOC), Optional Tender 12/1/1996 1,405,000
MINNESOTA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED MINNESOTA -- CONTINUED $ 1,105,000 White Bear, MN Weekly VRDNs (Thermoform Plastic, Inc.)/(Norwest Bank Minnesota, Minneapolis LOC) $ 1,105,000 2,165,000 White Bear, MN, Variable Rate Demand Industrial Revenue Bonds Weekly VRDNs (N.A. Ternes Project)/(Firstar Bank, Minnesota LOC) 2,165,000 2,000,000 Winsted, MN IDA Weekly VRDNs (Sterner Lighting Systems)/(Fleet National Bank, Providence, R.I. LOC) 2,000,000 Total 450,982,248 PUERTO RICO--1.3% 3,700,000 Puerto Rico Government Development Bank, 3.50% CP, Mandatory Tender 12/12/1996 3,700,000 2,000,000 Puerto Rico Industrial, Tourist, Education, Medical & Environmental Control Finance Authority, (Series 1994A), 3.80% CP (Inter American University of Puerto Rico)/(Banque Paribas, Paris LOC), Mandatory Tender 1/13/1997 2,000,000 Total 5,700,000 TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 456,682,248
Securities that are subject to the Alternative Minimum Tax Represent 26.8% of the portfolio as calculated based upon total portfolio market value. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. 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 Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term rating categories. Securities rated in the highest short-term rating category (and unrated securities of comparable quality) are identified as First Tier securities. Securities rated in the second highest short-term rating category (and unrated securities of comparable quality) are identified as Second Tier securities. The Fund follows applicable regulations in determining whether a security rated by multiple NRSROs in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED) FIRST TIER SECOND TIER 100.00% 0.00% (b) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. At October 31, 1996, these securities amounted to $18,115,000 which represents 4.0% of net assets. (c) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($453,057,193) at October 31, 1996. The following acronym(s) are used throughout this portfolio: AMBAC -- American Municipal Bond Assurance Corporation CDA -- Community Development Administration COL -- Collateralized CP -- Commercial Paper FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association GO -- General Obligation GTD -- Guaranty HFA -- Housing Finance Authority IDA -- Industrial Development Authority IDR -- Industrial Development Revenue IDRB -- Industrial Development Revenue Bond INS -- Insured INV -- Investment Agreement ISD -- Independent School District LIQ -- Liquidity Agreement LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance PCR -- Pollution Control Revenue SFM -- Single Family Mortgage TANs -- Tax Anticipation Notes TOBs -- Tender Option Bonds TRANs -- Tax and Revenue Anticipation Notes UT -- Unlimited Tax VRDNs -- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 ASSETS: Total investments in securities, at amortized cost and value $ 456,682,248 Cash 51,607,820 Income receivable 3,147,493 Receivable for shares sold 5,522 Total assets 511,443,083 LIABILITIES: Payable for investments purchased $ 57,474,240 Payable for shares redeemed 170,140 Income distribution payable 600,768 Accrued expenses 140,742 Total liabilities 58,385,890 Net Assets for 453,057,193 shares outstanding $ 453,057,193 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: INSTITUTIONAL SHARES: $217,443,044 / 217,443,044 shares outstanding $1.00 CASH SERIES SHARES: $235,614,149 / 235,614,149 shares outstanding $1.00
(See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 INVESTMENT INCOME: Interest $15,092,730 EXPENSES: Investment advisory fee $ 1,616,197 Administrative personnel and services fee 305,489 Custodian fees 65,627 Transfer and dividend disbursing agent fees and expenses 118,998 Directors'/Trustees' fees 4,530 Auditing fees 13,561 Legal fees 12,199 Portfolio accounting fees 98,168 Distribution services fee -- Cash Series Shares 897,310 Shareholder services fee -- Institutional Shares 561,584 Shareholder services fee -- Cash Series Shares 448,655 Share registration costs 22,700 Printing and postage 13,988 Insurance premiums 6,621 Taxes 1,608 Miscellaneous 3,063 Total expenses 4,190,298 Waivers -- Waiver of investment advisory fee $ (1,058,480) Waiver of distribution services fee -- Cash Series Shares (448,655) Waiver of shareholder services fee -- Institutional (561,584) Shares Total waivers (2,068,719) Net expenses 2,121,579 Net investment income $12,971,151
(See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS -- Net investment income $ 12,971,151 $ 12,302,404 DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income Institutional Shares (7,706,768) (8,269,227) Cash Series Shares (5,264,383) (4,033,177) Change in net assets resulting from distributions to shareholders (12,971,151) (12,302,404) SHARE TRANSACTIONS -- Proceeds from sale of shares 1,294,216,493 1,040,754,759 Net asset value of shares issued to shareholders in payment of distributions declared 5,465,115 4,384,166 Cost of shares redeemed (1,190,487,756) (955,314,263) Change in net assets resulting from share transactions 109,193,852 89,824,662 Change in net assets 109,193,852 89,824,662 NET ASSETS: Beginning of period 343,863,341 254,038,679 End of period $ 453,057,193 $ 343,863,341
(See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 1. ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of Minnesota Municipal Cash Trust (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 Fund offers two classes of shares: Institutional Shares and Cash Series Shares. The investment objective of the Fund is current income exempt from federal regular income tax and the regular personal income taxes imposed by the State of Minnesota consistent with stability of principal. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS -- The Fund use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. RESTRICTED SECURITIES -- Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees (the "Trustees"). The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1996 is as follows:
ACQUISITION ACQUISITION SECURITY DATE COST Dakota County, Washington County & Anoka City, MN Housing & Redevelopment Authority, Merlots - Series H 08/29/96 3,000,000 Minneapolis/St. Paul, MN Housing Finance Board, SMF Revenue Bonds (Series D) 10/01/96 4,240,000 Eden Prairie, MN ISD 272, MN Insured Municipal Securities Trust (Series 1996A) 07/11/96 1,000,000 Eden Prairie, MN ISD 272, MN Insured Municipal Securities Trust (Series 1996B) 07/11/96 1,125,000 MN Insured Municipal Securities Trust Series, Series 1996H, (St. Louis Park, MN Health Care Facilities) Floating Rate Certificates 07/01/96 2,500,000 MN Municipal Securities Trust Series, Series 1996H, (Rosemount, MN I.S.D. 196) Floating Rate Certificates 05/01/96 4,000,000 N. St. Paul-Maplewood-Oakdale ISD 622, MN Insured Municipal Securities Trust (Series 1996D) 07/11/96 2,250,000
USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER -- Investment transactions are accounted for on the trade date. 3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1996, capital paid-in aggregated $453,057,193. Transactions is shares were as follows:
YEAR ENDED OCTOBER 31, INSTITUTIONAL SHARES 1996 1995 Shares sold 547,719,129 546,893,719 Shares issued to shareholders in payment of distributions 301,311 425,031 declared Shares redeemed (542,969,267) (494,630,825) Net change resulting from Institutional Share transactions 5,051,173 52,687,925 YEAR ENDED OCTOBER 31, CASH SERIES SHARES 1996 1995 Shares sold 746,497,364 493,861,040 Shares issued to shareholders in payment of distributions 5,163,804 3,959,135 declared Shares redeemed (647,518,489) (460,683,438) Net change resulting from Cash Series Share transactions 104,142,679 37,136,737 Net change resulting from fund share transactions 109,193,852 89,824,662
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to .40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Cash Series Shares. The Plan provides that the Fund may incur distribution expenses up to .50% of the average daily net assets of the Cash Series Shares, annually, to compensate FSC. FSC may voluntarily choose to waive a portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25% of average daily net assets of each class of shares for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. For fiscal year ended, October 31, 1996, the Institutional Shares fully waived its shareholder services fee. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, 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 $635,984,740 and $593,880,000, respectively. GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 5. CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 73.8% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 7.8% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (MINNESOTA MUNICIPAL CASH TRUST): We have audited the accompanying statement of assets and liabilities of Minnesota Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996, the related statement of operations for the year then ended, and the statement of changes in net assets for each of the two years in the period then ended and the financial highlights (see pages 2 and 14 of the prospectus) for the periods presented. 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 October 31, 1996, by correspondence with the custodian and broker. 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 Minnesota Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended, and the changes in its net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 13, 1996 ADDRESSES Minnesota Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, PA 15222-3779 Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 Transfer Agent and Dividend Disbursing Agent Federated Shareholder P.O. Box 8600 Services Company Boston, MA 02266-8600 Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 MINNESOTA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 [Graphic] Federated Investors Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. Cusip 314229402 0082715A-IS (12/96) MINNESOTA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH SERIES SHARES INSTITUTIONAL SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectuses of Minnesota Municipal Cash Trust (the ``Fund'), a portfolio of Federated Municipal Trust (the ``Trust') dated December 31, 1996. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-341-7400. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1996 [LOGO] Federated Securities Corp. is the distributor of the Funds and is a subsidiary of Federated Investors. Cusip 314229873 0082715B (12/96) INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1 Repurchase Agreements 2 Reverse Repurchase Agreements 2 Credit Enhancement 2 MINNESOTA INVESTMENT RISKS 2 INVESTMENT LIMITATIONS 3 FEDERATED MUNICIPAL TRUST MANAGEMENT 1 Share Ownership 4 Trustees Compensation 4 Trustee Liability 5 INVESTMENT ADVISORY SERVICES 5 Investment Adviser 5 Advisory Fees 6 BROKERAGE TRANSACTIONS 6 OTHER SERVICES 6 Fund Administration 6 Custodian and Portfolio Accountant 6 Transfer Agent 6 Independent Public Accountants 7 DISTRIBUTION PLAN AND SHAREHOLDER SERVICES 7 DETERMINING NET ASSET VALUE 7 REDEMPTION IN KIND 8 MASSACHUSETTS PARTNERSHIP LAW 8 THE FUND'S TAX STATUS 8 PERFORMANCE INFORMATION 8 Yield 8 Effective Yield 8 Tax-Equivalent Yield 9 Tax-Equivalency Table 9 Total Return 10 Performance Comparisons 10 Economic and Market Information 10 ABOUT FEDERATED INVESTORS 10 Mutual Fund Market 11 Institutional Clients 11 Trust Organizations 11 Broker/Dealers and Bank Broker/Dealer Subsidiaries 11 APPENDIX 12 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security; the issuer of any demand feature applicable to the security; or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an `event of non-appropriation''); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations (`NRSROs'') or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group (`S&P''), MIG-1 or MIG-2 by Moody's Investors Service, Inc. (`Moody's''), or F-1+, F-1, or F-2 by Fitch Investors Service, Inc. (`Fitch'') are all considered rated in one of the two highest short-term rating categories. The Fund will follow applicable regulations in determining whether a security rated by more than one NRSRO can be treated as being in one of the two highest short-term rating categories; currently, such securities must be rated by two NRSROs in one of their two highest rating categories. See `Regulatory Compliance.'' WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund in a dollar amount sufficient to make payment for the securities to be purchased are: segregated on the Fund`s records at the trade date; marked to market daily; and maintained until the transaction is settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument in return for a percentage of the instrument's market value in cash and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but does not ensure this result. However, liquid assets of the Fund, in a dollar amount sufficient to make payment for the securities to be purchased, are: segregated on the Fund's records at the trade date; marked to market daily; and maintained until the transaction is settled. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the `credit enhancer''), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. MINNESOTA INVESTMENT RISKS Minnesota has a diversified economy, the structure of which has increasingly come to resemble the nation as a whole. Minnesota's emergence as a regional center is evidenced by the comparatively high rates of employment growth in trade, finance, insurance, and service industries over the past ten years. Agriculture, which had been severely affected since 1981, appears to be improving with land values now stabilizing at levels seen in the early 1980's. State unemployment rates remain below the national level; and personal income has grown more rapidly than that of the nation as a whole, with personal income per capita remaining slightly above the national average. Following a period of volatility in the early 1980's, Minnesota's fiscal operations have been recently characterized by a strong financial position and moderate debt burden. Minnesota has disciplined its budget process through frequent reviews of revenue forecasts and timely legislative action. For fiscal 1997, the state expects to achieve a balanced budget without revenue increases or one-time revenues. In addition, the state maintains two statutory reserves for cash flow and budgetary purposes which, together, represent over 6% of General Fund revenues. The state's budget forecast calls for additions to be made to these reserves in fiscal 1997. Minnesota's debt position is excellent with nearly exclusive use of general obligation bonds. Amortization of general obligation debt is rapid, with nearly three-quarters due within ten years, fully characteristic of high quality borrowers. Debt service requirements are a mere 3% of annual expenditures. The overall credit quality of the state is further demonstrated by its debt ratings. In 1996, Minnesota was upgradedto an Aaa rating from Moody's Investors Service, Inc. Standard & Poor's Ratings Group rates the state AA+. INVESTMENT LIMITATIONS 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. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money directly or through reverse repurchase agreements in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of its total assets are outstanding. During the period any reverse repurchase agreements are outstanding, the Fund will restrict the purchase of portfolio securities to money market instruments maturing on or before the expiration date of the reverse repurchase agreements, but only to the extent necessary to assure completion of the reverse repurchase agreements. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets except that it may acquire publicly or nonpublicly issued Minnesota municipal securities or temporary investments or enter into repurchase agreements, in accordance with its investment objective, policies, limitations, or its Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate or real estate limited partnerships , although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of the value of its net assets in securities subject to restrictions on resale under federal securities law, except for certain restricted securities which meet the criteria for liquidity established by the Trustees. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry, or in industrial development bonds or other securities, the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government , its agencies, or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above limitations cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities including certain restricted securities not determined to be liquid under criteria established by the Trustees and repurchase agreements providing for settlement in more than seven days after notice. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be `cash items.'' Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments , as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director or Trustee of the Funds. Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee, University of Pittsburgh; Director or Trustee of the Funds. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest Florida; formerly, President, Naples Property Management, Inc. and Northgate Village Development Corporation; Director or Trustee of the Funds. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds. Edward L. Flaherty, Jr.@ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region; Director or Trustee of the Funds. Glen R. Johnson* Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. Peter E. Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16, 1942 Trustee Consultant; Former State Representative, Commonwealth of Massachusetts; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation; Director or Trustee of the Funds. Gregor F. Meyer Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director or Trustee of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics; Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., National Defense University, U.S. Space Foundation and Czech Management Center; President Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council for Environmental Policy and Technology, Federal Emergency Management Advisory Board and Czech Management Center; Director or Trustee of the Funds. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/Marketing/Conference Planning, Manchester Craftsmen's Guild; Restaurant Consultant, Frick Art & History Center; Conference Coordinator, University of Pittsburgh Art History Department; Director or Trustee of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated Shareholder Services; Director, Federated Services Company; President or Executive Vice President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Shareholder Services Company; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President , Secretary and Treasurer Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. *This Trustee is deemed to be an ``interested person'' as defined in the Investment Company Act of 1940. @Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board between meetings of the Board. As referred to in the list of Trustees and Officers, `Funds'' includes the following investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated Investment Portfolios; Federated Investment Trust; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 12, 1996, the following shareholders of record owned 5% or more of the outstanding and Cash Series Shares of the Minnesota Municipal Cash Trust: FBS Investment Services, Inc., Minneapolis, MN, owned approximately 45,066,566 shares (19.90%); Regional Operations Group, Minneapolis, MN, owned approximately 40,763,130 shares (18.00%); Voyager Fund Managers, Minneapolis, MN, owned approximately 18,195,111 shares (8.03%); JURAN & Moody, Inc., Saint Paul, MN, owned approximately 17,732,937 shares (7.83%); Piper Jaffray Inc., Minneapolis, MN, owned approximately 15,723,362 shares (6.94%); and Primevest Financial Services, Inc., St. Cloud MN, owned approximately 12,124,781 shares (5.35%). As of December 12, 1996, the following shareholders of record owned 5% or more of the outstanding and Institutional Service Shares of the Minnesota Municipal Cash Trust: VAR & Company, Saint Paul, MN, owned approximately 138,835,825 shares (61.75%); and Resource Bank & Trust Company, Minneapolis, MN, owned approximately 37,122,676 shares (16.61%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 54 other investment companies in the Fund Complex Thomas G. Bigley++ $3,611 $86,331 for the Trust and Trustee 54 other investment companies in the Fund Complex John T. Conroy, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex William J. Copeland $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Peter E. Madden $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Gregor F. Meyer $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex John E. Murray, Jr., $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Wesley W. Posvar $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Marjorie P. Smuts $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1996. #The aggregate compensation is provided for the Trust which is comprised of 16 portfolios. +The information is provided for the last calendar year. ++ Mr. Bigley served on 39 investment companies in the Federated Funds complex from January 1 through September 30, 1995. On October 1, 1995, he was appointed a Trustee on 15 additional Federated Funds. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1996, 1995, and 1994, the adviser earned $1,616,197, $1,357,870, and $1,025,614, respectively, of which $1,058,480, $906,031, and $868,068, respectively, were voluntarily waived. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal years ended October 31, 1996, 1995, and 1994, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative Services served as the Fund's Administrator. Prior to March 1, 1994, Federated Administrative Services, Inc. served as the Fund's Administrator. Both former Administrators are subsidiaries of Federated Investors. For purposes of this Statement of Additional Information, Federated Services Company, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the `Administrators.'' For the fiscal years ended October 31, 1996, 1995, and 1994, the Administrators earned $305,489, $256,977, and $249,373, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. The fee paid for this service is based upon the level of the Fund's average net assets for the period plus out-of- pocket expenses. TRANSFER AGENT Federated Services Company, through its registered transfer agent, Federated Shareholder Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on the size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES With respect to Cash Series Shares, the Fund has adopted a Distribution Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange Commission pursuant to the Investment Company Act of 1940. Additionally, the Fund has adopted a Shareholder Services Agreement with respect to Cash Series Shares and Institutional Shares. These arrangements permit the payment of fees to financial institutions, the distributor, and Federated Shareholder Services, to stimulate distribution activities and to cause services to be provided to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities may include, but are not limited to: marketing efforts; providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Plan, the Trustees expect that the Fund will be able to achieve a more predictable flow of cash for investment purposes and to meet redemptions. This will facilitate more efficient portfolio management and assist the Fund in seeking to achieve its investment objectives. By identifying potential investors whose needs are served by the Fund `s objectives, and properly servicing these accounts, the Fund may be able to curb sharp fluctuations in rates of redemptions and sales. Other benefits, which may be realized under either arrangement, may include: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal year ended October 31, 1996, payments in the amount of $897,310 were made pursuant to the Plan for Cash Series Shares, of which $448,655 was voluntarily waived. In addition, for the fiscal year ended October 31, 1996, the Fund paid shareholder service fees in the amounts of $448,655 and $561,584 for Cash Series Shares and Institutional Shares, respectively, all of which was voluntarily waived for Cash Series Shares. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the `Rule'') promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.50% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the `base period.'' This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. For the seven-day period ended October 31, 1996, the yields for Cash Series Shares and Institutional Shares were 2.91% and 3.41%, respectively. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. For the seven-day period ended October 31, 1996, the effective yields for Cash Series Shares and Institutional Shares were 2.95% and 3.47%, respectively. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming 48.10% tax rate (the maximum combined effective federal and state rate for individuals) and assuming that the income is 100% tax exempt. For the seven-day period ended October 31, 1996, the tax-equivalent yields for Cash Series Shares and Institutional Shares were 5.61% and 6.59%, respectively. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a `tax- free''investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1996 STATE OF MINNESOTA COMBINED FEDERAL AND STATE INCOME TAX BRACKET: 23.00% 36.50% 39.50% 44.50% 48.10% JOINT $1- $40,101- $96,901- $147,701- OVER RETURN 40,100 96,900 147,700 263,750 $263,750 SINGLE $1- $24,001- $58,151- $121,301- OVER RETURN 24,000 58,150 121,300 263,750 $263,750 TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT 1.50% 1.95% 2.36% 2.48% 2.70% 2.89% 2.00% 2.60% 3.15% 3.31% 3.60% 3.85% 2.50% 3.25% 3.94% 4.13% 4.50% 4.82% 3.00% 3.90% 4.72% 4.96% 5.41% 5.78% 3.50% 4.55% 5.51% 5.79% 6.31% 6.74% 4.00% 5.19% 6.30% 6.61% 7.21% 7.71% 4.50% 5.84% 7.09% 7.44% 8.11% 8.67% 5.00% 6.49% 7.87% 8.26% 9.01% 9.63% 5.50% 7.14% 8.66% 9.09% 9.91% 10.60% 6.00% 7.79% 9.45% 9.92% 10.81% 11.56% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. For the one-year, five-year and period from January 7, 1991 (date of initial public investment) to October 31, 1996, the average annual total returns were 2.97%, 2.67%, and 2.90%, respectively, for Cash Series Shares. For the one-year, five-year and period from September 10, 1990 (date of initial public investment) to October 31, 1996, the average annual total returns were 3.49%, 3.10%, and 3.47%, respectively, for Institutional Shares. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. oMONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. Advertising and other promotional literature may include charts, graphs and other illustrations using the Fund`s returns, or returns in general, that demonstrate basic investment concepts such as tax-deferred compounding, dollar-cost averaging and systematic investment. In addition, the Fund can compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, such as bank savings accounts, certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION Advertising and sales literature for the Fund may include discussions of economic, financial and political developments and their effect on the securities market. Such discussions may take the form of commentary on these developments by the Fund portfolio mangers and their views and analysis on how such developments could affect the Funds. In addition, advertising and sales literature may quote statistics and give general information about the mutual fund industry, including growth of the industry, from sources such as the Investment Company Institute. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. These traders handle trillions of dollars in annual trading volume. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1995, Federated Investors managed more than $40.2 billion in assets across approximately 47 money market funds, including 17 government, 10 prime and 20 municipal with assets approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $3 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. Federated's service to financial professionals and institutions has earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for service quality measurement. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (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 rate `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. MOODYS 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 SERVICES, INC. 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. NEW JERSEY MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS The Institutional Shares of New Jersey Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term New Jersey municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of New Jersey, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and New Jersey state income tax imposed upon non-corporate taxpayers consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS SUMMARY OF FUND EXPENSES 1 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES 2 GENERAL INFORMATION 3 INVESTMENT INFORMATION 3 Investment Objective 3 Investment Policies 3 New Jersey Municipal Securities 6 Investment Risks 6 Investment Limitations 7 FUND INFORMATION 7 Management of the Fund 7 Distribution of Institutional Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 HOW TO PURCHASE SHARES 9 HOW TO REDEEM SHARES 9 ACCOUNT AND SHARE INFORMATION 10 TAX INFORMATION 11 Federal Income Tax 11 State and Local Taxes 12 OTHER CLASSES OF SHARES 12 PERFORMANCE INFORMATION 12 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES 13 FINANCIAL STATEMENTS 14 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 26 ADDRESSES 27
SUMMARY OF FUND EXPENSES INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable) None Redemption Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None
ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1) 0.23% 12b-1 Fee None Total Other Expenses 0.32% Shareholder Services Fee (after waiver)(2) 0.05% Total Operating Expenses(3) 0.55%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The shareholder services fee has been reduced to reflect the voluntary waiver of a portion of the shareholder services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (3) The Total Operating Expenses would have been 0.92% absent the voluntary waivers of portions of the management fee and shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period $6 $18 $31 $69
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. NEW JERSEY MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 26.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993** 1992 1991(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.03 0.02 0.02 0.03 0.04 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.04) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 TOTAL RETURN(b) 3.17% 3.46% 2.26% 2.22% 2.96% 3.87% RATIOS TO AVERAGE NET ASSETS Expenses 0.55% 0.55% 0.54% 0.46% 0.45% 0.27%* Net investment income 3.13% 3.41% 2.22% 2.19% 2.86% 4.19%* Expense waiver/reimbursement(c) 0.37% 0.41% 0.39% 0.45% 0.51% 0.67%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $115,722 $86,944 $62,984 $66,346 $57,657 $39,423
* Computed on an annualized basis. ** Prior to October 6, 1993, the fund provided three classes of shares. (a) Reflects operations for the period from December 13, 1990 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees has established two classes of shares known as Institutional Shares and Institutional Service Shares. This prospectus relates only to Institutional Shares of the Fund, which are designed primarily for financial institutions acting in an agency or fiduciary capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term municipal securities. The Fund may not be a suitable investment for retirement plans or for non-New Jersey taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and New Jersey state income tax imposed upon non-corporate taxpayers consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and New Jersey state income tax imposed upon non-corporate taxpayers. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of New Jersey and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and ("New Jersey Municipal Securities"). Examples of New Jersey Municipal Securities include, but are not limited to: * tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; * bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; * municipal commercial paper and other short-term notes; * variable rate demand notes; * municipal bonds (including bonds having serial maturities and pre- refunded bonds) and leases; and * participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in New Jersey Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying New Jersey Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain New Jersey Municipal Securities is subject to the federal alternative minimum tax. NEW JERSEY MUNICIPAL SECURITIES New Jersey Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. New Jersey Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of New Jersey Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on New Jersey Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of New Jersey Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of New Jersey Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in New Jersey Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these New Jersey Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of New Jersey Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these considerations, the Fund's concentration in New Jersey Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of its total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SHARES Federated Securities Corp. is the principal distributor for Institutional Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to 0.25% of the average daily net asset value of its shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund 's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate as which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE FEE DAILY NET ASSETS 0.15% on the first $250 million 0.125% on the next $250 million 0.10% on the next $250 million 0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Institutional Shares from the value of Fund assets attributable to Institutional Shares, and dividing the remainder by the number of Institutional Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased either by wire or by check. The Fund reserves the right to reject any purchase request. To make a purchase, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken by telephone. The minimum initial investment is $25,000. However, an account may be opened with a smaller amount as long as the minimum is reached within 90 days. Minimum investments will be calculated by combining all accounts maintained with the Fund. Financial institutions may impose different minimum investment requirements on their customers. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: New Jersey Municipal Cash Trust -- Institutional Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: New Jersey Municipal Cash Trust -- Institutional Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. HOW TO REDEEM SHARES Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. ACCOUNT AND SHARE INFORMATION DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 2, 1996, COM II, Fleet Bank National Association, acting in various capacities for numerous accounts owned 30.15% of the Institutional Shares of the Fund and Fiduciary Trust Company International owned 38.75% of the Institutional Service Shares of the Fund. These companies may, for certain purposes, be deemed to control the shares of the Fund and may be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than New Jersey. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. NEW JERSEY TAXES. Under existing New Jersey laws, distributions made by the Fund will not be subject to New Jersey income taxes to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest or gain from obligations issued by or on behalf of the State of New Jersey or any county, municipality, school or other district, agency, authority, commission, instrumentality, public corporation, body corporate and politic or political subdivision of New Jersey; or (ii) interest or gain from obligations (such as obligations of the United States) that are statutorily free from New Jersey taxation under federal or New Jersey state laws. Conversely, to the extent that distributions by the Fund are attributable to other types of obligations, such distributions will be subject to New Jersey income taxes. Distributions received by a corporate shareholder from the Fund will not be exempt from New Jersey Corporation Business Tax or New Jersey Corporation Income Tax. OTHER CLASSES OF SHARES The Fund also offers another class of shares called Institutional Service Shares. Institutional Service Shares are sold at net asset value primarily to financial institutions acting in an agency capacity and are subject to a minimum initial investment of $25,000 over a 90-day period. All classes are subject to certain of the same expenses. Institutional Service Shares are distributed under a 12b-1 Plan adopted by the Fund and also are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. NEW JERSEY MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 26.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993 1992 1991(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.03 0.02 0.02 0.03 0.04 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.04) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 TOTAL RETURN(b) 3.07% 3.36% 2.16% 2.12% 2.86% 3.82% RATIOS TO AVERAGE NET ASSETS Expenses 0.65% 0.65% 0.65% 0.56% 0.55% 0.35%* Net investment income 3.03% 3.28% 2.19% 2.08% 2.69% 4.11%* Expense waiver/reimbursement(c) 0.37% 0.41% 0.41% 0.45% 0.51% 0.69%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $28,807 $29,817 $36,704 $21,005 $26,844 $17,709
* Computed on an annualized basis. (a) Reflects operations for the period from December 13, 1990 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- 99.3% NEW JERSEY -- 99.3% $ 700,000 Atlantic County, NJ Improvement Authority Weekly VRDNs (Marine Midland Bank N.A., Buffalo, NY LOC) $ 700,000 2,000,000 Atlantic Highlands, NJ, 4.20% BANs, 1/31/1997 2,001,702 2,400,000 Bayonne, NJ, 4.25% BANs, 12/15/1996 2,401,573 1,258,375 Berkeley Township, NJ, 4.25% BANs, 5/28/1997 1,260,784 1,625,000 Bordentown, NJ, 4.50% BANs, 6/24/1997 1,628,515 3,731,745 Caldwell Borough, NJ, 4.125% BANs, 12/6/1996 3,733,726 1,900,000 Camden County, NJ Improvement Authority, (Series 1995) Weekly VRDNs (Jewish Federation of Southern Jersey, Inc.)/(National Westminster Bank, PLC, London LOC) 1,900,000 4,900,000 (b)Camden County, NJ Improvement Authority, (Series 1996) Weekly VRDNs (Parkview Redevelopment Housing Project)/(General Electric Capital Corp. LOC) 4,900,000 5,000,000 (b)Clipper New Jersey Tax-Exempt Trust, (Series 1996-2) Weekly VRDNs (New Jersey Housing & Mortgage Financing Authority)/(MBIA INS)/ (State Street Bank and Trust Co. LIQ) 5,000,000 4,000,000 Essex County, NJ Improvement Authority, Project Revenue Bonds (Series 1995) Weekly VRDNs (Essex County, NJ)/(AMBAC INS)/ (Morgan Guaranty Trust Co., New York LIQ) 4,000,000 1,256,000 Ewing Township, NJ, 4.25% BANs, 10/24/1997 1,260,707 1,004,000 Florence Township, NJ Board of Education, 4.15% TANs, 12/31/1996 1,004,717 2,500,000 Galloway Township, NJ, (Series B), 4.00% BANs, 3/13/1997 2,503,491 1,041,378 High Bridge Borough, NJ, 4.50% BANs, 9/5/1997 1,045,599 1,300,000 Long Branch, NJ, 4.00% BANs, 12/13/1996 1,300,988 3,000,000 Lower Township, NJ, 4.50% BANs, 6/27/1997 3,006,571 3,835,500 Mahwah Township, NJ, 4.25% BANs, 8/22/1997 3,845,880 1,200,000 Mercer County, NJ Improvement Authority Weekly VRDNs (Mercer County, NJ Pooled Governmental Loan Program)/(Credit Suisse, Zurich LOC) 1,200,000
NEW JERSEY MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED NEW JERSEY -- CONTINUED $ 1,500,000 Middlesex County, NJ PCFA Weekly VRDNs (FMC Gold Co.)/ (Wachovia Bank of NC, N.A., Winston-Salem LOC) $ 1,500,000 1,200,000 Morristown, NJ, 3.80% TANs, 2/14/1997 1,200,000 1,138,681 New Brunswick, NJ, 4.00% BANs, 12/23/1996 1,139,372 9,100,000 New Jersey EDA Weekly VRDNs (Center-for-Aging -- Applewood Estates)/(Banque Paribas, Paris LOC) 9,100,000 2,400,000 New Jersey EDA Weekly VRDNs (Church and Dwight, Inc.)/ (Bank of Nova Scotia, Toronto LOC) 2,400,000 2,500,000 New Jersey EDA Weekly VRDNs (Franciscan Oaks)/(Bank of Scotland, Edinburgh LOC) 2,500,000 5,553,000 New Jersey EDA Weekly VRDNs (Meridan Health Care)/ (First National Bank of Maryland, Baltimore LOC) 5,553,000 4,173,000 New Jersey EDA Weekly VRDNs (Molins Machines)/ (Nationsbank, N.A. LOC) 4,173,000 1,320,000 New Jersey EDA Weekly VRDNs (Nash Group)/(Chase Manhattan Bank N.A., New York LOC) 1,320,000 2,100,000 New Jersey EDA Weekly VRDNs (YM-YWHA of Bergen County, NJ)/ (Bank of New York, New York LOC) 2,100,000 1,440,000 New Jersey EDA, (1994 Series A), 4.30% TOBs (A.F.L. Quality, Inc.)/ (Fleet Bank N.A. LOC), Optional Tender 6/30/1997 1,440,000 500,000 New Jersey EDA, (1994 Series B), 4.30% TOBs (Two Univac, L.L.C.)/ (Fleet Bank N.A. LOC), Optional Tender 6/30/1997 500,000 2,300,000 New Jersey EDA, (Series 1984) Weekly VRDNs (Burmah-Castrol Inc. Project)/(Barclays Bank PLC, London LOC) 2,300,000 4,100,000 New Jersey EDA, (Series 1985) Weekly VRDNs (Seton Co.)/(Banque Paribas, Paris LOC) 4,100,000 4,100,000 New Jersey EDA, (Series 1986) Weekly VRDNs (Ridgefield Associates)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 4,100,000 300,000 New Jersey EDA, (Series 1987G) Weekly VRDNs (W.Y. Urban Renewal)/(National Westminster Bank, PLC, London LOC) 300,000 2,100,000 New Jersey EDA, (Series 1988-F) Weekly VRDNs (Lamington Corners Associates)/(First Union National Bank, North LOC) 2,100,000
NEW JERSEY MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED NEW JERSEY -- CONTINUED $ 1,040,000 New Jersey EDA, (Series 1992 Q) Weekly VRDNs (Physical Accoustics, Inc.)/(Banque Nationale de Paris LOC) $ 1,040,000 1,030,000 New Jersey EDA, (Series 1992 Z) Weekly VRDNs (West-Ward Pharmaceuticals)/(Banque Nationale de Paris LOC) 1,030,000 1,040,000 New Jersey EDA, (Series 1992D-1) Weekly VRDNs (Danlin Corp.)/ (Banque Nationale de Paris LOC) 1,040,000 2,105,000 New Jersey EDA, (Series 1992I-1) Weekly VRDNs (Geshem Realty)/ (Banque Nationale de Paris LOC) 2,105,000 2,835,000 New Jersey EDA, (Series 1992L) Weekly VRDNs (Kent Place School)/ (Banque Nationale de Paris LOC) 2,835,000 1,500,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Filtra Corporation Project)/(Chase Manhattan Bank N.A., New York LOC) 1,500,000 5,100,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Hillcrest Health Service System, Inc.)/(Industrial Bank of Japan Ltd., Tokyo LOC) 5,100,000 3,000,000 New Jersey EDA, (Series 1995) Weekly VRDNs (International Vitamin Corporation Project)/(National Westminster Bank, PLC, London LOC) 3,000,000 1,250,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Manhattan Bagel Co., Inc.)/(First Union National Bank, North LOC) 1,250,000 885,000 New Jersey EDA, (Series W) Weekly VRDNs (Datatec Industries, Inc.)/ (Banque Nationale de Paris LOC) 885,000 2,815,000 New Jersey EDA, Economic Development Bonds Weekly VRDNs (Atlantic States Cast Iron Pipe Company)/(Amsouth Bank N.A., Birmingham LOC) 2,815,000 1,300,000 New Jersey EDA, Economic Development Bonds, 1987 Project Weekly VRDNs (United Jewish Community of Bergen County)/ (Bank of New York, New York LOC) 1,300,000 4,600,000 New Jersey EDA, Port Facility Revenue Bonds (Series 1983) Weekly VRDNs (Trailer Marine Transport Corporation)/(Chase Manhattan Bank N.A., New York LOC) 4,600,000 3,840,000 (b)New Jersey Housing & Mortgage Financing Authority, CDC Municipal Products Class A Certificates (Series 1996B) Weekly VRDNs (MBIA INS)/(CDC Municipal Products, Inc. LIQ) 3,840,000
NEW JERSEY MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED NEW JERSEY -- CONTINUED $ 1,250,000 Passaic County, NJ Utilities Authority, (Series 1996B), 3.95% BANs (MBIA INS), 9/3/1997 $ 1,250,000 1,750,000 Pine Beach, NJ, 3.625% BANs, 2/13/1997 1,751,077 1,490,000 Pine Hill Borough, NJ, (Series A), 4.14% BANs, 8/7/1997 1,491,530 1,250,000 Pine Hill Borough, NJ, 3.99% BANs, 8/8/1997 1,250,368 1,135,873 Point Pleasant, NJ, 4.375% BANs, 10/3/1997 1,139,637 10,000,000 Port Authority of New York and New Jersey, (Series 1991-4) Weekly VRDNs 10,000,000 5,700,000 Trenton, NJ, 4.125% BANs, 12/20/1996 5,702,698 TOTAL INVESTMENTS (AT AMORTIZED COST)(c) $143,444,935
Securities that are subject to Alternative Minimum Tax represent 28% of the portfolio as calculated based upon total portfolio market value. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term rating categories. Securities rated in the highest short-term rating category (and unrated securities of comparable quality) are identified as First Tier securities. Securities rated in the second highest short-term rating category (and unrated securities of comparable quality) are identified as Second Tier securities. The Fund follows applicable regulations in determining whether a security rated by multiple NRSROs in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENT BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER 90.52% 9.48%
(b) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. At October 31, 1996, these securities amounted to $13,740,000 which represents 9.5% of net asset. (c) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($144,528,891) at October 31, 1996. The following acronyms are used throughout this portfolio: AMBAC -- American Municipal Bond Assurance Corporation BANs -- Bond Anticipation Notes EDA -- Economic Development Authority INS -- Insured LIQ -- Liquidity Agreement LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance PCFA -- Pollution Control Finance Authority PLC -- Public Limited Company TANs -- Tax Anticipation Notes TOBs -- Tender Option Bonds VRDNs -- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 ASSETS: Total investments in securities, at amortized cost and value $ 143,444,935 Cash 235,885 Income receivable 1,210,558 Receivable for shares sold 2,537 Total assets 144,893,915 LIABILITIES: Payable for shares redeemed $ 44,528 Income distribution payable 276,514 Accrued expenses 43,982 Total liabilities 365,024 Net Assets for 144,528,891 shares outstanding $ 144,528,891 NET ASSET VALUE: INSTITUTIONAL SHARES: $115,722,003 / 115,722,003 shares outstanding $1.00 INSTITUTIONAL SERVICE SHARES: $28,806,888 / 28,806,888 shares outstanding $1.00
(See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 INVESTMENT INCOME: Interest $ 4,624,312 EXPENSES: Investment advisory fee $ 501,943 Administrative personnel and services fee 155,108 Custodian fees 23,599 Transfer and dividend disbursing agent fees and expenses 41,701 Directors'/Trustees' fees 2,113 Auditing fees 13,561 Legal fees 9,908 Portfolio accounting fees 53,793 Distribution services fee -- Institutional Service Shares 24,872 Shareholder services fee -- Institutional Shares 251,550 Shareholder services fee -- Institutional Service Shares 62,181 Share registration costs 24,542 Printing and postage 11,780 Insurance premiums 3,625 Taxes 2,543 Miscellaneous 4,078 Total expenses 1,186,897 Waivers -- Waiver of investment advisory fee $ (215,343) Waiver of distribution services fee -- Institutional Service Shares (24,872) Waiver of shareholder services fee -- Institutional Shares (201,240) Waiver of shareholder services fee -- Institutional Service Shares (24,872) Total waivers (466,327) Net expenses 720,570 Net investment income $ 3,903,742
(See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS -- Net investment income $ 3,903,742 $ 3,642,951 DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income: Institutional Shares (3,146,674) (2,752,708) Institutional Service Shares (757,068) (890,243) Change in net assets resulting from distributions to shareholders (3,903,742) (3,642,951) SHARE TRANSACTIONS -- Proceeds from sale of shares 416,887,554 425,149,193 Net asset value of shares issued to shareholders in payment of distributions declared 630,451 545,318 Cost of shares redeemed (389,750,630) (408,621,137) Change in net assets resulting from share transactions 27,767,375 17,073,374 Change in net assets 27,767,375 17,073,374 NET ASSETS: Beginning of period 116,761,516 99,688,142 End of period $ 144,528,891 $ 116,761,516
(See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 1. ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of New Jersey Municipal Cash Trust (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 Fund offers two classes of shares: Institutional Shares and Institutional Service Shares. The investment objective of the Fund is current income exempt from federal regular income tax and New Jersey state income tax consistent with stability of principal and liquidity. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. 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. 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 Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1996 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST Camden County NJ, Improvement Authority 7/10/1996 $4,900,000 Clipper New Jersey Tax-Exempt Trust 5/1/1996 5,006,316 New Jersey Housing & Mortgage Financing Authority 7/24/1996 3,845,219
3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, 1996 1995 INSTITUTIONAL SHARES SHARES SHARES Shares sold 334,848,832 334,240,209 Shares issued to shareholders in payment of distributions declared 218,331 15,613 Shares redeemed (306,289,398) (310,295,248) Net change resulting from Institutional share transactions 28,777,765 23,960,574 YEAR ENDED OCTOBER 31, 1996 1995 INSTITUTIONAL SERVICE SHARES SHARES SHARES Shares sold 82,038,722 90,908,984 Shares issued to shareholders in payment of distributions declared 412,120 529,705 Shares redeemed (83,461,232) (98,325,889) Net change resulting from Institutional Service share transactions (1,010,390) (6,887,200) Net change resulting from share transactions 27,767,375 17,073,374
At October 31, 1996, capital paid-in aggregated $144,528,891. 4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will reimburse Federated Securities Corp., ("FSC") the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Institutional Service Shares. The Plan provides that the Fund may incur distribution expenses up to 0.10% of the average daily net assets of the Institutional Service Shares, annually, to reimburse FSC. The distributor may voluntarily choose to waive any portion of its fee. The distributor can modify or terminate voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement with Federated Shareholder Services, ("FSS") the Fund will pay FSS up to 0.25% of average daily net assets of the Fund shares for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES -- Organizational and/or start-up administrative service expenses of $78,170 were borne initially by Adviser. The Fund has agreed to reimburse Adviser for the organizational and/or start-up administrative expenses at an annual rate of .005% and .01% of average daily net assets, respectively, until expenses initially borne are fully reimbursed or the expiration of five years after December 10, 1990 (the date the Fund became effective), whichever occurs earlier. For the period ended October 31, 1996, the Fund paid $995 pursuant to this agreement. INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, 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 $207,235,000 and $198,435,000, respectively. GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 5. CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 66.1% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 9.2% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (New Jersey Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of New Jersey Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996, the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see pages 2 and 13 of the prospectus) for the periods presented. 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 October 31, 1996, 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 New Jersey Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 13, 1996 ADDRESSES New Jersey Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, PA 15222-3779 Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 Transfer Agent and Dividend Disbursing Agent Federated Shareholder P.O. Box 8600 Services Company Boston, MA 02266-8600 Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 NEW JERSEY MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 [Graphic] Federated Investors Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. [Graphic] Cusip 314229600 0100802A-IS (12/96) NEW JERSEY MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS The Institutional Service Shares of New Jersey Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term New Jersey municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of New Jersey, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and New Jersey state income tax imposed upon non-corporate taxpayers consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS SUMMARY OF FUND EXPENSES 1 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES 2 GENERAL INFORMATION 3 INVESTMENT INFORMATION 3 Investment Objective 3 Investment Policies 3 New Jersey Municipal Securities 6 Investment Risks 6 Investment Limitations 7 FUND INFORMATION 7 Management of the Fund 7 Distribution of Institutional Service Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 HOW TO PURCHASE SHARES 9 Special Purchase Features 10 HOW TO REDEEM SHARES 10 Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 12 TAX INFORMATION 13 Federal Income Tax 13 State and Local Taxes 13 OTHER CLASSES OF SHARES 14 PERFORMANCE INFORMATION 14 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES 15 FINANCIAL STATEMENTS 16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 28 ADDRESSES 29 SUMMARY OF FUND EXPENSES INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable) None Redemption Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None
ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1) 0.23% 12b-1 Fee (after waiver)(2) 0.00% Total Other Expenses 0.42% Shareholder Services Fee (after waiver)(3) 0.15% Total Operating Expenses(4) 0.65% (1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The 12b-1 fee has been reduced to reflect the voluntary waiver of the 12b-1 fee. The distributor can terminate this voluntary waiver at any time at its sole discretion. The maximum 12b-1 fee is 0.10%. (3) The shareholder services fee has been reduced to reflect the voluntary waiver of a portion of the shareholder services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (4) The Total Operating Expenses would have been 1.02% absent the voluntary waivers of portions of the management fee and shareholder services fee and the voluntary waiver of the 12b-1 fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Service Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period $7 $21 $36 $81
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. NEW JERSEY MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 28.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993 1992 1991(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.03 0.02 0.02 0.03 0.04 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.04) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 TOTAL RETURN(b) 3.07% 3.36% 2.16% 2.12% 2.86% 3.82% RATIOS TO AVERAGE NET ASSETS Expenses 0.65% 0.65% 0.65% 0.56% 0.55% 0.35%* Net investment income 3.03% 3.28% 2.19% 2.08% 2.69% 4.11%* Expense waiver/reimbursement(c) 0.37% 0.41% 0.41% 0.45% 0.51% 0.69%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $28,807 $29,817 $36,704 $21,005 $26,844 $17,709
* Computed on an annualized basis. (a) Reflects operations for the period from December 13, 1990 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees has established two classes of shares known as Institutional Service Shares and Institutional Shares. This prospectus relates only to Institutional Service Shares of the Fund, which are designed primarily for financial institutions acting in an agency capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term municipal securities. The Fund may not be a suitable investment for retirement plans or for non-New Jersey taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and New Jersey state income tax imposed upon non-corporate taxpayers consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and New Jersey state income tax imposed upon non-corporate taxpayers. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of New Jersey and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and New Jersey state income tax imposed upon non-corporate taxpayers ("New Jersey Municipal Securities"). Examples of New Jersey Municipal Securities include, but are not limited to: * tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; * bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; * municipal commercial paper and other short-term notes; * variable rate demand notes; * municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and * participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in New Jersey Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying New Jersey Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain New Jersey Municipal Securities is subject to the federal alternative minimum tax. NEW JERSEY MUNICIPAL SECURITIES New Jersey Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. New Jersey Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of New Jersey Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on New Jersey Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of New Jersey Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of New Jersey Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in New Jersey Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these New Jersey Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of New Jersey Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these considerations, the Fund's concentration in New Jersey Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to 0.40% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES Federated Securities Corp. is the principal distributor for Institutional Service Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in accordance with Rule 12b-1 under the Investment Company Act of 1940 (the "Plan"), the distributor may be paid a fee by the Fund in an amount computed at an annual rate of up to .10% of the average daily net asset value of the Fund. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide sales services or distribution-related support services as agents for their clients or customers. The Plan is a compensation-type Plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Plan. In addition, the Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of its shares to obtain certain personal services for shareholders and to maintain shareholder accounts. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund 's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate as which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE FEE DAILY NET ASSETS 0.15% on the first $250 million 0.125% on the next $250 million 0.10% on the next $250 million 0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Institutional Service Shares from the value of Fund assets attributable to Institutional Service Shares, and dividing the remainder by the number of Institutional Service Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $25,000 or more over a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. Eastern time to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. Eastern time in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: New Jersey Municipal Cash Trust--Institutional Service Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: New Jersey Municipal Cash Trust -- Institutional Service Shares. Please include an account number on the check. 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. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $25,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. <./R> ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 2, 1996, COM II, Fleet Bank National Association, acting in various capacities for numerous accounts owned 30.15% of the Institutional Shares of the Fund and Fiduciary Trust Company International owned 38.75% of the Institutional Service Shares of the Fund. These companies may, for certain purposes, be deemed to control the shares of the Fund and may be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than New Jersey. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. NEW JERSEY TAXES. Under existing New Jersey laws, distributions made by the Fund will not be subject to New Jersey income taxes to the extent that such dividends qualify as exempt interest dividends under the Internal Revenue Code, and represent (i) interest or gain from obligations issued by or on behalf of the State of New Jersey or any county, municipality, school or other district agency, authority, commission, instrumentality, public corporation, body corporate and politic or political subdivision of New Jersey; or (ii) interest or gain from obligations (such as obligations of the United States) that are statutorily free from New Jersey taxation under federal or New Jersey state laws. Conversely, to the extent that the distributions made by the Fund are derived from other types of obligations, such dividends will be subject to New Jersey personal income taxes. Distributions received by a corporate shareholder from the Fund will not be exempt from New Jersey Corporation Business Tax or New Jersey Corporation Income Tax. OTHER CLASSES OF SHARES The Fund also offers another class of shares called Institutional Shares that are sold primarily to financial institutions acting in a fiduciary capacity. Institutional Shares are sold at net asset value and are subject to a Shareholder Services Agreement. Investments in Institutional Shares are subject to a minimum initial investment of $25,000 within a 90-day period. Institutional Service Shares and Institutional Shares are subject to certain of the same expenses. Expense differences, however, between Institutional Service Shares and Institutional Shares may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. NEW JERSEY MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 28.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993** 1992 1991(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.03 0.02 0.02 0.03 0.04 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.04) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 TOTAL RETURN(b) 3.17% 3.46% 2.26% 2.22% 2.96% 3.87% RATIOS TO AVERAGE NET ASSETS Expenses 0.55% 0.55% 0.54% 0.46% 0.45% 0.27%* Net investment income 3.13% 3.41% 2.22% 2.19% 2.86% 4.19%* Expense waiver/reimbursement(c) 0.37% 0.41% 0.39% 0.45% 0.51% 0.67%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $115,722 $86,944 $62,984 $66,346 $57,657 $39,423
* Computed on an annualized basis. ** Prior to October 6, 1993, the fund provided three classes of shares. (a) Reflects operations for the period from December 13, 1990 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- 99.3% NEW JERSEY -- 99.3% $ 700,000 Atlantic County, NJ Improvement Authority Weekly VRDNs (Marine Midland Bank N.A., Buffalo, NY LOC) $ 700,000 2,000,000 Atlantic Highlands, NJ, 4.20% BANs, 1/31/1997 2,001,702 2,400,000 Bayonne, NJ, 4.25% BANs, 12/15/1996 2,401,573 1,258,375 Berkeley Township, NJ, 4.25% BANs, 5/28/1997 1,260,784 1,625,000 Bordentown, NJ, 4.50% BANs, 6/24/1997 1,628,515 3,731,745 Caldwell Borough, NJ, 4.125% BANs, 12/6/1996 3,733,726 1,900,000 Camden County, NJ Improvement Authority, (Series 1995) Weekly VRDNs (Jewish Federation of Southern Jersey, Inc.)/(National Westminster Bank, PLC, London LOC) 1,900,000 4,900,000 (b)Camden County, NJ Improvement Authority, (Series 1996) Weekly VRDNs (Parkview Redevelopment Housing Project)/(General Electric Capital Corp. LOC) 4,900,000 5,000,000 (b)Clipper New Jersey Tax-Exempt Trust, (Series 1996-2) Weekly VRDNs (New Jersey Housing & Mortgage Financing Authority)/(MBIA INS)/ (State Street Bank and Trust Co. LIQ) 5,000,000 4,000,000 Essex County, NJ Improvement Authority, Project Revenue Bonds (Series 1995) Weekly VRDNs (Essex County, NJ)/(AMBAC INS)/ (Morgan Guaranty Trust Co., New York LIQ) 4,000,000 1,256,000 Ewing Township, NJ, 4.25% BANs, 10/24/1997 1,260,707 1,004,000 Florence Township, NJ Board of Education, 4.15% TANs, 12/31/1996 1,004,717 2,500,000 Galloway Township, NJ, (Series B), 4.00% BANs, 3/13/1997 2,503,491 1,041,378 High Bridge Borough, NJ, 4.50% BANs, 9/5/1997 1,045,599 1,300,000 Long Branch, NJ, 4.00% BANs, 12/13/1996 1,300,988 3,000,000 Lower Township, NJ, 4.50% BANs, 6/27/1997 3,006,571 3,835,500 Mahwah Township, NJ, 4.25% BANs, 8/22/1997 3,845,880 1,200,000 Mercer County, NJ Improvement Authority Weekly VRDNs (Mercer County, NJ Pooled Governmental Loan Program)/(Credit Suisse, Zurich LOC) 1,200,000
NEW JERSEY MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED NEW JERSEY -- CONTINUED $ 1,500,000 Middlesex County, NJ PCFA Weekly VRDNs (FMC Gold Co.)/ (Wachovia Bank of NC, N.A., Winston-Salem LOC) $ 1,500,000 1,200,000 Morristown, NJ, 3.80% TANs, 2/14/1997 1,200,000 1,138,681 New Brunswick, NJ, 4.00% BANs, 12/23/1996 1,139,372 9,100,000 New Jersey EDA Weekly VRDNs (Center-for-Aging -- Applewood Estates)/(Banque Paribas, Paris LOC) 9,100,000 2,400,000 New Jersey EDA Weekly VRDNs (Church and Dwight, Inc.)/ (Bank of Nova Scotia, Toronto LOC) 2,400,000 2,500,000 New Jersey EDA Weekly VRDNs (Franciscan Oaks)/(Bank of Scotland, Edinburgh LOC) 2,500,000 5,553,000 New Jersey EDA Weekly VRDNs (Meridan Health Care)/ (First National Bank of Maryland, Baltimore LOC) 5,553,000 4,173,000 New Jersey EDA Weekly VRDNs (Molins Machines)/ (Nationsbank, N.A. LOC) 4,173,000 1,320,000 New Jersey EDA Weekly VRDNs (Nash Group)/(Chase Manhattan Bank N.A., New York LOC) 1,320,000 2,100,000 New Jersey EDA Weekly VRDNs (YM-YWHA of Bergen County, NJ)/ (Bank of New York, New York LOC) 2,100,000 1,440,000 New Jersey EDA, (1994 Series A), 4.30% TOBs (A.F.L. Quality, Inc.)/ (Fleet Bank N.A. LOC), Optional Tender 6/30/1997 1,440,000 500,000 New Jersey EDA, (1994 Series B), 4.30% TOBs (Two Univac, L.L.C.)/ (Fleet Bank N.A. LOC), Optional Tender 6/30/1997 500,000 2,300,000 New Jersey EDA, (Series 1984) Weekly VRDNs (Burmah-Castrol Inc. Project)/(Barclays Bank PLC, London LOC) 2,300,000 4,100,000 New Jersey EDA, (Series 1985) Weekly VRDNs (Seton Co.)/(Banque Paribas, Paris LOC) 4,100,000 4,100,000 New Jersey EDA, (Series 1986) Weekly VRDNs (Ridgefield Associates)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 4,100,000 300,000 New Jersey EDA, (Series 1987G) Weekly VRDNs (W.Y. Urban Renewal)/(National Westminster Bank, PLC, London LOC) 300,000 2,100,000 New Jersey EDA, (Series 1988-F) Weekly VRDNs (Lamington Corners Associates)/(First Union National Bank, North LOC) 2,100,000 NEW JERSEY MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED NEW JERSEY -- CONTINUED $ 1,040,000 New Jersey EDA, (Series 1992 Q) Weekly VRDNs (Physical Accoustics, Inc.)/(Banque Nationale de Paris LOC) $ 1,040,000 1,030,000 New Jersey EDA, (Series 1992 Z) Weekly VRDNs (West-Ward Pharmaceuticals)/(Banque Nationale de Paris LOC) 1,030,000 1,040,000 New Jersey EDA, (Series 1992D-1) Weekly VRDNs (Danlin Corp.)/ (Banque Nationale de Paris LOC) 1,040,000 2,105,000 New Jersey EDA, (Series 1992I-1) Weekly VRDNs (Geshem Realty)/ (Banque Nationale de Paris LOC) 2,105,000 2,835,000 New Jersey EDA, (Series 1992L) Weekly VRDNs (Kent Place School)/ (Banque Nationale de Paris LOC) 2,835,000 1,500,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Filtra Corporation Project)/(Chase Manhattan Bank N.A., New York LOC) 1,500,000 5,100,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Hillcrest Health Service System, Inc.)/(Industrial Bank of Japan Ltd., Tokyo LOC) 5,100,000 3,000,000 New Jersey EDA, (Series 1995) Weekly VRDNs (International Vitamin Corporation Project)/(National Westminster Bank, PLC, London LOC) 3,000,000 1,250,000 New Jersey EDA, (Series 1995) Weekly VRDNs (Manhattan Bagel Co., Inc.)/(First Union National Bank, North LOC) 1,250,000 885,000 New Jersey EDA, (Series W) Weekly VRDNs (Datatec Industries, Inc.)/ (Banque Nationale de Paris LOC) 885,000 2,815,000 New Jersey EDA, Economic Development Bonds Weekly VRDNs (Atlantic States Cast Iron Pipe Company)/(Amsouth Bank N.A., Birmingham LOC) 2,815,000 1,300,000 New Jersey EDA, Economic Development Bonds, 1987 Project Weekly VRDNs (United Jewish Community of Bergen County)/ (Bank of New York, New York LOC) 1,300,000 4,600,000 New Jersey EDA, Port Facility Revenue Bonds (Series 1983) Weekly VRDNs (Trailer Marine Transport Corporation)/(Chase Manhattan Bank N.A., New York LOC) 4,600,000 3,840,000 (b)New Jersey Housing & Mortgage Financing Authority, CDC Municipal Products Class A Certificates (Series 1996B) Weekly VRDNs (MBIA INS)/(CDC Municipal Products, Inc. LIQ) 3,840,000 NEW JERSEY MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED NEW JERSEY -- CONTINUED $ 1,250,000 Passaic County, NJ Utilities Authority, (Series 1996B), 3.95% BANs (MBIA INS), 9/3/1997 $ 1,250,000 1,750,000 Pine Beach, NJ, 3.625% BANs, 2/13/1997 1,751,077 1,490,000 Pine Hill Borough, NJ, (Series A), 4.14% BANs, 8/7/1997 1,491,530 1,250,000 Pine Hill Borough, NJ, 3.99% BANs, 8/8/1997 1,250,368 1,135,873 Point Pleasant, NJ, 4.375% BANs, 10/3/1997 1,139,637 10,000,000 Port Authority of New York and New Jersey, (Series 1991-4) Weekly VRDNs 10,000,000 5,700,000 Trenton, NJ, 4.125% BANs, 12/20/1996 5,702,698 TOTAL INVESTMENTS (AT AMORTIZED COST)(c) $143,444,935 Securities that are subject to Alternative Minimum Tax represent 28% of the portfolio as calculated based upon total portfolio market value. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term rating categories. Securities rated in the highest short-term rating category (and unrated securities of comparable quality) are identified as First Tier securities. Securities rated in the second highest short-term rating category (and unrated securities of comparable quality) are identified as Second Tier securities. The Fund follows applicable regulations in determining whether a security rated by multiple NRSROs in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENT BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER 90.52% 9.48%
(b) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. At October 31, 1996, these securities amounted to $13,740,000 which represents 9.5% of net assets. (c) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($144,528,891) at October 31, 1996. The following acronyms are used throughout this portfolio: AMBAC -- American Municipal Bond Assurance Corporation BANs -- Bond Anticipation Notes EDA -- Economic Development Authority INS -- Insured LIQ -- Liquidity Agreement LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance PCFA -- Pollution Control Finance Authority PLC -- Public Limited Company TANs -- Tax Anticipation Notes TOBs -- Tender Option Bonds VRDNs -- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 ASSETS: Total investments in securities, at amortized cost and value $ 143,444,935 Cash 235,885 Income receivable 1,210,558 Receivable for shares sold 2,537 Total assets 144,893,915 LIABILITIES: Payable for shares redeemed $ 44,528 Income distribution payable 276,514 Accrued expenses 43,982 Total liabilities 365,024 Net Assets for 144,528,891 shares outstanding $ 144,528,891 NET ASSET VALUE: INSTITUTIONAL SHARES: $115,722,003 / 115,722,003 shares outstanding $1.00 INSTITUTIONAL SERVICE SHARES: $28,806,888 / 28,806,888 shares outstanding $1.00
(See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 INVESTMENT INCOME: Interest $ 4,624,312 EXPENSES: Investment advisory fee $ 501,943 Administrative personnel and services fee 155,108 Custodian fees 23,599 Transfer and dividend disbursing agent fees and expenses 41,701 Directors'/Trustees' fees 2,113 Auditing fees 13,561 Legal fees 9,908 Portfolio accounting fees 53,793 Distribution services fee -- Institutional Service Shares 24,872 Shareholder services fee -- Institutional Shares 251,550 Shareholder services fee -- Institutional Service Shares 62,181 Share registration costs 24,542 Printing and postage 11,780 Insurance premiums 3,625 Taxes 2,543 Miscellaneous 4,078 Total expenses 1,186,897 Waivers -- Waiver of investment advisory fee $ (215,343) Waiver of distribution services fee -- Institutional Service Shares (24,872) Waiver of shareholder services fee -- Institutional Shares (201,240) Waiver of shareholder services fee -- Institutional Service Shares (24,872) Total waivers (466,327) Net expenses 720,570 Net investment income $ 3,903,742
(See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS -- Net investment income $ 3,903,742 $ 3,642,951 DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income: Institutional Shares (3,146,674) (2,752,708) Institutional Service Shares (757,068) (890,243) Change in net assets resulting from distributions to shareholders (3,903,742) (3,642,951) SHARE TRANSACTIONS -- Proceeds from sale of shares 416,887,554 425,149,193 Net asset value of shares issued to shareholders in payment of distributions declared 630,451 545,318 Cost of shares redeemed (389,750,630) (408,621,137) Change in net assets resulting from share transactions 27,767,375 17,073,374 Change in net assets 27,767,375 17,073,374 NET ASSETS: Beginning of period 116,761,516 99,688,142 End of period $ 144,528,891 $ 116,761,516
(See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 1. ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of New Jersey Municipal Cash Trust (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 Fund offers two classes of shares: Institutional Shares and Institutional Service Shares. The investment objective of the Fund is current income exempt from federal regular income tax and New Jersey state income tax consistent with stability of principal and liquidity. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. 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. 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 Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1996 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST Camden County NJ, Improvement Authority 7/10/1996 $ 4,900,000 Clipper New Jersey Tax-Exempt Trust 5/1/1996 5,006,316 New Jersey Housing & Mortgage Financing Authority 7/24/1996 3,845,219
3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, 1996 1995 INSTITUTIONAL SHARES SHARES SHARES Shares sold 334,848,832 334,240,209 Shares issued to shareholders in payment of distributions declared 218,331 15,613 Shares redeemed (306,289,398) (310,295,248) Net change resulting from Institutional share transactions 28,777,765 23,960,574 YEAR ENDED OCTOBER 31, 1996 1995 INSTITUTIONAL SERVICE SHARES SHARES SHARES Shares sold 82,038,722 90,908,984 Shares issued to shareholders in payment of distributions declared 412,120 529,705 Shares redeemed (83,461,232) (98,325,889) Net change resulting from Institutional Service share transactions (1,010,390) (6,887,200) Net change resulting from share transactions 27,767,375 17,073,374
At October 31, 1996, capital paid-in aggregated $144,528,891. 4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will reimburse Federated Securities Corp., ("FSC") the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Institutional Service Shares. The Plan provides that the Fund may incur distribution expenses up to 0.10% of the average daily net assets of the Institutional Service Shares, annually, to reimburse FSC. The distributor may voluntarily choose to waive any portion of its fee. The distributor can modify or terminate voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement with Federated Shareholder Services, ("FSS") the Fund will pay FSS up to 0.25% of average daily net assets of the Fund shares for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES -- Organizational and/or start-up administrative service expenses of $78,170 were borne initially by Adviser. The Fund has agreed to reimburse Adviser for the organizational and/or start-up administrative expenses at an annual rate of .005% and .01% of average daily net assets, respectively, until expenses initially borne are fully reimbursed or the expiration of five years after December 10, 1990 (the date the Fund became effective), whichever occurs earlier. For the period ended October 31, 1996, the Fund paid $995 pursuant to this agreement. INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, 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 $207,235,000 and $198,435,000, respectively. GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 5. CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 66.1% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 9.2% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (New Jersey Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of New Jersey Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996, the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see pages 2 and 15 of the prospectus) for the periods presented. 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 October 31, 1996, 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 New Jersey Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 13, 1996 ADDRESSES New Jersey Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, PA 15222-3779 Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 Transfer Agent and Dividend Disbursing Agent Federated Shareholder P.O. Box 8600 Services Company Boston, MA 02266-8600 Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 NEW JERSEY MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 [Graphic] Federated Investors Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. [Graphic] Cusip 314229709 0100802A-SS (12/96) NEW JERSEY MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES INSTITUTIONAL SERVICE SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus of New Jersey Municipal Cash Trust (the ``Fund'), a portfolio of Federated Municipal Trust (the ``Trust') dated December 31, 1996. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-341-7400. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1996 [LOGO] Federated Securities Corp. is the distributor of the Funds and is a subsidiary of Federated Investors. Cusip 314229709 0100802B (12/96) INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1 Repurchase Agreements 2 Reverse Repurchase Agreements 2 Credit Enhancement 2 NEW JERSEY INVESTMENT RISKS 2 INVESTMENT LIMITATIONS 3 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 Share Ownership 9 Trustees Compensation 10 Trustee Liability 10 INVESTMENT ADVISORY SERVICES 11 Investment Adviser 11 Advisory Fees 11 BROKERAGE TRANSACTIONS 11 OTHER SERVICES 11 Fund Administration 11 Custodian and Portfolio Accountant 12 Transfer Agent 12 Independent Public Accountants 12 DISTRIBUTION PLAN AND SHAREHOLDER SERVICES 12 DETERMINING NET ASSET VALUE 12 REDEMPTION IN KIND 13 MASSACHUSETTS PARTNERSHIP LAW 13 THE FUND'S TAX STATUS 13 PERFORMANCE INFORMATION 13 Yield 13 Effective Yield 14 Tax-Equivalent Yield 14 Tax-Equivalency Table 14 Total Return 15 Performance Comparisons 15 Economic and Market Information 15 ABOUT FEDERATED INVESTORS 15 Mutual Fund Market 16 Institutional Clients 16 Trust Organizations 16 Broker/Dealers and Bank Broker/Dealer Subsidiaries 16 APPENDIX 17 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security; the issuer of any demand feature applicable to the security; or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an `event of non-appropriation''); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations (`NRSROs'') or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group (`S&P''), MIG-1 or MIG-2 by Moody's Investors Service, Inc. (`Moody's''), or F-1+, F-1, or F-2 by Fitch Investors Service, Inc. (`Fitch'') are all considered rated in one of the two highest short-term rating categories. The Fund will follow applicable regulations in determining whether a security rated by more than one NRSRO can be treated as being in one of the two highest short-term rating categories; currently, such securities must be rated by two NRSROs in one of their two highest rating categories. See `Regulatory Compliance.'' WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund in a dollar amount sufficient to make payment for the securities to be purchased are: segregated on the Fund`s records at the trade date; marked to market daily; and maintained until the transaction is settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument in return for a percentage of the instrument's market value in cash and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but does not ensure this result. However, liquid assets of the Fund, in a dollar amount sufficient to make payment for the securities to be purchased, are: segregated on the Fund's records at the trade date; marked to market daily; and maintained until the transaction is settled. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the `credit enhancer''), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. NEW JERSEY INVESTMENT RISKS The Fund invests in obligations of New Jersey (the `State'') issuers which result in the Fund's performance being subject to risks associated with the overall conditions present within the State. The following information is a general summary of the State's financial condition and a brief summary of the prevailing economic conditions. This information is based on official statements relating to securities that are believed to be reliable but should not be considered as a complete description of all relevant information. The New Jersey economy is diversified with large retail trade and service sectors and many headquarters of large U.S. corporations. Economic recovery from the 1989-1992 recession has been slow. Corporate restructurings have offset strong new business incorporations. Thus, overall job growth has regained only about 70% of the 1989-1992 losses. In spite of sluggish economic numbers, New Jersey still boasts very high wealth and income indicators. New Jersey per capita income ranks second in the nation or 27.8% above the national average. A new fiscal policy has emerged in New Jersey. In an attempt to spur economic growth, income tax reductions totaling 30% for most individuals were phased in over a three-year period. Average growth in budgeted appropriations for fiscals 1995-1997 was held to just 1%. Given lower tax revenue levels, expenditure reductions will continue to be key to balancing the budget. This low level growth can only be accomplished by significantly curtailing the State's fastest growing Budget items-Medicaid and corrections. The state faces the additional challenge of managing Federal welfare reform. In any fiscal scenario, the State's credit picture is greatly helped by strong cash reserves. In recent years, the State has maintained cash basis year-end balances exceeding 5.4% of revenues. The fiscal 1996 ending fund balance was $872.8 million, including a rainy day fund of $263 million. The overall credit quality of the State is further demonstrated by its debt ratings. New Jersey maintains an Aa1 rating from Moody's Investors Service, Inc. S & P rates the State AA+. The Fund's concentration in municipal securities issued by the State and its political subdivisions provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. The ability of the State or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the State; and the underlying fiscal condition of the State, its counties, and its municipalities. INVESTMENT LIMITATIONS 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. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money directly or through reverse repurchase agreements in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may acquire publicly or nonpublicly issued New Jersey municipal securities or temporary investments or enter into repurchase agreements, in accordance with its investment objective, policies, limitations and its Declaration of Trust. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933, except for certain restricted securities which meet the criteria for liquidity as established by the Board of Trustees. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate limited partnerships, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry or in industrial development bonds or other securities the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above limitations cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities including certain restricted securities not determined to be liquid under criteria established by the Trustees and repurchase agreements providing for settlement in more than seven days notice. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be `cash items.'' Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments , as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director or Trustee of the Funds. Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee, University of Pittsburgh; Director or Trustee of the Funds. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest Florida; formerly, President, Naples Property Management, Inc. and Northgate Village Development Corporation; Director or Trustee of the Funds. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds. Edward L. Flaherty, Jr.@ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region; Director or Trustee of the Funds. Glen R. Johnson* Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. Peter E. Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16, 1942 Trustee Consultant; Former State Representative, Commonwealth of Massachusetts; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation; Director or Trustee of the Funds. Gregor F. Meyer Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director or Trustee of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics; Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., National Defense University, U.S. Space Foundation and Czech Management Center; President Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council for Environmental Policy and Technology, Federal Emergency Management Advisory Board and Czech Management Center; Director or Trustee of the Funds. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/Marketing/Conference Planning, Manchester Craftsmen's Guild; Restaurant Consultant, Frick Art & History Center; Conference Coordinator, University of Pittsburgh Art History Department; Director or Trustee of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated Shareholder Services; Director, Federated Services Company; President or Executive Vice President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Shareholder Services Company; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President , Secretary and Treasurer Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. *This Trustee is deemed to be an ``interested person'' as defined in the Investment Company Act of 1940. @Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board between meetings of the Board. As referred to in the list of Trustees and Officers, `Funds'' includes the following investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated Investment Portfolios; Federated Investment Trust; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 2, 1996, the following shareholders of record owned 5% or more of the outstanding Institutional Shares of the Fund: COM 11 owned approximately 35,834,972 shares (30.15%); Corestates Bank, N.A. owned approximately 15,324,710 shares (12.89%); United National Bank owned approximately 8,082,486 shares (6.80%); The Bopac Company owned approximately 7,914,589 shares (6.66%); U.S. Trust Company owned approximately 25,904,778 shares (21.79%); and Tellson & Co. owned approximately 14,752,384 shares (12.41%). As of the same date, the following shareholders of record owned 5% or more of the outstanding Institutional Service Shares of the Fund: Fiduciary Trust Company International owned approximately 11,646,000 shares (38.75%); Radnor Alloys, Inc. owned approximately 2,407,729 shares (8.01%); and Roger and Edwina Hansen owned approximately 1,818,927 shares (6.05%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 54 other investment companies in the Fund Complex Thomas G. Bigley++ $3,611 $86,331 for the Trust and Trustee 54 other investment companies in the Fund Complex John T. Conroy, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex William J. Copeland $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Peter E. Madden $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Gregor F. Meyer $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex John E. Murray, Jr., $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Wesley W. Posvar $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Marjorie P. Smuts $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1996. #The aggregate compensation is provided for the Trust which is comprised of 16 portfolios. +The information is provided for the last calendar year. ++ Mr. Bigley served on 39 investment companies in the Federated Funds complex from January 1 through September 30, 1995. On October 1, 1995, he was appointed a Trustee on 15 additional Federated Funds. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund,or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1996, 1995, and 1994, the adviser earned $501,943, $431,160, and $390,387, respectively, of which $215,343, $228,371, and $380,881, respectively, were waived. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal years ended October 31, 1996, 1995, and 1994, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative Services served as the Fund's Administrator. Prior to March 1, 1994, Federated Administrative Services, Inc. served as the Fund's Administrator. Both former Administrators are subsidiaries of Federated Investors. For purposes of this Statement of Additional Information, Federated Services Company, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the `Administrators.'' For the fiscal years ended October 31, 1996, 1995, and 1994, the Administrators earned $155,108, $155,000, and $203,429, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. The fee paid for this service is based upon the level of the Fund's average net assets for the period plus out-of- pocket expenses. TRANSFER AGENT Federated Services Company, through its registered transfer agent, Federated Shareholder Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on the size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES With respect to Institutional Service Shares, the Fund has adopted a Distribution Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange Commission pursuant to the Investment Company Act of 1940. Additionally, the Fund has adopted a Shareholder Services Agreement with respect to Institutional Shares and Institutional Service Shares. These arrangements permit the payment of fees to financial institutions, the distributor, and Federated Shareholder Services, to stimulate distribution activities and to cause services to be provided to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities may include, but are not limited to: marketing efforts; providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Plan, the Trustees expect that the Fund will be able to achieve a more predictable flow of cash for investment purposes and to meet redemptions. This will facilitate more efficient portfolio management and assist the Fund in seeking to achieve its investment objectives. By identifying potential investors whose needs are served by the Fund `s objectives, and properly servicing these accounts, the Fund may be able to curb sharp fluctuations in rates of redemptions and sales. Other benefits, which may be realized under either arrangement, may include: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal year ended October 31, 1996, payments in the amount of $24,879 were made pursuant to the Plan for Institutional Service Shares, all of which was waived. In addition, for the fiscal year ended October 31, 1996, the Fund paid shareholder service fees in the amount of $313,731, of which $226,112 was waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the `Rule'') promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.50% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the `base period.'' This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7.For the seven-day period ended October 31, 1996, the yield for Institutional Shares and Institutional Service Shares was 3.04% and 2.94%, respectively. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. For the seven-day period ended October 31, 1996, the effective yield for Institutional Shares and Institutional Service Shares was 3.09% and 2.99%, respectively. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming 39.60% tax rate (the maximum combined effective federal and state rate for individuals) and assuming that the income is 100% tax exempt. For the seven-day period ended October 31, 1996, the tax-equivalent yield for Institutional Shares and Institutional Service Shares was 5.72% and 5.44%, respectively. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a `tax- free''investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1996 STATE OF NEW JERSERY SINGLE RETURN TAX BRACKET: FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60% COMBINED FEDERAL AND STATE 16.75% 33.53% 37.37% 42.37% 45.97% SINGLE $1- $24,001- $58,151- $121,301- OVER RETURN 24,000 58,150 121,300 263,750 $263,750 TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT 1.50% 1.80% 2.26% 2.40% 2.60% 2.78% 2.00% 2.40% 3.01% 3.19% 3.47% 3.70% 2.50% 3.00% 3.76% 3.99% 4.34% 4.63% 3.00% 3.60% 4.51% 4.79% 5.21% 5.55% 3.50% 4.20% 5.27% 5.59% 6.07% 6.48% 4.00% 4.80% 6.02% 6.39% 6.94% 7.40% 4.50% 5.41% 6.77% 7.19% 7.81% 8.33% 5.00% 6.01% 7.52% 7.98% 8.68% 9.25% 5.50% 6.61% 8.27% 8.78% 9.54% 10.18% 6.00% 7.21% 9.03% 9.58% 10.41% 11.10% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. For the one-year and five-year periods ended October 31, 1996, and for the period from December 13, 1990 (date of initial public investment) through October 31, 1996, the average annual total returns were 3.17%, 2.81% and 3.05%, respectively, for Institutional Shares, and were 3.07%, 2.71% and 2.95%, respectively, for Institutional Service Shares. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. oMONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. Advertising and other promotional literature may include charts, graphs and other illustrations using the Fund`s returns, or returns in general, that demonstrate basic investment concepts such as tax-deferred compounding, dollar-cost averaging and systematic investment. In addition, the Fund can compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, such as bank savings accounts, certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION Advertising and sales literature for the Fund may include discussions of economic, financial and political developments and their effect on the securities market. Such discussions may take the form of commentary on these developments by the Fund portfolio mangers and their views and analysis on how such developments could affect the Funds. In addition, advertising and sales literature may quote statistics and give general information about the mutual fund industry, including growth of the industry, from sources such as the Investment Company Institute. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. These traders handle trillions of dollars in annual trading volume. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1995, Federated Investors managed more than $40.2 billion in assets across approximately 47 money market funds, including 17 government, 10 prime and 20 municipal with assets approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $3 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. Federated's service to financial professionals and institutions has earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for service quality measurement. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (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 rate `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. MOODYS 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 SERVICES, INC. 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. OHIO MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH II SHARES PROSPECTUS The Cash II Shares of Ohio Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Ohio municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Ohio, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- CASH II SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Ohio Municipal Securities 5 Investment Risks 6 Investment Limitations 6 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Cash II Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ Special Purchase Features 10 HOW TO REDEEM SHARES 10 - ------------------------------------------------------ Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 12 - ------------------------------------------------------ TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 State and Local Taxes 13 OTHER CLASSES OF SHARES 14 - ------------------------------------------------------ PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- Institutional Service Shares 15 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- Institutional Shares 16 - ------------------------------------------------------ FINANCIAL STATEMENTS 17 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 35 - ------------------------------------------------------ ADDRESSES 36 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- CASH II SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)............................................... None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)............................................... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)............................. None Redemption Fee (as a percentage of amount redeemed, if applicable).................. None Exchange Fee........................................................................ None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1).................................................... 0.21% 12b-1 Fee (after waiver)(2)......................................................... 0.18% Total Other Expenses................................................................ 0.48% Shareholder Services Fee.................................................. 0.25% Total Operating Expenses(3).................................................. 0.87%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The advisor can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The 12b-1 fee has been reduced to reflect the voluntary waiver of a portion of the 12b-1 fee. The distributor can terminate the voluntary waiver at any time at its sole discretion. The maximum 12b-1 fee is 0.30%. (3) The Total Operating Expenses would have been 1.18% absent the voluntary waivers of portions of the management fee and 12b-1 fee. * Long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charge permitted under the rules of the National Association of Securities Dealers, Inc. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Cash II Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information". Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period......... $9 $28 $48 $107
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. OHIO MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--CASH II SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 35.
YEAR ENDED OCTOBER 31, --------------------------------------------------------- 1996 1995 1994 1993 1992 1991(a) ----- ----- ----- ----- ----- ------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 - ---------------------------------- INCOME FROM INVESTMENT OPERATIONS - ---------------------------------- Net investment income 0.03 0.03 0.02 0.02 0.03 0.02 - ---------------------------------- LESS DISTRIBUTIONS - ---------------------------------- Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.02) - ---------------------------------- ----- ----- ----- ----- ----- ------ NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 - ---------------------------------- ----- ----- ----- ----- ----- ------ TOTAL RETURN (b) 2.96% 3.30% 2.10% 2.02% 2.90% 2.27% - ---------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------- Expenses 0.87% 0.87% 0.85% 0.78% 0.76% 0.63%* - ---------------------------------- Net investment income 2.92% 3.25% 2.09% 2.01% 2.86% 4.18%* - ---------------------------------- Expense waiver/ reimbursement (c) 0.31% 0.29% 0.24% 0.19% 0.25% 0.34%* - ---------------------------------- SUPPLEMENTAL DATA - ---------------------------------- Net assets, end of period (000 omitted) $206,149 $188,234 $156,051 $127,017 $133,877 $94,081 - ----------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from April 22, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees have established three classes of shares known as Cash II Shares, Institutional Shares, and Institutional Service Shares. This prospectus relates only to Cash II Shares of the Fund, which are designed primarily for retail customers of financial institutions as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Ohio taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Ohio and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities ("Ohio Municipal Securities"). Examples of Ohio Municipal Securities include, but are not limited to: - tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; - bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; - municipal commercial paper and other short-term notes; - variable rate demand notes; - municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and - participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Ohio Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Ohio Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Ohio Municipal Securities is subject to the federal alternative minimum tax. OHIO MUNICIPAL SECURITIES Ohio Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Ohio Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Ohio Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Ohio Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Ohio Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Ohio Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Ohio Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Ohio Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Ohio Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these considerations, the Fund's concentration in Ohio Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933. These investment limitations cannot be changed without shareholder approval. The following limitation may be changed without shareholder approval. The Fund will not invest more than 10% of the value of its net assets in illiquid securities including repurchase agreements providing for settlement in more than seven days after notice. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF CASH II SHARES Federated Securities Corp. is the principal distributor for Cash II Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in accordance with Rule 12b-1 under the Investment Company Act of 1940 (the "Plan"), the distributor may be paid a fee by the Fund in an amount computed at an annual rate of up to .30% of the average daily net asset value of the Fund. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide sales services or distribution-related support services as agents for their clients or customers. The Plan is a compensation-type Plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Plan. In addition, the Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of its shares to obtain certain personal services for shareholders and to maintain shareholder accounts. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate as which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS - ------------ ------------------------------------ .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Cash II Shares from the value of Fund assets attributable to Cash II Shares, and dividing the remainder by the number of Cash II Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $25,000 within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. Eastern time to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. Eastern time in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Ohio Municipal Cash Trust--Cash II Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Ohio Municipal Cash Trust-Cash II Shares. Please include an account number on the check. 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. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $25,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 2, 1996, MAHCO owned 27.17% and Panabco owned 34.33% of the Institutional Shares of the Fund. As of the same time, Parcol & Co. owned 46.06% of the Institutional Service Shares of the Fund and Gradison & Company, Inc. owned 77.16% of the Cash II Shares of the Fund. These companies may, for certain purposes, be deemed to control the Shares of the Fund and may be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Ohio. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. OHIO TAXES. Under existing Ohio laws, distributions made by the Fund will not be subject to Ohio individual income taxes to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest from obligations of Ohio or its subdivisions which is exempt from federal income tax; or (ii) interest or dividends from obligations issued by the United States and its territories or possessions or by any authority, commission or instrumentality of the United States which are exempt from state income tax under federal laws. Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to Ohio individual income taxes. Distributions made by the Fund will not be subject to Ohio corporation franchise tax to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest from obligations of Ohio or its subdivisions which is exempt from federal income tax; or (ii) net interest income from obligations issued by the United States and its territories or possessions or by any authority, commission or instrumentality of the United States, which is included in federal taxable income and which is exempt from state income tax under federal laws. Exempt-interest dividends that represent interest from obligations held by the Fund which are issued by Ohio or its political subdivisions will be exempt from any Ohio municipal income tax (even if the municipality is permitted under Ohio law to levy a tax on intangible income). OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers two other classes of shares called Institutional Shares and Institutional Service Shares. Institutional Shares are sold at net asset value primarily to financial institutions and are subject to a minimum initial investment of $25,000 over a 90-day period. Institutional Service Shares are sold at net asset value primarily to retail customers of financial institutions and are subject to a minimum initial investment of $25,000 over a 90-day period. All classes are subject to certain of the same expenses. Institutional Shares and Institutional Service Shares are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. OHIO MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES (FORMERLY, INSTITUTIONAL SHARES) - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 35.
YEAR ENDED OCTOBER 31, -------------------------------------------------------------- 1996 1995 1994 1993 1992 1991(a) ------ ------ ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------- Net investment income 0.03 0.04 0.02 0.02 0.03 0.02 - ----------------------------------------- LESS DISTRIBUTIONS - ----------------------------------------- Distributions from net investment income (0.03) (0.04) (0.02) (0.02) (0.03) (0.02) - ----------------------------------------- ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------- ------ ------ ------ ------ ------ ------ TOTAL RETURN (b) 3.27% 3.61% 2.41% 2.33% 3.21% 2.40% - ----------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------- Expenses 0.57% 0.57% 0.55% 0.48% 0.46% 0.35%* - ----------------------------------------- Net investment income 3.23% 3.56% 2.36% 2.30% 3.10% 4.46%* - ----------------------------------------- Expense waiver/reimbursement (c) 0.31% 0.29% 0.07% 0.19% 0.25% 0.32%* - ----------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------- Net assets, end of period (000 omitted) $59,721 $72,931 $62,499 $81,748 $74,342 $44,771 - -----------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from April 22, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Reference is made to the Report of Independent Public Accountants on page 35.
PERIOD ENDED OCTOBER 31, 1996(a) ----------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 - --------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------------------------------------------- Net investment income 0.02 - --------------------------------------------------------------------------- LESS DISTRIBUTIONS - --------------------------------------------------------------------------- Distributions from net investment income (0.02) - --------------------------------------------------------------------------- -------- NET ASSET VALUE, END OF PERIOD $ 1.00 - --------------------------------------------------------------------------- -------- TOTAL RETURN (b) 2.22% - --------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------------------------------------- Expenses 0.37%* - --------------------------------------------------------------------------- Net investment income 3.38%* - --------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.51%* - --------------------------------------------------------------------------- SUPPLEMENTAL DATA - --------------------------------------------------------------------------- Net assets, end of period (000 omitted) $72,680 - ---------------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from March 5, 1996 (date of initial public investment) to October 31, 1996. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--99.3% - -------------------------------------------------------------------------------- OHIO--99.3% ---------------------------------------------------------------- $ 600,000 Akron, Bath & Copley, OH Joint Township Weekly VRDNs (Visiting $ 600,000 Nurses)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 2,535,000 Ashland County, OH Health Care Weekly VRDNs (Brethren Care, 2,535,000 Inc.)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 5,875,000 Belmont County, OH Weekly VRDNs (Lesco, Inc.)/(PNC Bank, N.A. 5,875,000 LOC) ---------------------------------------------------------------- 1,500,000 Belmont County, OH, Water System Improvement, 3.89% BANs, 1,500,550 12/19/1996 ---------------------------------------------------------------- 2,550,000 Berea, OH, Various Purpose, 4.10% BANs, 10/23/1997 2,555,969 ---------------------------------------------------------------- 3,894,000 Bowling Green, OH, 3.80% BANs, 12/5/1996 3,894,244 ---------------------------------------------------------------- 5,500,000 Brecksville-Broadview Heights CSD, OH, (Series 1996), 3.90% 5,503,910 BANs, 1/17/1997 ---------------------------------------------------------------- 1,040,000 Canfield, OH Local School District, (Series 1996), 4.50% BANs, 1,043,666 10/2/1997 ---------------------------------------------------------------- 1,500,000 Cleveland Heights, OH, (Series 1996), 4.10% BANs, 8/28/1997 1,501,775 ---------------------------------------------------------------- 1,800,000 Clinton County, OH Hospital Authority Weekly VRDNs (Clinton 1,800,000 Memorial Hospital)/(National City Bank, Columbus, OH LOC) ---------------------------------------------------------------- 1,905,000 Columbiana County, OH, Industrial Development Revenue Bonds 1,905,000 Weekly VRDNs (C & S Land Company Project)/(Bank One, Youngstown, N.A. LOC) ---------------------------------------------------------------- 800,000 Cuyahoga County, OH Hospital Authority Daily VRDNs (University 800,000 Hospitals Health System, Inc.)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) ---------------------------------------------------------------- 3,600,000 Cuyahoga County, OH Hospital Authority Weekly VRDNs (St. Lukes 3,600,000 Hospital)/(First National Bank of Chicago LOC) ---------------------------------------------------------------- 700,000 Cuyahoga County, OH IDA Weekly VRDNs (Animal Protection League 700,000 (Cuyahoga County))/(KeyBank, N.A. LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 1,650,000 Cuyahoga County, OH IDA Weekly VRDNs (East Park Community, $ 1,650,000 Inc.)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 525,000 Cuyahoga County, OH IDA Weekly VRDNs (Interstate Diesel Service, 525,000 Inc.)/(Huntington National Bank, Columbus, OH LOC) ---------------------------------------------------------------- 690,000 Cuyahoga County, OH IDA Weekly VRDNs (Parma-Commerce Parkway 690,000 West)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 1,050,000 Cuyahoga County, OH IDA Weekly VRDNs (Premier Manufacturing 1,050,000 Corp.)/(National City Bank, Kentucky LOC) ---------------------------------------------------------------- 1,945,000 Cuyahoga County, OH IDA, IDRB (Series 1995) Weekly VRDNs (Avalon 1,945,000 Precision Casting Co. Project)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 2,000,000 Dayton, OH Department of Aviation, (Series 1996), 4.50% BANs, 2,003,840 3/25/1997 ---------------------------------------------------------------- 1,635,000 Delaware County, OH, IDRB (Series 1995) Weekly VRDNs (Air Waves, 1,635,000 Inc. Project)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 3,300,000 Elyria, OH, Various Purpose Improvement Notes, (Series 1996-2), 3,305,694 4.20% BANs, 9/25/1997 ---------------------------------------------------------------- 7,800,000 Franklin County, OH Hospital Facility Authority Weekly VRDNs 7,800,000 (Riverside United Methodist Hospital)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 3,620,000 Franklin County, OH Hospital Facility Authority, (Series 1992) 3,620,000 Weekly VRDNs (Wesley Glenn, Inc.)/(Fifth Third Bank, Cincinnati LOC) ---------------------------------------------------------------- 4,500,000 Franklin County, OH IDA Weekly VRDNs (Heekin Can, Inc.)/(PNC 4,500,000 Bank, Ohio, N.A. LOC) ---------------------------------------------------------------- 3,055,000 Franklin County, OH IDA Weekly VRDNs (Unicorn Leasing Corp.)/ 3,055,000 (Fifth Third Bank, Cincinnati LOC) ---------------------------------------------------------------- 3,490,000 Franklin County, OH IDA, (Series 1995) Weekly VRDNs (Fabcon 3,490,000 L.L.C. Project)/(Norwest Bank Minnesota, Minneapolis LOC) ---------------------------------------------------------------- 4,900,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB (Series 4,900,000 1996A) Weekly VRDNs (Carams, Ltd.)/(Huntington National Bank, Columbus, OH LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 2,100,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB (Series $ 2,100,000 1996B) Weekly VRDNs (Carams, Ltd.)/(Huntington National Bank, Columbus, OH LOC) ---------------------------------------------------------------- 2,000,000 Franklin County, OH IDA, IDRB Weekly VRDNs (Tigerpoly 2,000,000 Manufacturing, Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC) ---------------------------------------------------------------- 2,090,000 Franklin County, OH, Adjustable Rate Demand Economic Development 2,090,000 Revenue Refunding Bonds (Series 1996) Weekly VRDNs (CPM Investments)/(Huntington National Bank, Columbus, OH LOC) ---------------------------------------------------------------- 1,440,000 Franklin, OH County of, Health Care Facilities Revenue Bonds 1,440,000 (Series 1994) Weekly VRDNs (Wesley Glenn, Inc.)/(Fifth Third Bancorp LOC) ---------------------------------------------------------------- 1,300,000 Gates Mills Village, OH, Water System Improvement Notes, 3.70% 1,300,496 BANs, 3/26/1997 ---------------------------------------------------------------- 1,400,000 Green City, OH, Park Improvement General Ltd Tax Notes, 1,401,811 4.35% BANs, 2/7/1997 ---------------------------------------------------------------- 2,000,000 Hamilton County, OH Health System Weekly VRDNs (West Park 2,000,000 Community)/(Fifth Third Bank, Cincinnati LOC) ---------------------------------------------------------------- 1,725,000 Hancock County, OH, (Series A), 4.50% BANs, 9/19/1997 1,732,305 ---------------------------------------------------------------- 2,000,000 Hancock County, OH, 4.27% BANs, 11/22/1996 2,000,637 ---------------------------------------------------------------- 4,400,000 Hancock County, OH, Various Purpose, 3.81% BANs, 11/22/1996 4,400,731 ---------------------------------------------------------------- 2,900,000 Highland Heights City, OH, Various Purpose, 3.89% BANs, 2,900,696 12/19/1996 ---------------------------------------------------------------- 4,000,000 Hilliard, OH, Adjustable Rate IDRB (Series 1996) Weekly VRDNs 4,000,000 (Medex, Inc.)/(Bank One, Columbus, N.A. LOC) ---------------------------------------------------------------- 2,000,000 Holmes County, OH IDA Weekly VRDNs (Poultry Processing)/ 2,000,000 (Rabobank Nederland, Utrecht LOC) ---------------------------------------------------------------- 1,970,000 Holmes County, OH, Sanitary Sewer System Improvement Notes, 1,972,604 4.25% BANs, 5/21/1997 ---------------------------------------------------------------- 1,230,000 Huber Heights, OH, IDRB (Series 1994) Weekly VRDNs (Lasermike, 1,230,000 Inc. Project)/(KeyBank, N.A. LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 1,300,000 Kent, OH, Adjustable Rate IDRB (Series 1994) Weekly VRDNs $ 1,300,000 (Raven's Metal Products, Inc. Project)/(First National Bank of Ohio, Akron LOC) ---------------------------------------------------------------- 3,300,000 Lake County, OH, Adjustable Rate IDRB (Series 1996) Weekly VRDNs 3,300,000 (Apsco Properties, LTD.)/(First National Bank of Ohio, Akron LOC) ---------------------------------------------------------------- 2,560,000 Lake County, OH, Hospital Improvement Bonds, 7.875% Bonds 2,628,820 (United States Treasury PRF), 1/1/1997 (@102) ---------------------------------------------------------------- 2,815,000 Lake County, OH, Hospital Improvement Bonds, 8.00% Bonds (United 2,891,244 States Treasury PRF), 1/1/1997 (@102) ---------------------------------------------------------------- 3,000,000 Lorain County, OH, 4.40% BANs, 9/19/1997 3,010,164 ---------------------------------------------------------------- 2,885,000 Lorain County, OH, Health Facilities Revenue Bonds (Series 2,885,000 1992A) Weekly VRDNs (Elyria United Methodist Home)/(Fifth Third Bank, Cincinnati LOC) ---------------------------------------------------------------- 4,385,000 Lorain Port Authority, OH, (Series 1994) Weekly VRDNs (Spitzer 4,385,000 Great Lakes Ltd., Inc.)/(Bank One, Cleveland, N.A. LOC) ---------------------------------------------------------------- 1,240,000 Lorain Port Authority, OH, Adjustable Rate Demand Port 1,240,000 Development Refunding Revenue Bonds (Series 1996) Weekly VRDNs (Spitzer Project)/(Bank One, Cleveland, N.A. LOC) ---------------------------------------------------------------- 1,200,000 Lucas County, OH IDA Weekly VRDNs (Kuhlman Corp.)/(KeyBank, N.A. 1,200,000 LOC) ---------------------------------------------------------------- 2,000,000 Lucas County, OH IDA, (Series 1991) Weekly VRDNs (Ohio Citizens 2,000,000 Bank)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 1,775,000 Lucas County, OH, Hospital Facility Improvement Revenue Bonds 1,775,000 (Series 93) Weekly VRDNs (Lott Industries, Inc.)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 270,000 Lucas County, OH, Hospital Improvement Revenue Weekly VRDNs 270,000 (Sunshine Children's Home)/(National City Bank, Cleveland, OH LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 8,000,000 Lucas County, OH, Hospital Refunding Revenue Bonds Weekly VRDNs $ 8,000,000 (Riverside Hospital, OH)/(Huntington National Bank, Columbus, OH LOC) ---------------------------------------------------------------- 2,000,000 Lucas County, OH, Metropolitan Sewer & Water District 2,000,639 Improvement Notes (Series 1995), 4.25% BANs, 11/28/1996 ---------------------------------------------------------------- 5,300,000 Lucas County, OH, Sewer Improvement, 4.25% BANs, 10/28/1997 5,316,093 ---------------------------------------------------------------- 5,325,000 Mahoning County, OH Multifamily HFA Weekly VRDNs (International 5,325,000 Towers, Inc.)/(PNC Bank, N.A. LOC) ---------------------------------------------------------------- 6,745,000 Mahoning County, OH, Housing Revenue Bonds (Series 1995) Weekly 6,745,000 VRDNs (Copeland Oaks Project)/(Bank One, Akron, N.A. LOC) ---------------------------------------------------------------- 850,000 Mansfield, OH, IDR Weekly VRDNs (Designed Metal Products, 850,000 Inc.)/(Bank One, Columbus, N.A. LOC) ---------------------------------------------------------------- 870,000 Mayfield, OH City School District, 4.00% BANs, 4/24/1997 870,798 ---------------------------------------------------------------- 3,750,000 Medina County, OH, 4.50% BANs, 8/28/1997 3,766,288 ---------------------------------------------------------------- 7,000,000 Montgomery County, OH Health Facilities Authority, (Series 1995) 7,000,000 Weekly VRDNs (Sisters of Charity Health Care System)/(Toronto- Dominion Bank LIQ) ---------------------------------------------------------------- 1,970,000 Montgomery, OH IDA Weekly VRDNs (Bethesda Two Limited 1,970,000 Partnership)/(Huntington National Bank, Columbus, OH LOC) ---------------------------------------------------------------- 2,000,000 Muskingum County, OH, County Building Improvement (Series 1996), 2,001,626 3.75% BANs, 3/4/1997 ---------------------------------------------------------------- 345,000 North Olmsted, OH IDA Weekly VRDNs (Bryant & Stratton)/(KeyBank, 345,000 N.A. LOC) ---------------------------------------------------------------- 915,000 North Olmsted, OH IDA, 4.00% TOBs (Therm-All)/(National City 915,000 Bank, Cleveland, OH LOC), Optional Tender 2/1/1997 ---------------------------------------------------------------- 2,035,000 Ohio HFA Weekly VRDNs (Westchester Village)/(KeyBank, N.A. LOC) 2,035,000 ---------------------------------------------------------------- 7,235,000 Ohio HFA, 3.80% TOBs (Lincoln Park Associates)/(Comerica Bank, 7,235,000 Detroit, MI LOC), Optional Tender 11/1/1996 ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 8,500,000 Ohio HFA, Residential Mortgage Revenue Convertible (1996 Series $ 8,500,000 A- 3), 3.40% TOBs (AIG Funding, Inc. INV), Mandatory Tender 3/3/1997 ---------------------------------------------------------------- 7,700,000 Ohio HFA, Single Family Mortgage (Series PT-71) Weekly VRDNs 7,700,000 (GNMA COL)/(Commerzbank AG, Frankfurt LIQ) ---------------------------------------------------------------- 9,510,000 (b) Ohio HFA, Trust Receipts (Series 1996 FR/RI-6) Weekly VRDNs 9,510,000 (GNMA COL)/(Bank of New York, New York LIQ) ---------------------------------------------------------------- 8,800,000 (b) Ohio HFA, Trust Receipts, (Series 1996 FR/RI-5) Weekly VRDNs 8,800,000 (Bank of New York, New York LIQ)/(GNMA LOC) ---------------------------------------------------------------- 1,000,000 Ohio School Districts, 1996 Cash Flow Borrowing Program 1,001,172 Certificates of Participation, 4.53% RANs, 12/31/1996 ---------------------------------------------------------------- 3,000,000 Ohio School Districts, 1996 Cash Flow Borrowing Program 3,010,083 Certificates of Participation, 4.53% RANs, 6/30/1997 ---------------------------------------------------------------- 3,800,000 Ohio State Air Quality Development Authority, (Series 1998A) 3,800,000 Weekly VRDNs (PPG Industries, Inc.) ---------------------------------------------------------------- 4,000,000 Ohio State Air Quality Development Authority, Revenue Bonds 4,000,000 (Series B) Daily VRDNs (Cincinnati Gas and Electric Co.)/ (J.P. Morgan Delaware, Wilmington LOC) ---------------------------------------------------------------- 1,880,000 Ohio State Higher Education Facility, Revenue Bonds Weekly VRDNs 1,880,000 (Notre Dame College Project)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 1,000,000 Ohio State Water Development Authority Weekly VRDNs (PPG 1,000,000 Industries, Inc.) ---------------------------------------------------------------- 2,500,000 Ohio State Water Development Authority, Multimodal Water 2,500,000 Development (Series 1993) Weekly VRDNs (Timken Co.)/(Wachovia Bank of Georgia N.A., Atlanta LOC) ---------------------------------------------------------------- 3,000,000 Ohio State Water Development Authority, Ohio PCR Bonds (Series 3,000,000 1989) Weekly VRDNs (Duquesne Light Power Co.)/(Barclays Bank PLC, London LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 3,500,000 Ohio State Water Development Authority, Pollution Control $ 3,500,000 Facilities Revenue Bonds, 3.80% TOBs (Union Bank of Switzerland, Zurich LOC), Optional Tender 5/1/1997 ---------------------------------------------------------------- 600,000 Ohio State Weekly VRDNs (John Carroll University, OH)/ (PNC 600,000 Bank, N.A. LOC) ---------------------------------------------------------------- 1,320,000 Ohio State, IDR (Series 1991) Weekly VRDNs (Standby Screw, 1,320,000 Inc.)/ (National City Bank, Columbus, OH LOC) ---------------------------------------------------------------- 1,400,000 Ohio State, IDRB (Series 1994) Weekly VRDNs (Anomatic 1,400,000 Corporation)/(National City Bank, Columbus, OH LOC) ---------------------------------------------------------------- 1,250,000 Orrville, OH IDA Weekly VRDNs (O.S. Associates/Contours, Inc.)/ 1,250,000 (National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 2,000,000 Ottawa County, OH, Regional Water System Notes, 3.98% BANs, 2,001,927 4/9/1997 ---------------------------------------------------------------- 1,000,000 Perry Local School District, OH, UT GO Bonds, 3.75% Bonds (Bank 1,000,000 One, Cleveland, N.A. LOC), 12/1/1996 ---------------------------------------------------------------- 135,000 Portage County, OH IDA Weekly VRDNs (D & W Associates)/ (Bank 135,000 One, Akron, N.A. LOC) ---------------------------------------------------------------- 370,000 Portage County, OH IDA, 4.00% TOBs (Neidlinger)/(KeyBank, N.A. 370,000 LOC), Optional Tender 3/1/1997 ---------------------------------------------------------------- 4,300,000 Portage County, OH IDA, Adjustable Rate IDRB (Series 1996) 4,300,000 Weekly VRDNs (Barnette Project)/(National City, Northeast LOC) ---------------------------------------------------------------- 900,000 Portage County, OH IDA, Industries Revenue Bonds Weekly VRDNs 900,000 (Lovejoy Industries)/(Star Bank, N.A., Cincinnati LOC) ---------------------------------------------------------------- 5,700,000 Rickenbacker, OH Port Authority, (Series 1992) Weekly 5,700,000 VRDNs(Rickenbacker Holdings, Inc.)/(Bank One, Columbus, N.A. LOC) ---------------------------------------------------------------- 1,800,000 Seneca County, OH Hospital Facility Authority Weekly VRDNs (St. 1,800,000 Francis Home)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 3,890,000 Shaker Heights, OH, 4.25% BANs, 10/17/1997 3,906,151 ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 800,000 Sharonville, OH, IDR Weekly VRDNs (Xtek, Inc.)/(Fifth Third $ 800,000 Bank, Cincinnati LOC) ---------------------------------------------------------------- 560,000 Solon, OH, IDR Weekly VRDNs (Graphic Laminating)/(KeyBank, N.A. 560,000 LOC) ---------------------------------------------------------------- 2,000,000 Solon, OH, IDRB (Series 1995) Weekly VRDNs (Cleveland Twist 2,000,000 Drill Company)/(NationsBank, South LOC) ---------------------------------------------------------------- 1,200,000 Stark County, OH IDR Weekly VRDNs (KeyBank, N.A. LOC) 1,200,000 ---------------------------------------------------------------- 2,300,000 Stark County, OH IDR, (Series 1994) Weekly VRDNs (Wilk of 2,300,000 Morris)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 1,300,000 Stark County, OH IDR, IDRB (Series 1996) Weekly VRDNs 1,300,000 (Foundations Systems and Anchors, Inc. Project)/(Bank One, Akron, N.A. LOC) ---------------------------------------------------------------- 5,300,000 Stark County, OH IDR, IDRB (Series 1995) Weekly VRDNs (Gramac 5,300,000 Project, OH)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 1,340,000 Stow, OH, GO LT Various Purpose Refunding, 4.25% BANs, 1,341,037 12/20/1996 ---------------------------------------------------------------- 1,285,000 Strongsville, OH, IDRB (Series 1994) Weekly VRDNs (Nutro 1,285,000 Machinery Corp., Project)/(Huntington National Bank, Columbus, OH LOC) ---------------------------------------------------------------- 2,700,000 Summit County, OH IDR Weekly VRDNs (Maison Aine Limited 2,700,000 Partnership)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 4,500,000 Summit County, OH IDR, (Series 1994) Weekly VRDNs (Harry London 4,500,000 Candies, Inc. )/(Bank One, Akron, N.A. LOC) ---------------------------------------------------------------- 725,000 Summit County, OH IDR, 3.80% TOBs (Bechmer-Boyce 725,000 Project)/(KeyBank, N.A. LOC), Optional Tender 1/15/1997 ---------------------------------------------------------------- 875,000 Summit County, OH IDR, 3.80% TOBs (S.D. Meyers, Inc.)/(Bank One, 875,000 Akron, N.A. LOC), Optional Tender 2/15/1997 ---------------------------------------------------------------- 1,075,000 Summit County, OH IDR, 3.85% TOBs (Rogers Industrial Products, 1,075,000 Inc.)/(Bank One, Akron, N.A. LOC), Optional Tender 11/1/1996 ---------------------------------------------------------------- 355,000 Summit County, OH IDR, 4.00% TOBs (Keltec Industries)/(Bank One, 355,000 Akron, N.A. LOC), Optional Tender 3/1/1997 ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 1,140,000 Summit County, OH IDR, 4.00% TOBs (Matech Machine Tool Co.)/ $ 1,140,000 (Bank One, Akron, N.A. LOC), Optional Tender 2/1/1997 ---------------------------------------------------------------- 760,000 Summit County, OH IDR, 4.00% TOBs (Universal Rack)/(National 760,000 City Bank, Cleveland, OH LOC), Optional Tender 3/1/1997 ---------------------------------------------------------------- 1,700,000 Summit County, OH IDR, Adjustable Rate IDRB (Series 1996) Weekly 1,700,000 VRDNs (Fomo Products, Inc.)/(First National Bank of Ohio, Akron LOC) ---------------------------------------------------------------- 920,000 Summit County, OH IDR, Bonds (Series 1994) Weekly VRDNs (Austin 920,000 Printing Co., Inc.)/(Bank One, Akron, N.A. LOC) ---------------------------------------------------------------- 2,890,000 Summit County, OH IDR, IDRB (Series 1994B) Weekly VRDNs (Harry 2,890,000 London Candies, Inc.)/(Bank One, Akron, N.A. LOC) ---------------------------------------------------------------- 1,000,000 Summit County, OH IDR, IDRB (Series 1995) Weekly VRDNs (Cardtech 1,000,000 Project (OH))/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 1,485,000 Summit County, OH IDR, Industrial Development Bonds (Series 1,485,000 1996) Weekly VRDNs (Creative Screen Print Project)/(National City, Northeast LOC) ---------------------------------------------------------------- 1,450,000 Summit County, OH IDR, Multi-Mode Variable Rate I Weekly VRDNs 1,450,000 (Mastergraphics, Inc. Project)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 1,000,000 Toledo-Lucas County, OH Port Authority, IDA Weekly VRDNs (Medusa 1,000,000 Corp.)/(Bayerische Vereinsbank AG, Munich LOC) ---------------------------------------------------------------- 2,500,000 Trumbull County, OH IDA, (Series 1989) Weekly VRDNs (McSonald 2,500,000 Steel Corp.)/(PNC Bank, N.A. LOC) ---------------------------------------------------------------- 1,330,000 Trumbull County, OH IDA, IDR Refunding Bonds (Series 1994) 1,330,000 Weekly VRDNs (Churchill Downs, Inc.)/(Bank One, Columbus, N.A. LOC) ---------------------------------------------------------------- 1,750,000 Trumbull County, OH, Correctional Facilities GO LT Notes, 1996 1,751,995 Renewal, 4.07% BANs, 4/10/1997 ---------------------------------------------------------------- 1,200,000 Tuscarawas County, OH, Adjustable Rate IDRB (Series 1995) Weekly 1,200,000 VRDNs (Primary Packaging, Inc.)/(First National Bank of Ohio, Akron LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 3,254,624 Union Local School District, OH, Classroom Facilities Voted UT $ 3,263,171 GO, 4.45% BANs, 4/15/1997 ---------------------------------------------------------------- 3,800,000 Westlake, OH, IDR Weekly VRDNs (Kahal Limited Partnership)/ 3,800,000 (KeyBank, N.A. LOC) ---------------------------------------------------------------- 2,650,000 Williams County, OH, Multi-Mode Variable Rate IDRB (Series 1996) 2,650,000 Weekly VRDNs (Allied Moulded Products, Inc.)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 1,120,000 Willoughby City, OH, IDR Refunding Bonds (Series 1995A) Weekly 1,120,000 VRDNs (Pine Ridge Shopping Center Company Project)/(Star Bank, N.A., Cincinnati LOC) ---------------------------------------------------------------- 1,210,000 Willoughby City, OH, IDR Revenue Bonds (Series 1995 B) Weekly 1,210,000 VRDNs (Pine Ridge Shopping Center Company Project)/(Star Bank, N.A., Cincinnati LOC) ---------------------------------------------------------------- 1,400,000 Wood County, OH Weekly VRDNs (Principle Business Enterprises)/ 1,400,000 (National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 2,200,000 Wood County, OH, EDRB Weekly VRDNs (Roe Inc. Project)/ 2,200,000 (Huntington National Bank, Columbus, OH LOC) ---------------------------------------------------------------- 4,300,000 Youngstown, OH, Adjustable Rate Demand IDRB (Series 1996A) 4,300,000 Weekly VRDNs (Cantar/Polyair Corp./Performa Corp.)/(Marine Midland Bank N.A., Buffalo, NY LOC) ------------ ---------------------------------------------------------------- $336,085,136 TOTAL INVESTMENTS (AT AMORTIZED COST)(c) ------------ ----------------------------------------------------------------
At October 31, 1996, 49.9% of the total investments at market value were subject to alternative minimum tax. (a) The Trust 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. NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term rating categories. OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- 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 application regulations in determining whether a security is rated and whether a security rated by multiple NRSRO's in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER ----------- ------------ 98.1% 1.9%
(b) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. At October 31, 1996, these securities amounted to $18,310,000 which represents 5.41% of net assets. (c) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($338,549,831) at October 31, 1996. The following acronyms are used throughout this portfolio: BANs --Bond Anticipation Notes COL --Collateralized CSD --Central School District EDRB --Economic Development Revenue Bonds GNMA --Government National Mortgage Association GO --General Obligation HFA --Housing Finance Authority IDA --Industrial Development Authority IDR --Industrial Development Revenue IDRB --Industrial Development Revenue Bond INV --Investment Agreement LIQ --Liquidity Agreement LOC --Letter of Credit LT --Limited Tax LTD --Limited PCR --Pollution Control Revenue PLC --Public Limited Company PRF --Prerefunded RANs --Revenue Anticipation Notes TOBs --Tender Option Bonds UT --Unlimited Tax VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $336,085,136 - ------------------------------------------------------------------------------- Cash 236,765 - ------------------------------------------------------------------------------- Income receivable 2,777,561 - ------------------------------------------------------------------------------- Receivable for shares sold 11,287 - ------------------------------------------------------------------------------- ------------ Total assets 339,110,749 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable for shares redeemed 45,440 - -------------------------------------------------------------------- Income distribution payable 315,778 - -------------------------------------------------------------------- Accrued expenses 199,700 - -------------------------------------------------------------------- -------- Total liabilities 560,918 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 338,549,831 shares outstanding $338,549,831 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------- $59,721,012 / 59,721,012 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------ CASH II SHARES: - ------------------------------------------------------------------------------- $206,148,774 / 206,148,774 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------ INSTITUTIONAL SHARES: - ------------------------------------------------------------------------------- $72,680,045 / 72,680,045 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ----------------------------------------------------------------------------------- Interest $11,230,260 - ----------------------------------------------------------------------------------- EXPENSES: - ----------------------------------------------------------------------------------- Investment advisory fee $1,183,374 - --------------------------------------------------------------------- Administrative personnel and services fee 223,680 - --------------------------------------------------------------------- Custodian fees 45,066 - --------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 216,497 - --------------------------------------------------------------------- Directors'/Trustees' fees 4,758 - --------------------------------------------------------------------- Auditing fees 13,561 - --------------------------------------------------------------------- Legal fees 5,183 - --------------------------------------------------------------------- Portfolio accounting fees 93,684 - --------------------------------------------------------------------- Distribution services fee -- Cash II Shares 611,752 - --------------------------------------------------------------------- Shareholder services fee -- Institutional Service Shares 181,201 - --------------------------------------------------------------------- Shareholder services fee -- Cash II Shares 509,793 - --------------------------------------------------------------------- Shareholder services fee -- Institutional Shares 48,568 - --------------------------------------------------------------------- Share registration costs 57,328 - --------------------------------------------------------------------- Printing and postage 19,665 - --------------------------------------------------------------------- Insurance premiums 5,429 - --------------------------------------------------------------------- ---------- Total expenses 3,219,539 - --------------------------------------------------------------------- Waivers - --------------------------------------------------------------------- Waiver of investment advisory fee $(570,677) - --------------------------------------------------------- Waiver of distribution services fee -- Cash II Shares (236,326) - --------------------------------------------------------- Waiver of shareholder services fee -- Institutional Service Shares (91,783) - --------------------------------------------------------- Waiver of shareholder services fee -- Institutional Shares (48,568) - --------------------------------------------------------- --------- Total waivers (947,354) - --------------------------------------------------------------------- ---------- Net expenses 2,272,185 - ----------------------------------------------------------------------------------- ----------- Net investment income $ 8,958,075 - ----------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, --------------------------------- 1996 1995 --------------- --------------- INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------------------- OPERATIONS-- - ------------------------------------------------------------- Net investment income $ 8,958,075 $ 8,010,653 - ------------------------------------------------------------- --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ------------------------------------------------------------- Distributions from net investment income - ------------------------------------------------------------- Institutional Service Shares (2,339,083) (2,660,655) - ------------------------------------------------------------- Cash II Shares (5,962,329) (5,349,998) - ------------------------------------------------------------- Institutional Shares (656,663) -- - ------------------------------------------------------------- --------------- --------------- Change in net assets resulting from distributions to shareholders (8,958,075) (8,010,653) - ------------------------------------------------------------- --------------- --------------- SHARE TRANSACTIONS-- - ------------------------------------------------------------- Proceeds from sale of shares 1,408,349,215 1,275,288,208 - ------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 6,083,711 5,470,332 - ------------------------------------------------------------- Cost of shares redeemed (1,337,048,550) (1,238,142,557) - ------------------------------------------------------------- --------------- --------------- Change in net assets resulting from share transactions 77,384,376 42,615,983 - ------------------------------------------------------------- --------------- --------------- Change in net assets 77,384,376 42,615,983 - ------------------------------------------------------------- NET ASSETS: - ------------------------------------------------------------- Beginning of period 261,165,455 218,549,472 - ------------------------------------------------------------- --------------- --------------- End of period $ 338,549,831 $ 261,165,455 - ------------------------------------------------------------- --------------- ---------------
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of Ohio Municipal Cash Trust (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 Fund offers three classes of shares: Institutional Service Shares (effective March 5, 1996, the Fund Institutional Shares changed to Institutional Service Shares), Cash II Shares and Institutional Shares (effective March 5, 1996, the Fund added Institutional Shares). The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities consistent with stability of principal. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1996 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST -------- ---------------- ---------------- Ohio HFA, Trust Receipts (Series 1996 FR/RI-6), (GNMA COL) 9/4/96 $9,510,000 Ohio HFA, Trust Receipts (Series 1996 FR/RI-5), (GNMA LOC) 6/6/96 8,800,000
USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, ---------------------------- INSTITUTIONAL SERVICE SHARES 1996 1995 - ---------------------------- ------------ ------------ Shares sold 440,264,015 571,719,826 - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 226,623 277,721 - ----------------------------------------------------------------- Shares redeemed (453,700,715) (561,565,338) - ----------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional Service share transactions (13,210,077) 10,432,209 - ----------------------------------------------------------------- ------------ ------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ---------------------------- CASH II SHARES 1996 1995 - -------------- ------------ ------------ Shares sold 681,930,901 703,568,382 - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 5,797,497 5,192,611 - ----------------------------------------------------------------- Shares redeemed (669,813,991) (676,577,219) - ----------------------------------------------------------------- ------------ ------------ Net change resulting from Cash II share transactions 17,914,407 32,183,774 - ----------------------------------------------------------------- ------------ ------------
YEAR ENDED OCTOBER 31, ---------------------------- INSTITUTIONAL SHARES 1996* 1995 - -------------------- ------------ ------------ Shares sold 286,154,299 -- - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 59,591 -- - ----------------------------------------------------------------- Shares redeemed (213,533,844) -- - ----------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional share transactions 72,680,046 -- - ----------------------------------------------------------------- ------------ ------------ Net change resulting from share transactions 77,384,376 42,615,983 - ----------------------------------------------------------------- ------------ ------------
* Reflects operations for the period from March 5, 1996 (date of initial public investment) to October 31, 1996 At October 31, 1996, capital paid-in aggregated $338,549,831. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp.("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Cash II Shares. The Plan provides that the Fund may incur distribution expenses up to 0.30% of the average daily net assets of the Cash II Shares, annually, to compensate OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- FSC. The distributor may voluntarily choose to waive any portion of its fee. The distributor can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--Fserv maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS--During the period ended October 31, 1996, 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 $527,800,000 and $491,520,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. (5) CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 71.4% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 9.3% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Ohio Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Ohio Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1996, the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see pages 2, 15 and 16 of the prospectus) for the periods presented. 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 October 31, 1996, 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 Ohio Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 13, 1996 ADDRESSES - -------------------------------------------------------------------------------- Ohio Municipal Cash Trust Cash II Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - --------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - --------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - --------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 - --------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Shareholder Services Company P.O. Box 8600 Boston, MA 02266-8600 - --------------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - ---------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- OHIO MUNICIPAL CASH TRUST CASH II SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 [LOGO] FEDERATED INVESTORS Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. Cusip 314229840 1030105A-CII (12/96) OHIO MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS The Institutional Shares of Ohio Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Ohio municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Ohio, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Ohio Municipal Securities 5 Investment Risks 6 Investment Limitations 6 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Institutional Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ HOW TO REDEEM SHARES 10 - ------------------------------------------------------ ACCOUNT AND SHARE INFORMATION 11 - ------------------------------------------------------ TAX INFORMATION 12 - ------------------------------------------------------ Federal Income Tax 12 State and Local Taxes 12 OTHER CLASSES OF SHARES 13 - ------------------------------------------------------ PERFORMANCE INFORMATION 13 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SERVICE SHARES 14 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--CASH II SHARES 15 - ------------------------------------------------------ FINANCIAL STATEMENTS 16 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 34 - ------------------------------------------------------ ADDRESSES 35 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................................. None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)................................................. None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)...................... None Redemption Fee (as a percentage of amount redeemed, if applicable).................... None Exchange Fee.......................................................................... None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)...................................................... 0.14% 12b-1 Fee............................................................................. None Total Other Expenses.................................................................. 0.23% Shareholder Services Fee (after waiver)(2)................................. 0.00% Total Operating Expenses(3).................................................... 0.37%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this anticipated voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The shareholder services fee has been reduced to reflect the voluntary waiver of the shareholder services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (3) The Total Operating Expenses would have been 0.88% absent the voluntary waiver of a portion of the management fee and the voluntary waiver of the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information". Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - -------------------------------------------------------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period............. $4 $12 $21 $ 47
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. OHIO MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Reference is made to the Report of Independent Public Accountants on page 34.
PERIOD ENDED OCTOBER 31, 1996(a) ----------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 - --------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------------------------------------------- Net investment income 0.02 - --------------------------------------------------------------------------- LESS DISTRIBUTIONS - --------------------------------------------------------------------------- Distributions from net investment income (0.02) - --------------------------------------------------------------------------- -------- NET ASSET VALUE, END OF PERIOD $ 1.00 - --------------------------------------------------------------------------- -------- TOTAL RETURN (b) 2.22% - --------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------------------------------------- Expenses 0.37%* - --------------------------------------------------------------------------- Net investment income 3.38%* - --------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.51%* - --------------------------------------------------------------------------- SUPPLEMENTAL DATA - --------------------------------------------------------------------------- Net assets, end of period (000 omitted) $72,680 - ---------------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from March 5, 1996 (date of initial public investment) to October 31, 1996. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees have established three classes of shares known as Institutional Shares, Cash II Shares, and Institutional Service Shares. This prospectus relates only to Institutional Shares of the Fund, which are designed primarily for financial institutions acting in a fiduciary or agency capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Ohio taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Ohio and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities ("Ohio Municipal Securities"). Examples of Ohio Municipal Securities include, but are not limited to: - tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; - bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; - municipal commercial paper and other short-term notes; - variable rate demand notes; - municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and - participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Ohio Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Ohio Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Ohio Municipal Securities is subject to the federal alternative minimum tax. OHIO MUNICIPAL SECURITIES Ohio Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Ohio Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Ohio Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Ohio Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Ohio Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Ohio Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Ohio Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Ohio Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Ohio Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these considerations, the Fund's concentration in Ohio Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933. These investment limitations cannot be changed without shareholder approval. The following limitation may be changed without shareholder approval. The Fund will not invest more than 10% of the value of its net assets in illiquid securities including repurchase agreements providing for settlement in more than seven days after notice. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SHARES Federated Securities Corp. is the principal distributor for Institutional Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to 0.25% of the average daily net asset value of its shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate as which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS - ------------ ------------------------------------ .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Institutional Shares from the value of Fund assets attributable to Institutional Shares, and dividing the remainder by the number of Institutional Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased either by wire or by check. The Fund reserves the right to reject any purchase request. To make a purchase, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken by telephone. The minimum initial investment is $25,000. However, an account may be opened with a smaller amount as long as the minimum is reached within 90 days. Minimum investments will be calculated by combining all accounts maintained with the Fund. Financial institutions may impose different minimum investment requirements on their customers. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Ohio Municipal Cash Trust--Institutional Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Ohio Municipal Cash Trust--Institutional Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 2, 1996, MAHCO owned 27.17% and Panabco owned 34.33% of the Institutional Shares of the Fund. As of the same time, Parcol & Co. owned 46.06% of the Institutional Service Shares of the Fund and Gradison & Company, Inc. owned 77.16% of the Cash II Shares of the Fund. These companies may, for certain purposes, be deemed to control the Shares of the Fund and may be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Ohio. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. OHIO TAXES. Under existing Ohio laws, distributions made by the Fund will not be subject to Ohio individual income taxes to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest from obligations of Ohio or its subdivisions which is exempt from federal income tax; or (ii) interest or dividends from obligations issued by the United States and its territories or possessions or by any authority, commission or instrumentality of the United States which are exempt from state income tax under federal laws. Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to Ohio individual income taxes. Distributions made by the Fund will not be subject to Ohio corporation franchise tax to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest from obligations of Ohio or its subdivisions which is exempt from federal income tax; or (ii) net interest income from obligations issued by the United States and its territories or possessions or by any authority, commission or instrumentality of the United States, which is included in federal taxable income and which is exempt from state income tax under federal laws. Exempt-interest dividends that represent interest from obligations held by the Fund which are issued by Ohio or its political subdivisions will be exempt from any Ohio municipal income tax (even if the municipality is permitted under Ohio law to levy a tax on intangible income). OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers two other classes of shares called Cash II Shares and Institutional Service Shares. Cash II Shares and Institutional Service Shares are sold at net asset value primarily to retail customers of financial institutions and are subject to a minimum initial investment of $25,000 over a 90-day period. All classes are subject to certain of the same expenses. Cash II Shares are distributed under a 12b-1 Plan adopted by the Fund and also are subject to shareholder services fees. Institutional Service Shares are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. OHIO MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES (FORMERLY, INSTITUTIONAL SHARES) - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 34.
YEAR ENDED OCTOBER 31, -------------------------------------------------------------- 1996 1995 1994 1993 1992 1991(a) ------ ------ ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------- Net investment income 0.03 0.04 0.02 0.02 0.03 0.02 - ----------------------------------------- LESS DISTRIBUTIONS - ----------------------------------------- Distributions from net investment income (0.03) (0.04) (0.02) (0.02) (0.03) (0.02 ) - ----------------------------------------- ------ ------ ------ ------ ------ ------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------- ------ ------ ------ ------ ------ ------- TOTAL RETURN (b) 3.27% 3.61% 2.41% 2.33% 3.21% 2.40 % - ----------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------- Expenses 0.57% 0.57% 0.55% 0.48% 0.46% 0.35 %* - ----------------------------------------- Net investment income 3.23% 3.56% 2.36% 2.30% 3.10% 4.46 %* - ----------------------------------------- Expense waiver/reimbursement (c) 0.31% 0.29% 0.07% 0.19% 0.25% 0.32 %* - ----------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------- Net assets, end of period (000 omitted) $59,721 $72,931 $62,499 $81,748 $74,342 $44,771 - -----------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from April 22, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--CASH II SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 34.
YEAR ENDED OCTOBER 31, -------------------------------------------------------------- 1996 1995 1994 1993 1992 1991(a) ------ ------ ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------- Net investment income 0.03 0.03 0.02 0.02 0.03 0.02 - ----------------------------------------- LESS DISTRIBUTIONS - ----------------------------------------- Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.02) - ----------------------------------------- ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------- ------ ------ ------ ------ ------ ------ TOTAL RETURN (b) 2.96% 3.30% 2.10% 2.02% 2.90% 2.27% - ----------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------- Expenses 0.87% 0.87% 0.85% 0.78% 0.76% 0.63%* - ----------------------------------------- Net investment income 2.92% 3.25% 2.09% 2.01% 2.86% 4.18%* - ----------------------------------------- Expense waiver/reimbursement (c) 0.31% 0.29% 0.24% 0.19% 0.25% 0.34%* - ----------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------- Net assets, end of period (000 omitted) $206,149 $188,234 $156,051 $127,017 $133,877 $94,081 - -----------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from April 22, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--99.3% - -------------------------------------------------------------------------------- OHIO--99.3% ---------------------------------------------------------------- $ 600,000 Akron, Bath & Copley, OH Joint Township Weekly VRDNs (Visiting $ 600,000 Nurses)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 2,535,000 Ashland County, OH Health Care Weekly VRDNs (Brethren Care, 2,535,000 Inc.)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 5,875,000 Belmont County, OH Weekly VRDNs (Lesco, Inc.)/(PNC Bank, N.A. 5,875,000 LOC) ---------------------------------------------------------------- 1,500,000 Belmont County, OH, Water System Improvement, 3.89% BANs, 1,500,550 12/19/1996 ---------------------------------------------------------------- 2,550,000 Berea, OH, Various Purpose, 4.10% BANs, 10/23/1997 2,555,969 ---------------------------------------------------------------- 3,894,000 Bowling Green, OH, 3.80% BANs, 12/5/1996 3,894,244 ---------------------------------------------------------------- 5,500,000 Brecksville-Broadview Heights CSD, OH, (Series 1996), 3.90% 5,503,910 BANs, 1/17/1997 ---------------------------------------------------------------- 1,040,000 Canfield, OH Local School District, (Series 1996), 4.50% BANs, 1,043,666 10/2/1997 ---------------------------------------------------------------- 1,500,000 Cleveland Heights, OH, (Series 1996), 4.10% BANs, 8/28/1997 1,501,775 ---------------------------------------------------------------- 1,800,000 Clinton County, OH Hospital Authority Weekly VRDNs (Clinton 1,800,000 Memorial Hospital)/(National City Bank, Columbus, OH LOC) ---------------------------------------------------------------- 1,905,000 Columbiana County, OH, Industrial Development Revenue Bonds 1,905,000 Weekly VRDNs (C & S Land Company Project)/(Bank One, Youngstown, N.A. LOC) ---------------------------------------------------------------- 800,000 Cuyahoga County, OH Hospital Authority Daily VRDNs (University 800,000 Hospitals Health System, Inc.)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) ---------------------------------------------------------------- 3,600,000 Cuyahoga County, OH Hospital Authority Weekly VRDNs (St. Lukes 3,600,000 Hospital)/(First National Bank of Chicago LOC) ---------------------------------------------------------------- 700,000 Cuyahoga County, OH IDA Weekly VRDNs (Animal Protection League 700,000 (Cuyahoga County))/(KeyBank, N.A. LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 1,650,000 Cuyahoga County, OH IDA Weekly VRDNs (East Park Community, $ 1,650,000 Inc.)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 525,000 Cuyahoga County, OH IDA Weekly VRDNs (Interstate Diesel Service, 525,000 Inc.)/(Huntington National Bank, Columbus, OH LOC) ---------------------------------------------------------------- 690,000 Cuyahoga County, OH IDA Weekly VRDNs (Parma-Commerce Parkway 690,000 West)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 1,050,000 Cuyahoga County, OH IDA Weekly VRDNs (Premier Manufacturing 1,050,000 Corp.)/(National City Bank, Kentucky LOC) ---------------------------------------------------------------- 1,945,000 Cuyahoga County, OH IDA, IDRB (Series 1995) Weekly VRDNs (Avalon 1,945,000 Precision Casting Co. Project)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 2,000,000 Dayton, OH Department of Aviation, (Series 1996), 4.50% BANs, 2,003,840 3/25/1997 ---------------------------------------------------------------- 1,635,000 Delaware County, OH, IDRB (Series 1995) Weekly VRDNs (Air Waves, 1,635,000 Inc. Project)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 3,300,000 Elyria, OH, Various Purpose Improvement Notes, (Series 1996-2), 3,305,694 4.20% BANs, 9/25/1997 ---------------------------------------------------------------- 7,800,000 Franklin County, OH Hospital Facility Authority Weekly VRDNs 7,800,000 (Riverside United Methodist Hospital)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 3,620,000 Franklin County, OH Hospital Facility Authority, (Series 1992) 3,620,000 Weekly VRDNs (Wesley Glenn, Inc.)/(Fifth Third Bank, Cincinnati LOC) ---------------------------------------------------------------- 4,500,000 Franklin County, OH IDA Weekly VRDNs (Heekin Can, Inc.)/(PNC 4,500,000 Bank, Ohio, N.A. LOC) ---------------------------------------------------------------- 3,055,000 Franklin County, OH IDA Weekly VRDNs (Unicorn Leasing Corp.)/ 3,055,000 (Fifth Third Bank, Cincinnati LOC) ---------------------------------------------------------------- 3,490,000 Franklin County, OH IDA, (Series 1995) Weekly VRDNs (Fabcon 3,490,000 L.L.C. Project)/(Norwest Bank Minnesota, Minneapolis LOC) ---------------------------------------------------------------- 4,900,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB (Series 4,900,000 1996A) Weekly VRDNs (Carams, Ltd.)/(Huntington National Bank, Columbus, OH LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 2,100,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB (Series $ 2,100,000 1996B) Weekly VRDNs (Carams, Ltd.)/(Huntington National Bank, Columbus, OH LOC) ---------------------------------------------------------------- 2,000,000 Franklin County, OH IDA, IDRB Weekly VRDNs (Tigerpoly 2,000,000 Manufacturing, Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC) ---------------------------------------------------------------- 2,090,000 Franklin County, OH, Adjustable Rate Demand Economic Development 2,090,000 Revenue Refunding Bonds (Series 1996) Weekly VRDNs (CPM Investments)/(Huntington National Bank, Columbus, OH LOC) ---------------------------------------------------------------- 1,440,000 Franklin, OH County of, Health Care Facilities Revenue Bonds 1,440,000 (Series 1994) Weekly VRDNs (Wesley Glenn, Inc.)/(Fifth Third Bancorp LOC) ---------------------------------------------------------------- 1,300,000 Gates Mills Village, OH, Water System Improvement Notes, 3.70% 1,300,496 BANs, 3/26/1997 ---------------------------------------------------------------- 1,400,000 Green City, OH, Park Improvement General Ltd Tax Notes, 1,401,811 4.35% BANs, 2/7/1997 ---------------------------------------------------------------- 2,000,000 Hamilton County, OH Health System Weekly VRDNs (West Park 2,000,000 Community)/(Fifth Third Bank, Cincinnati LOC) ---------------------------------------------------------------- 1,725,000 Hancock County, OH, (Series A), 4.50% BANs, 9/19/1997 1,732,305 ---------------------------------------------------------------- 2,000,000 Hancock County, OH, 4.27% BANs, 11/22/1996 2,000,637 ---------------------------------------------------------------- 4,400,000 Hancock County, OH, Various Purpose, 3.81% BANs, 11/22/1996 4,400,731 ---------------------------------------------------------------- 2,900,000 Highland Heights City, OH, Various Purpose, 3.89% BANs, 2,900,696 12/19/1996 ---------------------------------------------------------------- 4,000,000 Hilliard, OH, Adjustable Rate IDRB (Series 1996) Weekly VRDNs 4,000,000 (Medex, Inc.)/(Bank One, Columbus, N.A. LOC) ---------------------------------------------------------------- 2,000,000 Holmes County, OH IDA Weekly VRDNs (Poultry Processing)/ 2,000,000 (Rabobank Nederland, Utrecht LOC) ---------------------------------------------------------------- 1,970,000 Holmes County, OH, Sanitary Sewer System Improvement Notes, 1,972,604 4.25% BANs, 5/21/1997 ---------------------------------------------------------------- 1,230,000 Huber Heights, OH, IDRB (Series 1994) Weekly VRDNs (Lasermike, 1,230,000 Inc. Project)/(KeyBank, N.A. LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 1,300,000 Kent, OH, Adjustable Rate IDRB (Series 1994) Weekly VRDNs $ 1,300,000 (Raven's Metal Products, Inc. Project)/(First National Bank of Ohio, Akron LOC) ---------------------------------------------------------------- 3,300,000 Lake County, OH, Adjustable Rate IDRB (Series 1996) Weekly VRDNs 3,300,000 (Apsco Properties, LTD.)/(First National Bank of Ohio, Akron LOC) ---------------------------------------------------------------- 2,560,000 Lake County, OH, Hospital Improvement Bonds, 7.875% Bonds 2,628,820 (United States Treasury PRF), 1/1/1997 (@102) ---------------------------------------------------------------- 2,815,000 Lake County, OH, Hospital Improvement Bonds, 8.00% Bonds (United 2,891,244 States Treasury PRF), 1/1/1997 (@102) ---------------------------------------------------------------- 3,000,000 Lorain County, OH, 4.40% BANs, 9/19/1997 3,010,164 ---------------------------------------------------------------- 2,885,000 Lorain County, OH, Health Facilities Revenue Bonds (Series 2,885,000 1992A) Weekly VRDNs (Elyria United Methodist Home)/(Fifth Third Bank, Cincinnati LOC) ---------------------------------------------------------------- 4,385,000 Lorain Port Authority, OH, (Series 1994) Weekly VRDNs (Spitzer 4,385,000 Great Lakes Ltd., Inc.)/(Bank One, Cleveland, N.A. LOC) ---------------------------------------------------------------- 1,240,000 Lorain Port Authority, OH, Adjustable Rate Demand Port 1,240,000 Development Refunding Revenue Bonds (Series 1996) Weekly VRDNs (Spitzer Project)/(Bank One, Cleveland, N.A. LOC) ---------------------------------------------------------------- 1,200,000 Lucas County, OH IDA Weekly VRDNs (Kuhlman Corp.)/(KeyBank, N.A. 1,200,000 LOC) ---------------------------------------------------------------- 2,000,000 Lucas County, OH IDA, (Series 1991) Weekly VRDNs (Ohio Citizens 2,000,000 Bank)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 1,775,000 Lucas County, OH, Hospital Facility Improvement Revenue Bonds 1,775,000 (Series 93) Weekly VRDNs (Lott Industries, Inc.)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 270,000 Lucas County, OH, Hospital Improvement Revenue Weekly VRDNs 270,000 (Sunshine Children's Home)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 8,000,000 Lucas County, OH, Hospital Refunding Revenue Bonds Weekly VRDNs 8,000,000 (Riverside Hospital, OH)/(Huntington National Bank, Columbus, OH LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 2,000,000 Lucas County, OH, Metropolitan Sewer & Water District $ 2,000,639 Improvement Notes (Series 1995), 4.25% BANs, 11/28/1996 ---------------------------------------------------------------- 5,300,000 Lucas County, OH, Sewer Improvement, 4.25% BANs, 10/28/1997 5,316,093 ---------------------------------------------------------------- 5,325,000 Mahoning County, OH Multifamily HFA Weekly VRDNs (International 5,325,000 Towers, Inc.)/(PNC Bank, N.A. LOC) ---------------------------------------------------------------- 6,745,000 Mahoning County, OH, Housing Revenue Bonds (Series 1995) Weekly 6,745,000 VRDNs (Copeland Oaks Project)/(Bank One, Akron, N.A. LOC) ---------------------------------------------------------------- 850,000 Mansfield, OH, IDR Weekly VRDNs (Designed Metal Products, 850,000 Inc.)/(Bank One, Columbus, N.A. LOC) ---------------------------------------------------------------- 870,000 Mayfield, OH City School District, 4.00% BANs, 4/24/1997 870,798 ---------------------------------------------------------------- 3,750,000 Medina County, OH, 4.50% BANs, 8/28/1997 3,766,288 ---------------------------------------------------------------- 7,000,000 Montgomery County, OH Health Facilities Authority, (Series 1995) 7,000,000 Weekly VRDNs (Sisters of Charity Health Care System)/(Toronto- Dominion Bank LIQ) ---------------------------------------------------------------- 1,970,000 Montgomery, OH IDA Weekly VRDNs (Bethesda Two Limited 1,970,000 Partnership)/(Huntington National Bank, Columbus, OH LOC) ---------------------------------------------------------------- 2,000,000 Muskingum County, OH, County Building Improvement (Series 1996), 2,001,626 3.75% BANs, 3/4/1997 ---------------------------------------------------------------- 345,000 North Olmsted, OH IDA Weekly VRDNs (Bryant & Stratton)/(KeyBank, 345,000 N.A. LOC) ---------------------------------------------------------------- 915,000 North Olmsted, OH IDA, 4.00% TOBs (Therm-All)/(National City 915,000 Bank, Cleveland, OH LOC), Optional Tender 2/1/1997 ---------------------------------------------------------------- 2,035,000 Ohio HFA Weekly VRDNs (Westchester Village)/(KeyBank, N.A. LOC) 2,035,000 ---------------------------------------------------------------- 7,235,000 Ohio HFA, 3.80% TOBs (Lincoln Park Associates)/(Comerica Bank, 7,235,000 Detroit, MI LOC), Optional Tender 11/1/1996 ---------------------------------------------------------------- 8,500,000 Ohio HFA, Residential Mortgage Revenue Convertible (1996 Series 8,500,000 A-3), 3.40% TOBs (AIG Funding, Inc. INV), Mandatory Tender 3/3/1997 ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 7,700,000 Ohio HFA, Single Family Mortgage (Series PT-71) Weekly VRDNs $ 7,700,000 (GNMA COL)/(Commerzbank AG, Frankfurt LIQ) ---------------------------------------------------------------- 9,510,000 (b) Ohio HFA, Trust Receipts (Series 1996 FR/RI-6) Weekly VRDNs 9,510,000 (GNMA COL)/(Bank of New York, New York LIQ) ---------------------------------------------------------------- 8,800,000 (b) Ohio HFA, Trust Receipts, (Series 1996 FR/RI-5) Weekly VRDNs 8,800,000 (Bank of New York, New York LIQ)/(GNMA LOC) ---------------------------------------------------------------- 1,000,000 Ohio School Districts, 1996 Cash Flow Borrowing Program 1,001,172 Certificates of Participation, 4.53% RANs, 12/31/1996 ---------------------------------------------------------------- 3,000,000 Ohio School Districts, 1996 Cash Flow Borrowing Program 3,010,083 Certificates of Participation, 4.53% RANs, 6/30/1997 ---------------------------------------------------------------- 3,800,000 Ohio State Air Quality Development Authority, (Series 1998A) 3,800,000 Weekly VRDNs (PPG Industries, Inc.) ---------------------------------------------------------------- 4,000,000 Ohio State Air Quality Development Authority, Revenue Bonds 4,000,000 (Series B) Daily VRDNs (Cincinnati Gas and Electric Co.)/ (J.P. Morgan Delaware, Wilmington LOC) ---------------------------------------------------------------- 1,880,000 Ohio State Higher Education Facility, Revenue Bonds Weekly VRDNs 1,880,000 (Notre Dame College Project)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 1,000,000 Ohio State Water Development Authority Weekly VRDNs (PPG 1,000,000 Industries, Inc.) ---------------------------------------------------------------- 2,500,000 Ohio State Water Development Authority, Multimodal Water 2,500,000 Development (Series 1993) Weekly VRDNs (Timken Co.)/(Wachovia Bank of Georgia N.A., Atlanta LOC) ---------------------------------------------------------------- 3,000,000 Ohio State Water Development Authority, Ohio PCR Bonds (Series 3,000,000 1989) Weekly VRDNs (Duquesne Light Power Co.)/(Barclays Bank PLC, London LOC) ---------------------------------------------------------------- 3,500,000 Ohio State Water Development Authority, Pollution Control 3,500,000 Facilities Revenue Bonds, 3.80% TOBs (Union Bank of Switzerland, Zurich LOC), Optional Tender 5/1/1997 ---------------------------------------------------------------- 600,000 Ohio State Weekly VRDNs (John Carroll University, OH)/ (PNC 600,000 Bank, N.A. LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 1,320,000 Ohio State, IDR (Series 1991) Weekly VRDNs (Standby Screw, $ 1,320,000 Inc.)/ (National City Bank, Columbus, OH LOC) ---------------------------------------------------------------- 1,400,000 Ohio State, IDRB (Series 1994) Weekly VRDNs (Anomatic 1,400,000 Corporation)/(National City Bank, Columbus, OH LOC) ---------------------------------------------------------------- 1,250,000 Orrville, OH IDA Weekly VRDNs (O.S. Associates/Contours, Inc.)/ 1,250,000 (National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 2,000,000 Ottawa County, OH, Regional Water System Notes, 3.98% BANs, 2,001,927 4/9/1997 ---------------------------------------------------------------- 1,000,000 Perry Local School District, OH, UT GO Bonds, 3.75% Bonds (Bank 1,000,000 One, Cleveland, N.A. LOC), 12/1/1996 ---------------------------------------------------------------- 135,000 Portage County, OH IDA Weekly VRDNs (D & W Associates)/ (Bank 135,000 One, Akron, N.A. LOC) ---------------------------------------------------------------- 370,000 Portage County, OH IDA, 4.00% TOBs (Neidlinger)/(KeyBank, N.A. 370,000 LOC), Optional Tender 3/1/1997 ---------------------------------------------------------------- 4,300,000 Portage County, OH IDA, Adjustable Rate IDRB (Series 1996) 4,300,000 Weekly VRDNs (Barnette Project)/(National City, Northeast LOC) ---------------------------------------------------------------- 900,000 Portage County, OH IDA, Industries Revenue Bonds Weekly VRDNs 900,000 (Lovejoy Industries)/(Star Bank, N.A., Cincinnati LOC) ---------------------------------------------------------------- 5,700,000 Rickenbacker, OH Port Authority, (Series 1992) Weekly 5,700,000 VRDNs(Rickenbacker Holdings, Inc.)/(Bank One, Columbus, N.A. LOC) ---------------------------------------------------------------- 1,800,000 Seneca County, OH Hospital Facility Authority Weekly VRDNs (St. 1,800,000 Francis Home)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 3,890,000 Shaker Heights, OH, 4.25% BANs, 10/17/1997 3,906,151 ---------------------------------------------------------------- 800,000 Sharonville, OH, IDR Weekly VRDNs (Xtek, Inc.)/(Fifth Third 800,000 Bank, Cincinnati LOC) ---------------------------------------------------------------- 560,000 Solon, OH, IDR Weekly VRDNs (Graphic Laminating)/(KeyBank, N.A. 560,000 LOC) ---------------------------------------------------------------- 2,000,000 Solon, OH, IDRB (Series 1995) Weekly VRDNs (Cleveland Twist 2,000,000 Drill Company)/(NationsBank, South LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 1,200,000 Stark County, OH IDR Weekly VRDNs (KeyBank, N.A. LOC) $ 1,200,000 ---------------------------------------------------------------- 2,300,000 Stark County, OH IDR, (Series 1994) Weekly VRDNs (Wilk of 2,300,000 Morris)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 1,300,000 Stark County, OH IDR, IDRB (Series 1996) Weekly VRDNs 1,300,000 (Foundations Systems and Anchors, Inc. Project)/(Bank One, Akron, N.A. LOC) ---------------------------------------------------------------- 5,300,000 Stark County, OH IDR, IDRB (Series 1995) Weekly VRDNs (Gramac 5,300,000 Project, OH)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 1,340,000 Stow, OH, GO LT Various Purpose Refunding, 4.25% BANs, 1,341,037 12/20/1996 ---------------------------------------------------------------- 1,285,000 Strongsville, OH, IDRB (Series 1994) Weekly VRDNs (Nutro 1,285,000 Machinery Corp., Project)/(Huntington National Bank, Columbus, OH LOC) ---------------------------------------------------------------- 2,700,000 Summit County, OH IDR Weekly VRDNs (Maison Aine Limited 2,700,000 Partnership)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 4,500,000 Summit County, OH IDR, (Series 1994) Weekly VRDNs (Harry London 4,500,000 Candies, Inc. )/(Bank One, Akron, N.A. LOC) ---------------------------------------------------------------- 725,000 Summit County, OH IDR, 3.80% TOBs (Bechmer-Boyce 725,000 Project)/(KeyBank, N.A. LOC), Optional Tender 1/15/1997 ---------------------------------------------------------------- 875,000 Summit County, OH IDR, 3.80% TOBs (S.D. Meyers, Inc.)/(Bank One, 875,000 Akron, N.A. LOC), Optional Tender 2/15/1997 ---------------------------------------------------------------- 1,075,000 Summit County, OH IDR, 3.85% TOBs (Rogers Industrial Products, 1,075,000 Inc.)/(Bank One, Akron, N.A. LOC), Optional Tender 11/1/1996 ---------------------------------------------------------------- 355,000 Summit County, OH IDR, 4.00% TOBs (Keltec Industries)/(Bank One, 355,000 Akron, N.A. LOC), Optional Tender 3/1/1997 ---------------------------------------------------------------- 1,140,000 Summit County, OH IDR, 4.00% TOBs (Matech Machine Tool Co.)/ 1,140,000 (Bank One, Akron, N.A. LOC), Optional Tender 2/1/1997 ---------------------------------------------------------------- 760,000 Summit County, OH IDR, 4.00% TOBs (Universal Rack)/(National 760,000 City Bank, Cleveland, OH LOC), Optional Tender 3/1/1997 ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 1,700,000 Summit County, OH IDR, Adjustable Rate IDRB (Series 1996) Weekly $ 1,700,000 VRDNs (Fomo Products, Inc.)/(First National Bank of Ohio, Akron LOC) ---------------------------------------------------------------- 920,000 Summit County, OH IDR, Bonds (Series 1994) Weekly VRDNs (Austin 920,000 Printing Co., Inc.)/(Bank One, Akron, N.A. LOC) ---------------------------------------------------------------- 2,890,000 Summit County, OH IDR, IDRB (Series 1994B) Weekly VRDNs (Harry 2,890,000 London Candies, Inc.)/(Bank One, Akron, N.A. LOC) ---------------------------------------------------------------- 1,000,000 Summit County, OH IDR, IDRB (Series 1995) Weekly VRDNs (Cardtech 1,000,000 Project (OH))/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 1,485,000 Summit County, OH IDR, Industrial Development Bonds (Series 1,485,000 1996) Weekly VRDNs (Creative Screen Print Project)/(National City, Northeast LOC) ---------------------------------------------------------------- 1,450,000 Summit County, OH IDR, Multi-Mode Variable Rate I Weekly VRDNs 1,450,000 (Mastergraphics, Inc. Project)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 1,000,000 Toledo-Lucas County, OH Port Authority, IDA Weekly VRDNs (Medusa 1,000,000 Corp.)/(Bayerische Vereinsbank AG, Munich LOC) ---------------------------------------------------------------- 2,500,000 Trumbull County, OH IDA, (Series 1989) Weekly VRDNs (McSonald 2,500,000 Steel Corp.)/(PNC Bank, N.A. LOC) ---------------------------------------------------------------- 1,330,000 Trumbull County, OH IDA, IDR Refunding Bonds (Series 1994) 1,330,000 Weekly VRDNs (Churchill Downs, Inc.)/(Bank One, Columbus, N.A. LOC) ---------------------------------------------------------------- 1,750,000 Trumbull County, OH, Correctional Facilities GO LT Notes, 1996 1,751,995 Renewal, 4.07% BANs, 4/10/1997 ---------------------------------------------------------------- 1,200,000 Tuscarawas County, OH, Adjustable Rate IDRB (Series 1995) Weekly 1,200,000 VRDNs (Primary Packaging, Inc.)/(First National Bank of Ohio, Akron LOC) ---------------------------------------------------------------- 3,254,624 Union Local School District, OH, Classroom Facilities Voted UT 3,263,171 GO, 4.45% BANs, 4/15/1997 ---------------------------------------------------------------- 3,800,000 Westlake, OH, IDR Weekly VRDNs (Kahal Limited Partnership)/ 3,800,000 (KeyBank, N.A. LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 2,650,000 Williams County, OH, Multi-Mode Variable Rate IDRB (Series 1996) Weekly VRDNs (Allied Moulded Products, Inc.)/(KeyBank, N.A. LOC) $ 2,650,000 ---------------------------------------------------------------- 1,120,000 Willoughby City, OH, IDR Refunding Bonds (Series 1995A) Weekly VRDNs (Pine Ridge Shopping Center Company Project)/(Star Bank, N.A., Cincinnati LOC) 1,120,000 ---------------------------------------------------------------- 1,210,000 Willoughby City, OH, IDR Revenue Bonds (Series 1995 B) Weekly VRDNs (Pine Ridge Shopping Center Company Project)/(Star Bank, N.A., Cincinnati LOC) 1,210,000 ---------------------------------------------------------------- 1,400,000 Wood County, OH Weekly VRDNs (Principle Business Enterprises)/ (National City Bank, Cleveland, OH LOC) 1,400,000 ---------------------------------------------------------------- 2,200,000 Wood County, OH, EDRB Weekly VRDNs (Roe Inc. Project)/ (Huntington National Bank, Columbus, OH LOC) 2,200,000 ---------------------------------------------------------------- 4,300,000 Youngstown, OH, Adjustable Rate Demand IDRB (Series 1996A) Weekly VRDNs (Cantar/Polyair Corp./Performa Corp.)/(Marine Midland Bank N.A., Buffalo, NY LOC) 4,300,000 ---------------------------------------------------------------- ------------ TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $336,085,136 ---------------------------------------------------------------- ------------
At October 31, 1996, 49.9% of the total investments at market value were subject to alternative minimum tax. (a) The Trust 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. NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term rating categories. Securities rated in the highest short-term rating category (and unrated securities of comparable quality) are identified as First Tier securities. Securities rated in the second highest short-term rating category (and unrated securities of comparable quality) are identified as Second Tier securities. The Fund follows application regulations in determining whether a security is rated and whether a security rated by multiple NRSRO's in different rating categories should be identified as a First or Second Tier security. OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER ----------- ------------ 98.1% 1.9%
(b) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. At October 31, 1996, these securities amounted to $18,310,000 which represents 5.41% of net assets. (c) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($338,549,831) at October 31, 1996. The following acronyms are used throughout this portfolio: BANs --Bond Anticipation Notes COL --Collateralized CSD --Central School District EDRB --Economic Development Revenue Bonds GNMA --Government National Mortgage Association GO --General Obligation HFA --Housing Finance Authority IDA --Industrial Development Authority IDR --Industrial Development Revenue IDRB --Industrial Development Revenue Bond INV --Investment Agreement LIQ --Liquidity Agreement LOC --Letter of Credit LT --Limited Tax LTD --Limited PCR --Pollution Control Revenue PLC --Public Limited Company PRF --Prerefunded RANs --Revenue Anticipation Notes TOBs --Tender Option Bonds UT --Unlimited Tax VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $336,085,136 - ------------------------------------------------------------------------------- Cash 236,765 - ------------------------------------------------------------------------------- Income receivable 2,777,561 - ------------------------------------------------------------------------------- Receivable for shares sold 11,287 - ------------------------------------------------------------------------------- ------------ Total assets 339,110,749 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable for shares redeemed 45,440 - -------------------------------------------------------------------- Income distribution payable 315,778 - -------------------------------------------------------------------- Accrued expenses 199,700 - -------------------------------------------------------------------- -------- Total liabilities 560,918 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 338,549,831 shares outstanding $338,549,831 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------- $59,721,012 / 59,721,012 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------ CASH II SHARES: - ------------------------------------------------------------------------------- $206,148,774 / 206,148,774 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------ INSTITUTIONAL SHARES: - ------------------------------------------------------------------------------- $72,680,045 / 72,680,045 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ----------------------------------------------------------------------------------- Interest $11,230,260 - ----------------------------------------------------------------------------------- EXPENSES: - ----------------------------------------------------------------------------------- Investment advisory fee $1,183,374 - --------------------------------------------------------------------- Administrative personnel and services fee 223,680 - --------------------------------------------------------------------- Custodian fees 45,066 - --------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 216,497 - --------------------------------------------------------------------- Directors'/Trustees' fees 4,758 - --------------------------------------------------------------------- Auditing fees 13,561 - --------------------------------------------------------------------- Legal fees 5,183 - --------------------------------------------------------------------- Portfolio accounting fees 93,684 - --------------------------------------------------------------------- Distribution services fee--Cash II Shares 611,752 - --------------------------------------------------------------------- Shareholder services fee--Institutional Service Shares 181,201 - --------------------------------------------------------------------- Shareholder services fee--Cash II Shares 509,793 - --------------------------------------------------------------------- Shareholder services fee--Institutional Shares 48,568 - --------------------------------------------------------------------- Share registration costs 57,328 - --------------------------------------------------------------------- Printing and postage 19,665 - --------------------------------------------------------------------- Insurance premiums 5,429 - --------------------------------------------------------------------- ---------- Total expenses 3,219,539 - --------------------------------------------------------------------- Waivers - --------------------------------------------------------------------- Waiver of investment advisory fee $(570,677) - --------------------------------------------------------- Waiver of distribution services fee--Cash II Shares (236,326) - --------------------------------------------------------- Waiver of shareholder services fee--Institutional Service Shares (91,783) - --------------------------------------------------------- Waiver of shareholder services fee--Institutional Shares (48,568) - --------------------------------------------------------- --------- Total waivers (947,354) - --------------------------------------------------------------------- ---------- Net expenses 2,272,185 - ----------------------------------------------------------------------------------- ----------- Net investment income $ 8,958,075 - ----------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, --------------------------------- 1996 1995 --------------- --------------- INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------------------- OPERATIONS-- - ------------------------------------------------------------- Net investment income $ 8,958,075 $ 8,010,653 - ------------------------------------------------------------- --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ------------------------------------------------------------- Distributions from net investment income - ------------------------------------------------------------- Institutional Service Shares (2,339,083) (2,660,655) - ------------------------------------------------------------- Cash II Shares (5,962,329) (5,349,998) - ------------------------------------------------------------- Institutional Shares (656,663) -- - ------------------------------------------------------------- --------------- --------------- Change in net assets resulting from distributions to shareholders (8,958,075) (8,010,653) - ------------------------------------------------------------- --------------- --------------- SHARE TRANSACTIONS-- - ------------------------------------------------------------- Proceeds from sale of shares 1,408,349,215 1,275,288,208 - ------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 6,083,711 5,470,332 - ------------------------------------------------------------- Cost of shares redeemed (1,337,048,550) (1,238,142,557) - ------------------------------------------------------------- --------------- --------------- Change in net assets resulting from share transactions 77,384,376 42,615,983 - ------------------------------------------------------------- --------------- --------------- Change in net assets 77,384,376 42,615,983 - ------------------------------------------------------------- NET ASSETS: - ------------------------------------------------------------- Beginning of period 261,165,455 218,549,472 - ------------------------------------------------------------- --------------- --------------- End of period $ 338,549,831 $ 261,165,455 - ------------------------------------------------------------- --------------- ---------------
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of Ohio Municipal Cash Trust (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 Fund offers three classes of shares: Institutional Service Shares (effective March 5, 1996, the Fund's Institutional Shares changed to Institutional Service Shares), Cash II Shares and Institutional Shares (effective March 5, 1996, the Fund added Institutional Shares). The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities consistent with stability of principal. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1996 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST -------- ---------------- ---------------- Ohio HFA, Trust Receipts (Series 1996 FR/RI-6), (GNMA COL) 9/4/96 $9,510,000 Ohio HFA, Trust Receipts (Series 1996 FR/RI-5), (GNMA LOC) 6/6/96 8,800,000
USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, ---------------------------- INSTITUTIONAL SERVICE SHARES 1996 1995 - ----------------------------------------------------------------- ------------ ------------ Shares sold 440,264,015 571,719,826 - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 226,623 277,721 - ----------------------------------------------------------------- Shares redeemed (453,700,715) (561,565,338) - ----------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional Service share transactions (13,210,077) 10,432,209 - ----------------------------------------------------------------- ------------ ------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ---------------------------- CASH II SHARES 1996 1995 - ----------------------------------------------------------------- ------------ ------------ Shares sold 681,930,901 703,568,382 - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 5,797,497 5,192,611 - ----------------------------------------------------------------- Shares redeemed (669,813,991) (676,577,219) - ----------------------------------------------------------------- ------------ ------------ Net change resulting from Cash II share transactions 17,914,407 32,183,774 - ----------------------------------------------------------------- ------------ ------------
YEAR ENDED OCTOBER 31, ---------------------------- INSTITUTIONAL SHARES 1996* 1995 - ----------------------------------------------------------------- ------------ ------------ Shares sold 286,154,299 -- - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 59,591 -- - ----------------------------------------------------------------- Shares redeemed (213,533,844) -- - ----------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional share transactions 72,680,046 -- - ----------------------------------------------------------------- ------------ ------------ Net change resulting from share transactions 77,384,376 42,615,983 - ----------------------------------------------------------------- ------------ ------------
* Reflects operations for the period from March 5, 1996 (date of initial public investment) to October 31, 1996 At October 31, 1996, capital paid-in aggregated $338,549,831. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp.("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Cash II Shares. The Plan provides that the Fund may incur distribution expenses up to 0.30% of the average daily net assets of the Cash II Shares, annually, to compensate OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- FSC. The distributor may voluntarily choose to waive any portion of its fee. The distributor can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--Fserv maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS--During the period ended October 31, 1996, 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 $527,800,000 and $491,520,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. (5) CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 71.4% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 9.3% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Ohio Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Ohio Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1996, the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see pages 2, 14 and 15 of the prospectus) for the periods presented. 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 October 31, 1996, 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 Ohio Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 13, 1996 ADDRESSES - -------------------------------------------------------------------------------- Ohio Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 - ----------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Shareholder Services Company P.O. Box 8600 Boston, MA 02266-8600 - ----------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - -----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- OHIO MUNICIPAL CASH TRUST INSTITUTIONAL SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 [LOGO] FEDERATED INVESTORS Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. [LOGO] Cusip 314229659 G00211-01-IS (12/96) OHIO MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES (FORMERLY, INSTITUTIONAL SHARES) PROSPECTUS The Institutional Service Shares of Ohio Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Ohio municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Ohio, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Ohio Municipal Securities 5 Investment Risks 6 Investment Limitations 6 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Institutional Service Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ HOW TO REDEEM SHARES 10 - ------------------------------------------------------ ACCOUNT AND SHARE INFORMATION 11 - ------------------------------------------------------ TAX INFORMATION 12 - ------------------------------------------------------ Federal Income Tax 12 State and Local Taxes 12 OTHER CLASSES OF SHARES 13 - ------------------------------------------------------ PERFORMANCE INFORMATION 13 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--CASH II SHARES 14 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 15 - ------------------------------------------------------ FINANCIAL STATEMENTS 16 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 34 - ------------------------------------------------------ ADDRESSES 35 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES (FORMERLY, INSTITUTIONAL SHARES) SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)...... None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price).............................................. None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable).............................................. None Redemption Fee (as a percentage of amount redeemed, if applicable)................. None Exchange Fee....................................................................... None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)................................................... 0.22% 12b-1 Fee.......................................................................... None Total Other Expenses............................................................... 0.35% Shareholder Services Fee (after waiver)(2).............................. 0.12% Total Operating Expenses(3)................................................. 0.57%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The advisor can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The shareholder services fee has been reduced to reflect the voluntary waiver of a portion of the shareholders services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (3) The Total Operating Expenses would have been 0.88% absent the voluntary waivers of portions of the management fee and shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Service Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information". Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period............... $6 $18 $32 $ 71
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. OHIO MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES (FORMERLY, INSTITUTIONAL SHARES) - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 34.
YEAR ENDED OCTOBER 31, -------------------------------------------------------------- 1996 1995 1994 1993 1992 1991(a) ------ ------ ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------- Net investment income 0.03 0.04 0.02 0.02 0.03 0.02 - ----------------------------------------- LESS DISTRIBUTIONS - ----------------------------------------- Distributions from net investment income (0.03) (0.04) (0.02) (0.02) (0.03) (0.02) - ----------------------------------------- ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------- ------ ------ ------ ------ ------ ------ TOTAL RETURN (b) 3.27% 3.61% 2.41% 2.33% 3.21% 2.40% - ----------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------- Expenses 0.57% 0.57% 0.55% 0.48% 0.46% 0.35%* - ----------------------------------------- Net investment income 3.23% 3.56% 2.36% 2.30% 3.10% 4.46%* - ----------------------------------------- Expense waiver/reimbursement (c) 0.31% 0.29% 0.07% 0.19% 0.25% 0.32%* - ----------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------- Net assets, end of period (000 omitted) $59,721 $72,931 $62,499 $81,748 $74,342 $44,771 - -----------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from April 22, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees have established three classes of shares known as Institutional Service Shares, Cash II Shares and Institutional Shares. This prospectus relates only to Institutional Service Shares of the Fund, which are designed primarily for financial institutions acting in a fiduciary or agency capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Ohio taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Ohio and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities ("Ohio Municipal Securities"). Examples of Ohio Municipal Securities include, but are not limited to: - tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; - bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; - municipal commercial paper and other short-term notes; - variable rate demand notes; - municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and - participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Ohio Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Ohio Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Ohio Municipal Securities is subject to the federal alternative minimum tax. OHIO MUNICIPAL SECURITIES Ohio Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Ohio Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Ohio Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Ohio Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Ohio Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Ohio Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Ohio Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Ohio Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Ohio Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these considerations, the Fund's concentration in Ohio Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933. These investment limitations cannot be changed without shareholder approval. The following limitation may be changed without shareholder approval. The Fund will not invest more than 10% of the value of its net assets in illiquid securities including repurchase agreements providing for settlement in more than seven days after notice. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES Federated Securities Corp. is the principal distributor for Institutional Service Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to 0.25% of the average daily net asset value of its shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund 's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate as which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS - ------------ ------------------------------------ .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Institutional Service Shares from the value of Fund assets attributable to Institutional Service Shares, and dividing the remainder by the number of Institutional Service Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased either by wire or by check. The Fund reserves the right to reject any purchase request. To make a purchase, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken by telephone. The minimum initial investment is $25,000. However, an account may be opened with a smaller amount as long as the minimum is reached within 90 days. Minimum investments will be calculated by combining all accounts maintained with the Fund. Financial institutions may impose different minimum investment requirements on their customers. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Ohio Municipal Cash Trust--Institutional Service Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Ohio Municipal Cash Trust--Institutional Service Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 2, 1996, MAHCO owned 27.17% and Panabco owned 34.33% of the Institutional Shares of the Fund. As of the same time, Parcol & Co. owned 46.06% of the Institutional Service Shares of the Fund and Gradison & Company, Inc. owned 77.16% of the Cash II Shares of the Fund. These companies may, for certain purposes, be deemed to control the Shares of the Fund and may be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Ohio. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. OHIO TAXES. Under existing Ohio laws, distributions made by the Fund will not be subject to Ohio income taxes to the extent that such distributions qualify as exempt interest dividends under the Internal Revenue Code, and represent (i) interest on obligations of Ohio, or its subdivisions which is exempt from federal income tax; or (ii) interest or dividends from obligations issued by the United States and its territories or possessions or by any authority, commission or instrumentality of the United States which are exempt from state income tax under federal laws. Conversely, to the extent that the distributions made by the Fund are derived from other types of obligations, such distributions will be subject to Ohio individual income taxes. Distributions made by the Fund will not be subject to Ohio corporate franchise tax to the extent that such distributions qualify as exempt interest dividends under the Internal Revenue Code, and represent (i) interest from obligations of Ohio, or its subdivisions which is exempt from federal income tax or (ii) net interest income from obligations issued by the United States and its territories or possessions or by any authority, commission or instrumentality of the United States which is included in federal taxable income and which is exempt from state income tax under federal laws. Exempt-interest dividends that represent interest from obligations held by the Fund which are issued by Ohio or its political subdivisions will be exempt from any Ohio municipal income tax (even if the municipality is permitted under Ohio laws to levy a tax on intangible income). OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers two other classes of shares called Cash II Shares and Institutional Shares. Cash II Shares are sold at net asset value primarily to retail customers of financial institutions and are subject to a minimum initial investment of $25,000 over a 90-day period. Institutional Shares are sold at net asset value primarily to financial institutions and are subject to a minimum initial investment of $25,000 over a 90-day period. All classes are subject to certain of the same expenses. Cash II Shares are distributed under a 12b-1 Plan adopted by the Fund and also are subject to shareholder services fees. Institutional Shares are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. OHIO MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--CASH II SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 34.
YEAR ENDED OCTOBER 31, -------------------------------------------------------------- 1996 1995 1994 1993 1992 1991(a) ------ ------ ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------- Net investment income 0.03 0.03 0.02 0.02 0.03 0.02 - ----------------------------------------- LESS DISTRIBUTIONS - ----------------------------------------- Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.02) - ----------------------------------------- ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------- ------ ------ ------ ------ ------ ------ TOTAL RETURN (b) 2.96% 3.30% 2.10% 2.02% 2.90% 2.27% - ----------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------- Expenses 0.87% 0.87% 0.85% 0.78% 0.76% 0.63%* - ----------------------------------------- Net investment income 2.92% 3.25% 2.09% 2.01% 2.86% 4.18%* - ----------------------------------------- Expense waiver/reimbursement (c) 0.31% 0.29% 0.24% 0.19% 0.25% 0.34%* - ----------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------- Net assets, end of period (000 omitted) $206,149 $188,234 $156,051 $127,017 $133,877 $94,081 - -----------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from April 22, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Reference is made to the Report of Independent Public Accountants on page 34.
PERIOD ENDED OCTOBER 31, 1996(a) ------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 - ------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------------------------------ Net investment income 0.02 - ------------------------------------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------------------------------------ Distributions from net investment income (0.02) - ------------------------------------------------------------------------ --------- NET ASSET VALUE, END OF PERIOD $ 1.00 - ------------------------------------------------------------------------ --------- TOTAL RETURN (b) 2.22% - ------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------------ Expenses 0.37%* - ------------------------------------------------------------------------ Net investment income 3.38%* - ------------------------------------------------------------------------ Expense waiver/reimbursement (c) 0.51%* - ------------------------------------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------------------------------------ Net assets, end of period (000 omitted) $72,680 - ------------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from March 5, 1996 (date of initial public investment) to October 31, 1996. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--99.3% - -------------------------------------------------------------------------------- OHIO--99.3% ---------------------------------------------------------------- $ 600,000 Akron, Bath & Copley, OH Joint Township Weekly VRDNs $ 600,000 (Visiting Nurses)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 2,535,000 Ashland County, OH Health Care Weekly VRDNs (Brethren Care, 2,535,000 Inc.)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 5,875,000 Belmont County, OH Weekly VRDNs (Lesco, Inc.)/ 5,875,000 (PNC Bank, N.A. LOC) ---------------------------------------------------------------- 1,500,000 Belmont County, OH, Water System Improvement, 1,500,550 3.89% BANs, 12/19/1996 ---------------------------------------------------------------- 2,550,000 Berea, OH, Various Purpose, 4.10% BANs, 10/23/1997 2,555,969 ---------------------------------------------------------------- 3,894,000 Bowling Green, OH, 3.80% BANs, 12/5/1996 3,894,244 ---------------------------------------------------------------- 5,500,000 Brecksville-Broadview Heights CSD, OH, (Series 1996), 5,503,910 3.90% BANs, 1/17/1997 ---------------------------------------------------------------- 1,040,000 Canfield, OH Local School District, (Series 1996), 1,043,666 4.50% BANs, 10/2/1997 ---------------------------------------------------------------- 1,500,000 Cleveland Heights, OH, (Series 1996), 4.10% BANs, 8/28/1997 1,501,775 ---------------------------------------------------------------- 1,800,000 Clinton County, OH Hospital Authority Weekly VRDNs (Clinton 1,800,000 Memorial Hospital)/(National City Bank, Columbus, OH LOC) ---------------------------------------------------------------- 1,905,000 Columbiana County, OH, Industrial Development Revenue Bonds 1,905,000 Weekly VRDNs (C & S Land Company Project)/(Bank One, Youngstown, N.A. LOC) ---------------------------------------------------------------- 800,000 Cuyahoga County, OH Hospital Authority Daily VRDNs (University 800,000 Hospitals Health System, Inc.)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC) ---------------------------------------------------------------- 3,600,000 Cuyahoga County, OH Hospital Authority Weekly VRDNs 3,600,000 (St. Lukes Hospital)/(First National Bank of Chicago LOC) ---------------------------------------------------------------- 700,000 Cuyahoga County, OH IDA Weekly VRDNs (Animal Protection League 700,000 (Cuyahoga County))/(KeyBank, N.A. LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 1,650,000 Cuyahoga County, OH IDA Weekly VRDNs $ 1,650,000 (East Park Community, Inc.)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 525,000 Cuyahoga County, OH IDA Weekly VRDNs (Interstate Diesel Service, 525,000 Inc.)/(Huntington National Bank, Columbus, OH LOC) ---------------------------------------------------------------- 690,000 Cuyahoga County, OH IDA Weekly VRDNs (Parma-Commerce Parkway 690,000 West)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 1,050,000 Cuyahoga County, OH IDA Weekly VRDNs (Premier Manufacturing 1,050,000 Corp.)/(National City Bank, Kentucky LOC) ---------------------------------------------------------------- 1,945,000 Cuyahoga County, OH IDA, IDRB (Series 1995) Weekly VRDNs (Avalon 1,945,000 Precision Casting Co. Project)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 2,000,000 Dayton, OH Department of Aviation, (Series 1996), 4.50% BANs, 2,003,840 3/25/1997 ---------------------------------------------------------------- 1,635,000 Delaware County, OH, IDRB (Series 1995) Weekly VRDNs 1,635,000 (Air Waves, Inc. Project)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 3,300,000 Elyria, OH, Various Purpose Improvement Notes, (Series 1996-2), 3,305,694 4.20% BANs, 9/25/1997 ---------------------------------------------------------------- 7,800,000 Franklin County, OH Hospital Facility Authority Weekly VRDNs 7,800,000 (Riverside United Methodist Hospital)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 3,620,000 Franklin County, OH Hospital Facility Authority, (Series 1992) 3,620,000 Weekly VRDNs (Wesley Glenn, Inc.)/(Fifth Third Bank, Cincinnati LOC) ---------------------------------------------------------------- 4,500,000 Franklin County, OH IDA Weekly VRDNs (Heekin Can, Inc.)/ 4,500,000 (PNC Bank, Ohio, N.A. LOC) ---------------------------------------------------------------- 3,055,000 Franklin County, OH IDA Weekly VRDNs (Unicorn Leasing Corp.)/ 3,055,000 (Fifth Third Bank, Cincinnati LOC) ---------------------------------------------------------------- 3,490,000 Franklin County, OH IDA, (Series 1995) Weekly VRDNs (Fabcon 3,490,000 L.L.C. Project)/(Norwest Bank Minnesota, Minneapolis LOC) ---------------------------------------------------------------- 4,900,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB (Series 4,900,000 1996A) Weekly VRDNs (Carams, Ltd.)/(Huntington National Bank, Columbus, OH LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 2,100,000 Franklin County, OH IDA, Adjustable Rate Demand IDRB (Series $ 2,100,000 1996B) Weekly VRDNs (Carams, Ltd.)/ (Huntington National Bank, Columbus, OH LOC) ---------------------------------------------------------------- 2,000,000 Franklin County, OH IDA, IDRB Weekly VRDNs (Tigerpoly 2,000,000 Manufacturing, Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC) ---------------------------------------------------------------- 2,090,000 Franklin County, OH, Adjustable Rate Demand Economic Development 2,090,000 Revenue Refunding Bonds (Series 1996) Weekly VRDNs (CPM Investments)/(Huntington National Bank, Columbus, OH LOC) ---------------------------------------------------------------- 1,440,000 Franklin, OH County of, Health Care Facilities Revenue Bonds 1,440,000 (Series 1994) Weekly VRDNs (Wesley Glenn, Inc.)/ (Fifth Third Bancorp LOC) ---------------------------------------------------------------- 1,300,000 Gates Mills Village, OH, Water System Improvement Notes, 3.70% 1,300,496 BANs, 3/26/1997 ---------------------------------------------------------------- 1,400,000 Green City, OH, Park Improvement General Ltd Tax Notes, 1,401,811 4.35% BANs, 2/7/1997 ---------------------------------------------------------------- 2,000,000 Hamilton County, OH Health System Weekly VRDNs (West Park 2,000,000 Community)/(Fifth Third Bank, Cincinnati LOC) ---------------------------------------------------------------- 1,725,000 Hancock County, OH, (Series A), 4.50% BANs, 9/19/1997 1,732,305 ---------------------------------------------------------------- 2,000,000 Hancock County, OH, 4.27% BANs, 11/22/1996 2,000,637 ---------------------------------------------------------------- 4,400,000 Hancock County, OH, Various Purpose, 3.81% BANs, 11/22/1996 4,400,731 ---------------------------------------------------------------- 2,900,000 Highland Heights City, OH, Various Purpose, 3.89% BANs, 2,900,696 12/19/1996 ---------------------------------------------------------------- 4,000,000 Hilliard, OH, Adjustable Rate IDRB (Series 1996) Weekly VRDNs 4,000,000 (Medex, Inc.)/(Bank One, Columbus, N.A. LOC) ---------------------------------------------------------------- 2,000,000 Holmes County, OH IDA Weekly VRDNs (Poultry Processing)/ 2,000,000 (Rabobank Nederland, Utrecht LOC) ---------------------------------------------------------------- 1,970,000 Holmes County, OH, Sanitary Sewer System Improvement Notes, 1,972,604 4.25% BANs, 5/21/1997 ---------------------------------------------------------------- 1,230,000 Huber Heights, OH, IDRB (Series 1994) Weekly VRDNs 1,230,000 (Lasermike, Inc. Project)/(KeyBank, N.A. LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 1,300,000 Kent, OH, Adjustable Rate IDRB (Series 1994) Weekly VRDNs $ 1,300,000 (Raven's Metal Products, Inc. Project)/(First National Bank of Ohio, Akron LOC) ---------------------------------------------------------------- 3,300,000 Lake County, OH, Adjustable Rate IDRB (Series 1996) Weekly VRDNs 3,300,000 (Apsco Properties, LTD.)/(First National Bank of Ohio, Akron LOC) ---------------------------------------------------------------- 2,560,000 Lake County, OH, Hospital Improvement Bonds, 7.875% Bonds 2,628,820 (United States Treasury PRF), 1/1/1997 (@102) ---------------------------------------------------------------- 2,815,000 Lake County, OH, Hospital Improvement Bonds, 8.00% Bonds 2,891,244 (United States Treasury PRF), 1/1/1997 (@102) ---------------------------------------------------------------- 3,000,000 Lorain County, OH, 4.40% BANs, 9/19/1997 3,010,164 ---------------------------------------------------------------- 2,885,000 Lorain County, OH, Health Facilities Revenue Bonds (Series 2,885,000 1992A) Weekly VRDNs (Elyria United Methodist Home)/(Fifth Third Bank, Cincinnati LOC) ---------------------------------------------------------------- 4,385,000 Lorain Port Authority, OH, (Series 1994) Weekly VRDNs (Spitzer 4,385,000 Great Lakes Ltd., Inc.)/(Bank One, Cleveland, N.A. LOC) ---------------------------------------------------------------- 1,240,000 Lorain Port Authority, OH, Adjustable Rate Demand Port 1,240,000 Development Refunding Revenue Bonds (Series 1996) Weekly VRDNs (Spitzer Project)/(Bank One, Cleveland, N.A. LOC) ---------------------------------------------------------------- 1,200,000 Lucas County, OH IDA Weekly VRDNs (Kuhlman Corp.)/ 1,200,000 (KeyBank, N.A. LOC) ---------------------------------------------------------------- 2,000,000 Lucas County, OH IDA, (Series 1991) Weekly VRDNs (Ohio Citizens 2,000,000 Bank)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 1,775,000 Lucas County, OH, Hospital Facility Improvement Revenue Bonds 1,775,000 (Series 93) Weekly VRDNs (Lott Industries, Inc.)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 270,000 Lucas County, OH, Hospital Improvement Revenue Weekly 270,000 VRDNs (Sunshine Children's Home)/(National City Bank, Cleveland, OH LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 8,000,000 Lucas County, OH, Hospital Refunding Revenue Bonds Weekly VRDNs $ 8,000,000 (Riverside Hospital, OH)/(Huntington National Bank, Columbus, OH LOC) ---------------------------------------------------------------- 2,000,000 Lucas County, OH, Metropolitan Sewer & Water District 2,000,639 Improvement Notes (Series 1995), 4.25% BANs, 11/28/1996 ---------------------------------------------------------------- 5,300,000 Lucas County, OH, Sewer Improvement, 4.25% BANs, 10/28/1997 5,316,093 ---------------------------------------------------------------- 5,325,000 Mahoning County, OH Multifamily HFA Weekly VRDNs (International 5,325,000 Towers, Inc.)/(PNC Bank, N.A. LOC) ---------------------------------------------------------------- 6,745,000 Mahoning County, OH, Housing Revenue Bonds (Series 1995) Weekly 6,745,000 VRDNs (Copeland Oaks Project)/(Bank One, Akron, N.A. LOC) ---------------------------------------------------------------- 850,000 Mansfield, OH, IDR Weekly VRDNs (Designed Metal Products, Inc.)/ 850,000 (Bank One, Columbus, N.A. LOC) ---------------------------------------------------------------- 870,000 Mayfield, OH City School District, 4.00% BANs, 4/24/1997 870,798 ---------------------------------------------------------------- 3,750,000 Medina County, OH, 4.50% BANs, 8/28/1997 3,766,288 ---------------------------------------------------------------- 7,000,000 Montgomery County, OH Health Facilities Authority, (Series 1995) 7,000,000 Weekly VRDNs (Sisters of Charity Health Care System)/ (Toronto-Dominion Bank LIQ) ---------------------------------------------------------------- 1,970,000 Montgomery, OH IDA Weekly VRDNs (Bethesda Two Limited 1,970,000 Partnership)/(Huntington National Bank, Columbus, OH LOC) ---------------------------------------------------------------- 2,000,000 Muskingum County, OH, County Building Improvement 2,001,626 (Series 1996), 3.75% BANs, 3/4/1997 ---------------------------------------------------------------- 345,000 North Olmsted, OH IDA Weekly VRDNs (Bryant & Stratton)/(KeyBank, 345,000 N.A. LOC) ---------------------------------------------------------------- 915,000 North Olmsted, OH IDA, 4.00% TOBs (Therm-All)/(National City 915,000 Bank, Cleveland, OH LOC), Optional Tender 2/1/1997 ---------------------------------------------------------------- 2,035,000 Ohio HFA Weekly VRDNs (Westchester Village)/ 2,035,000 (KeyBank, N.A. LOC) ---------------------------------------------------------------- 7,235,000 Ohio HFA, 3.80% TOBs (Lincoln Park Associates)/ 7,235,000 (Comerica Bank, Detroit, MI LOC), Optional Tender 11/1/1996 ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 8,500,000 Ohio HFA, Residential Mortgage Revenue Convertible $ 8,500,000 (1996 Series A-3), 3.40% TOBs (AIG Funding, Inc. INV), Mandatory Tender 3/3/1997 ---------------------------------------------------------------- 7,700,000 Ohio HFA, Single Family Mortgage (Series PT-71) Weekly VRDNs 7,700,000 (GNMA COL)/(Commerzbank AG, Frankfurt LIQ) ---------------------------------------------------------------- 9,510,000 (b) Ohio HFA, Trust Receipts (Series 1996 FR/RI-6) Weekly VRDNs 9,510,000 (GNMA COL)/(Bank of New York, New York LIQ) ---------------------------------------------------------------- 8,800,000 (b) Ohio HFA, Trust Receipts, (Series 1996 FR/RI-5) Weekly VRDNs 8,800,000 (Bank of New York, New York LIQ)/(GNMA LOC) ---------------------------------------------------------------- 1,000,000 Ohio School Districts, 1996 Cash Flow Borrowing Program 1,001,172 Certificates of Participation, 4.53% RANs, 12/31/1996 ---------------------------------------------------------------- 3,000,000 Ohio School Districts, 1996 Cash Flow Borrowing Program 3,010,083 Certificates of Participation, 4.53% RANs, 6/30/1997 ---------------------------------------------------------------- 3,800,000 Ohio State Air Quality Development Authority, (Series 1998A) 3,800,000 Weekly VRDNs (PPG Industries, Inc.) ---------------------------------------------------------------- 4,000,000 Ohio State Air Quality Development Authority, Revenue Bonds 4,000,000 (Series B) Daily VRDNs (Cincinnati Gas and Electric Co.)/ (J.P. Morgan Delaware, Wilmington LOC) ---------------------------------------------------------------- 1,880,000 Ohio State Higher Education Facility, Revenue Bonds Weekly 1,880,000 VRDNs (Notre Dame College Project)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 1,000,000 Ohio State Water Development Authority Weekly VRDNs (PPG 1,000,000 Industries, Inc.) ---------------------------------------------------------------- 2,500,000 Ohio State Water Development Authority, Multimodal Water 2,500,000 Development (Series 1993) Weekly VRDNs (Timken Co.)/ (Wachovia Bank of Georgia N.A., Atlanta LOC) ---------------------------------------------------------------- 3,000,000 Ohio State Water Development Authority, Ohio PCR Bonds (Series 3,000,000 1989) Weekly VRDNs (Duquesne Light Power Co.)/ (Barclays Bank PLC, London LOC) ---------------------------------------------------------------- 3,500,000 Ohio State Water Development Authority, Pollution Control 3,500,000 Facilities Revenue Bonds, 3.80% TOBs (Union Bank of Switzerland, Zurich LOC), Optional Tender 5/1/1997 ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 600,000 Ohio State Weekly VRDNs (John Carroll University, OH)/ (PNC $ 600,000 Bank, N.A. LOC) ---------------------------------------------------------------- 1,320,000 Ohio State, IDR (Series 1991) Weekly VRDNs (Standby Screw, 1,320,000 Inc.)/ (National City Bank, Columbus, OH LOC) ---------------------------------------------------------------- 1,400,000 Ohio State, IDRB (Series 1994) Weekly VRDNs (Anomatic 1,400,000 Corporation)/(National City Bank, Columbus, OH LOC) ---------------------------------------------------------------- 1,250,000 Orrville, OH IDA Weekly VRDNs (O.S. Associates/Contours, Inc.)/ 1,250,000 (National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 2,000,000 Ottawa County, OH, Regional Water System Notes, 2,001,927 3.98% BANs, 4/9/1997 ---------------------------------------------------------------- 1,000,000 Perry Local School District, OH, UT GO Bonds, 3.75% Bonds (Bank 1,000,000 One, Cleveland, N.A. LOC), 12/1/1996 ---------------------------------------------------------------- 135,000 Portage County, OH IDA Weekly VRDNs (D & W Associates)/ (Bank 135,000 One, Akron, N.A. LOC) ---------------------------------------------------------------- 370,000 Portage County, OH IDA, 4.00% TOBs (Neidlinger)/ 370,000 (KeyBank, N.A. LOC), Optional Tender 3/1/1997 ---------------------------------------------------------------- 4,300,000 Portage County, OH IDA, Adjustable Rate IDRB (Series 1996) 4,300,000 Weekly VRDNs (Barnette Project)/(National City, Northeast LOC) ---------------------------------------------------------------- 900,000 Portage County, OH IDA, Industries Revenue Bonds Weekly VRDNs 900,000 (Lovejoy Industries)/(Star Bank, N.A., Cincinnati LOC) ---------------------------------------------------------------- 5,700,000 Rickenbacker, OH Port Authority, (Series 1992) Weekly VRDNs 5,700,000 (Rickenbacker Holdings, Inc.)/(Bank One, Columbus, N.A. LOC) ---------------------------------------------------------------- 1,800,000 Seneca County, OH Hospital Facility Authority Weekly VRDNs (St. 1,800,000 Francis Home)/(National City Bank, Cleveland, OH LOC) ---------------------------------------------------------------- 3,890,000 Shaker Heights, OH, 4.25% BANs, 10/17/1997 3,906,151 ---------------------------------------------------------------- 800,000 Sharonville, OH, IDR Weekly VRDNs (Xtek, Inc.)/ 800,000 (Fifth Third Bank, Cincinnati LOC) ---------------------------------------------------------------- 560,000 Solon, OH, IDR Weekly VRDNs (Graphic Laminating)/ 560,000 (KeyBank, N.A. LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 2,000,000 Solon, OH, IDRB (Series 1995) Weekly VRDNs $ 2,000,000 (Cleveland Twist Drill Company)/(NationsBank, South LOC) ---------------------------------------------------------------- 1,200,000 Stark County, OH IDR Weekly VRDNs (KeyBank, N.A. LOC) 1,200,000 ---------------------------------------------------------------- 2,300,000 Stark County, OH IDR, (Series 1994) Weekly VRDNs 2,300,000 (Wilk of Morris)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 1,300,000 Stark County, OH IDR, IDRB (Series 1996) Weekly VRDNs 1,300,000 (Foundations Systems and Anchors, Inc. Project)/(Bank One, Akron, N.A. LOC) ---------------------------------------------------------------- 5,300,000 Stark County, OH IDR, IDRB (Series 1995) Weekly VRDNs 5,300,000 (Gramac Project, OH)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 1,340,000 Stow, OH, GO LT Various Purpose Refunding, 4.25% BANs, 1,341,037 12/20/1996 ---------------------------------------------------------------- 1,285,000 Strongsville, OH, IDRB (Series 1994) Weekly VRDNs 1,285,000 (Nutro Machinery Corp., Project)/(Huntington National Bank, Columbus, OH LOC) ---------------------------------------------------------------- 2,700,000 Summit County, OH IDR Weekly VRDNs (Maison Aine Limited 2,700,000 Partnership)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 4,500,000 Summit County, OH IDR, (Series 1994) Weekly VRDNs 4,500,000 (Harry London Candies, Inc. )/(Bank One, Akron, N.A. LOC) ---------------------------------------------------------------- 725,000 Summit County, OH IDR, 3.80% TOBs (Bechmer-Boyce 725,000 Project)/(KeyBank, N.A. LOC), Optional Tender 1/15/1997 ---------------------------------------------------------------- 875,000 Summit County, OH IDR, 3.80% TOBs (S.D. Meyers, Inc.)/ 875,000 (Bank One, Akron, N.A. LOC), Optional Tender 2/15/1997 ---------------------------------------------------------------- 1,075,000 Summit County, OH IDR, 3.85% TOBs (Rogers Industrial Products, 1,075,000 Inc.)/(Bank One, Akron, N.A. LOC), Optional Tender 11/1/1996 ---------------------------------------------------------------- 355,000 Summit County, OH IDR, 4.00% TOBs (Keltec Industries)/ 355,000 (Bank One, Akron, N.A. LOC), Optional Tender 3/1/1997 ---------------------------------------------------------------- 1,140,000 Summit County, OH IDR, 4.00% TOBs (Matech Machine Tool Co.)/ 1,140,000 (Bank One, Akron, N.A. LOC), Optional Tender 2/1/1997 ---------------------------------------------------------------- 760,000 Summit County, OH IDR, 4.00% TOBs (Universal Rack)/(National 760,000 City Bank, Cleveland, OH LOC), Optional Tender 3/1/1997 ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 1,700,000 Summit County, OH IDR, Adjustable Rate IDRB (Series 1996) Weekly $ 1,700,000 VRDNs (Fomo Products, Inc.)/(First National Bank of Ohio, Akron LOC) ---------------------------------------------------------------- 920,000 Summit County, OH IDR, Bonds (Series 1994) Weekly VRDNs (Austin 920,000 Printing Co., Inc.)/(Bank One, Akron, N.A. LOC) ---------------------------------------------------------------- 2,890,000 Summit County, OH IDR, IDRB (Series 1994B) Weekly VRDNs (Harry 2,890,000 London Candies, Inc.)/(Bank One, Akron, N.A. LOC) ---------------------------------------------------------------- 1,000,000 Summit County, OH IDR, IDRB (Series 1995) Weekly VRDNs (Cardtech 1,000,000 Project (OH))/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 1,485,000 Summit County, OH IDR, Industrial Development Bonds 1,485,000 (Series 1996) Weekly VRDNs (Creative Screen Print Project)/ (National City, Northeast LOC) ---------------------------------------------------------------- 1,450,000 Summit County, OH IDR, Multi-Mode Variable Rate I Weekly VRDNs 1,450,000 (Mastergraphics, Inc. Project)/(KeyBank, N.A. LOC) ---------------------------------------------------------------- 1,000,000 Toledo-Lucas County, OH Port Authority, IDA Weekly VRDNs (Medusa 1,000,000 Corp.)/(Bayerische Vereinsbank AG, Munich LOC) ---------------------------------------------------------------- 2,500,000 Trumbull County, OH IDA, (Series 1989) Weekly VRDNs 2,500,000 (McSonald Steel Corp.)/(PNC Bank, N.A. LOC) ---------------------------------------------------------------- 1,330,000 Trumbull County, OH IDA, IDR Refunding Bonds (Series 1994) 1,330,000 Weekly VRDNs (Churchill Downs, Inc.)/(Bank One, Columbus, N.A. LOC) ---------------------------------------------------------------- 1,750,000 Trumbull County, OH, Correctional Facilities GO LT Notes, 1996 1,751,995 Renewal, 4.07% BANs, 4/10/1997 ---------------------------------------------------------------- 1,200,000 Tuscarawas County, OH, Adjustable Rate IDRB (Series 1995) Weekly 1,200,000 VRDNs (Primary Packaging, Inc.)/(First National Bank of Ohio, Akron LOC) ---------------------------------------------------------------- 3,254,624 Union Local School District, OH, Classroom Facilities Voted UT 3,263,171 GO, 4.45% BANs, 4/15/1997 ---------------------------------------------------------------- 3,800,000 Westlake, OH, IDR Weekly VRDNs (Kahal Limited Partnership)/ 3,800,000 (KeyBank, N.A. LOC) ----------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ---------------------------------------------------------------- $ 2,650,000 Williams County, OH, Multi-Mode Variable Rate IDRB (Series 1996) Weekly VRDNs (Allied Moulded Products, Inc.)/ (KeyBank, N.A. LOC) $ 2,650,000 ---------------------------------------------------------------- 1,120,000 Willoughby City, OH, IDR Refunding Bonds (Series 1995A) Weekly VRDNs (Pine Ridge Shopping Center Company Project)/ (Star Bank, N.A., Cincinnati LOC) 1,120,000 ---------------------------------------------------------------- 1,210,000 Willoughby City, OH, IDR Revenue Bonds (Series 1995 B) Weekly VRDNs (Pine Ridge Shopping Center Company Project)/ (Star Bank, N.A., Cincinnati LOC) 1,210,000 ---------------------------------------------------------------- 1,400,000 Wood County, OH Weekly VRDNs (Principle Business Enterprises)/ (National City Bank, Cleveland, OH LOC) 1,400,000 ---------------------------------------------------------------- 2,200,000 Wood County, OH, EDRB Weekly VRDNs (Roe Inc. Project)/ (Huntington National Bank, Columbus, OH LOC) 2,200,000 ---------------------------------------------------------------- 4,300,000 Youngstown, OH, Adjustable Rate Demand IDRB (Series 1996A) Weekly VRDNs (Cantar/Polyair Corp./Performa Corp.)/ (Marine Midland Bank N.A., Buffalo, NY LOC) 4,300,000 ---------------------------------------------------------------- ------------ TOTAL INVESTMENTS (AT AMORTIZED COST)(c) $336,085,136 ---------------------------------------------------------------- ------------
At October 31, 1996, 49.9% of the total investments at market value were subject to alternative minimum tax. (a) The Trust 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. NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term rating categories. Securities rated in the highest short-term rating category (and unrated securities of comparable quality) are identified as First Tier securities. Securities rated in the second highest short-term rating category (and unrated securities of comparable quality) are identified as Second Tier securities. The Fund follows application regulations in determining whether a security is rated and whether a security rated by multiple NRSRO's in different rating categories should be identified as a First or Second Tier security. OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER ----------- ------------ 98.1% 1.9%
(b) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. At October 31, 1996, these securities amounted to $18,310,000 which represents 5.41% of net assets. (c) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($338,549,831) at October 31, 1996. The following acronyms are used throughout this portfolio: BANs --Bond Anticipation Notes COL --Collateralized CSD --Central School District EDRB --Economic Development Revenue Bonds GNMA --Government National Mortgage Association GO --General Obligation HFA --Housing Finance Authority IDA --Industrial Development Authority IDR --Industrial Development Revenue IDRB --Industrial Development Revenue Bond INV --Investment Agreement LIQ --Liquidity Agreement LOC --Letter of Credit LT --Limited Tax LTD --Limited PCR --Pollution Control Revenue PLC --Public Limited Company PRF --Prerefunded RANs --Revenue Anticipation Notes TOBs --Tender Option Bonds UT --Unlimited Tax VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $336,085,136 - ------------------------------------------------------------------------------- Cash 236,765 - ------------------------------------------------------------------------------- Income receivable 2,777,561 - ------------------------------------------------------------------------------- Receivable for shares sold 11,287 - ------------------------------------------------------------------------------- ------------ Total assets 339,110,749 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable for shares redeemed $ 45,440 - -------------------------------------------------------------------- Income distribution payable 315,778 - -------------------------------------------------------------------- Accrued expenses 199,700 - -------------------------------------------------------------------- -------- Total liabilities 560,918 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 338,549,831 shares outstanding $338,549,831 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------- $59,721,012 / 59,721,012 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------ CASH II SHARES: - ------------------------------------------------------------------------------- $206,148,774 / 206,148,774 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------ INSTITUTIONAL SHARES: - ------------------------------------------------------------------------------- $72,680,045 / 72,680,045 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ----------------------------------------------------------------------------------- Interest $11,230,260 - ----------------------------------------------------------------------------------- EXPENSES: - ----------------------------------------------------------------------------------- Investment advisory fee $1,183,374 - --------------------------------------------------------------------- Administrative personnel and services fee 223,680 - --------------------------------------------------------------------- Custodian fees 45,066 - --------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 216,497 - --------------------------------------------------------------------- Directors'/Trustees' fees 4,758 - --------------------------------------------------------------------- Auditing fees 13,561 - --------------------------------------------------------------------- Legal fees 5,183 - --------------------------------------------------------------------- Portfolio accounting fees 93,684 - --------------------------------------------------------------------- Distribution services fee -- Cash II Shares 611,752 - --------------------------------------------------------------------- Shareholder services fee -- Institutional Service Shares 181,201 - --------------------------------------------------------------------- Shareholder services fee -- Cash II Shares 509,793 - --------------------------------------------------------------------- Shareholder services fee -- Institutional Shares 48,568 - --------------------------------------------------------------------- Share registration costs 57,328 - --------------------------------------------------------------------- Printing and postage 19,665 - --------------------------------------------------------------------- Insurance premiums 5,429 - --------------------------------------------------------------------- ---------- Total expenses 3,219,539 - --------------------------------------------------------------------- Waivers - --------------------------------------------------------------------- Waiver of investment advisory fee $(570,677) - --------------------------------------------------------- Waiver of distribution services fee -- Cash II Shares (236,326) - --------------------------------------------------------- Waiver of shareholder services fee -- Institutional Service Shares (91,783) - --------------------------------------------------------- Waiver of shareholder services fee -- Institutional Shares (48,568) - --------------------------------------------------------- --------- Total waivers (947,354) - --------------------------------------------------------------------- ---------- Net expenses 2,272,185 - ----------------------------------------------------------------------------------- ----------- Net investment income $ 8,958,075 - ----------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, --------------------------------- 1996 1995 --------------- --------------- INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------------------- OPERATIONS-- - ------------------------------------------------------------- Net investment income $ 8,958,075 $ 8,010,653 - ------------------------------------------------------------- --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ------------------------------------------------------------- Distributions from net investment income - ------------------------------------------------------------- Institutional Service Shares (2,339,083) (2,660,655) - ------------------------------------------------------------- Cash II Shares (5,962,329) (5,349,998) - ------------------------------------------------------------- Institutional Shares (656,663) -- - ------------------------------------------------------------- --------------- --------------- Change in net assets resulting from distributions to shareholders (8,958,075) (8,010,653) - ------------------------------------------------------------- --------------- --------------- SHARE TRANSACTIONS-- - ------------------------------------------------------------- Proceeds from sale of shares 1,408,349,215 1,275,288,208 - ------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 6,083,711 5,470,332 - ------------------------------------------------------------- Cost of shares redeemed (1,337,048,550) (1,238,142,557) - ------------------------------------------------------------- --------------- --------------- Change in net assets resulting from share transactions 77,384,376 42,615,983 - ------------------------------------------------------------- --------------- --------------- Change in net assets 77,384,376 42,615,983 - ------------------------------------------------------------- NET ASSETS: - ------------------------------------------------------------- Beginning of period 261,165,455 218,549,472 - ------------------------------------------------------------- --------------- --------------- End of period $ 338,549,831 $ 261,165,455 - ------------------------------------------------------------- --------------- ---------------
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of Ohio Municipal Cash Trust (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 Fund offers three classes of shares: Institutional Service Shares (effective March 5, 1996, the Fund's Institutional Shares changed to Institutional Service Shares), Cash II Shares and Institutional Shares (effective March 5, 1996, the Fund added Institutional Shares). The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities consistent with stability of principal. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1996 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST -------- ---------------- ---------------- Ohio HFA, Trust Receipts (Series 1996 FR/RI-6), (GNMA COL) 9/4/96 $9,510,000 Ohio HFA, Trust Receipts (Series 1996 FR/RI-5), (GNMA LOC) 6/6/96 8,800,000
USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, ---------------------------- INSTITUTIONAL SERVICE SHARES 1996 1995 - ---------------------------- ------------ ------------ Shares sold 440,264,015 571,719,826 - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 226,623 277,721 - ----------------------------------------------------------------- Shares redeemed (453,700,715) (561,565,338) - ----------------------------------------------------------------- ------------ ------------ Net change resulting from Institutional Service share transactions (13,210,077) 10,432,209 - ----------------------------------------------------------------- ------------ ------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ---------------------------- CASH II SHARES 1996 1995 - -------------- ------------ ------------ Shares sold 681,930,901 703,568,382 - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 5,797,497 5,192,611 - ----------------------------------------------------------------- Shares redeemed (669,813,991) (676,577,219) - ----------------------------------------------------------------- ------------ ------------ Net change resulting from Cash II share transactions 17,914,407 32,183,774 - ----------------------------------------------------------------- ------------ ------------
YEAR ENDED OCTOBER 31, ---------------------------- INSTITUTIONAL SHARES 1996* 1995 - -------------------- ------------ ------------ Shares sold 286,154,299 -- - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 59,591 -- - ----------------------------------------------------------------- Shares redeemed (213,533,844) -- - ----------------------------------------------------------------- ------------ Net change resulting from Institutional share transactions 72,680,046 -- - ----------------------------------------------------------------- ------------ ------------ Net change resulting from share transactions 77,384,376 42,615,983 - ----------------------------------------------------------------- ------------ ------------
* Reflects operations for the period from March 5, 1996 (date of initial public investment) to October 31, 1996 At October 31, 1996, capital paid-in aggregated $338,549,831. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp.("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Cash II Shares. The Plan provides that the Fund may incur distribution expenses up to 0.30% of the average daily net assets of the Cash II Shares, annually, to compensate OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- FSC. The distributor may voluntarily choose to waive any portion of its fee. The distributor can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--Fserv maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS--During the period ended October 31, 1996, 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 $527,800,000 and $491,520,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. (5) CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 71.4% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 9.3% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Ohio Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Ohio Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1996, the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see pages 2, 14 and 15 of the prospectus) for the periods presented. 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 October 31, 1996, 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 Ohio Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 13, 1996 ADDRESSES - -------------------------------------------------------------------------------- Ohio Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 - ----------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Shareholder Services Company P.O. Box 8600 Boston, MA 02266-8600 - ----------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - -----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- OHIO MUNICIPAL CASH TRUST INSTITUTIONAL SERVICE SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 [LOGO] FEDERATED INVESTORS Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. Cusip 314229857 G00211-02-SS (12/96) VIRGINIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS The Institutional Shares of Virginia Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Virginia municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Virginia, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income and the income tax imposed by the Commonwealth of Virginia consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS SUMMARY OF FUND EXPENSES 1 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES 2 GENERAL INFORMATION 3 INVESTMENT INFORMATION 3 Investment Objective 3 Investment Policies 3 Virginia Municipal Securities 6 Investment Risks 6 Investment Limitations 7 FUND INFORMATION 7 Management of the Fund 7 Distribution of Institutional Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 HOW TO PURCHASE SHARES 9 HOW TO REDEEM SHARES 9 ACCOUNT AND SHARE INFORMATION 10 TAX INFORMATION 11 Federal Income Tax 11 State and Local Taxes 12 OTHER CLASSES OF SHARES 12 PERFORMANCE INFORMATION 12 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES 13 FINANCIAL STATEMENTS 14 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 27 ADDRESSES 28 SUMMARY OF FUND EXPENSES
INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable) None Redemption Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1) 0.25% 12b-1 Fee None Total Other Expenses 0.24% Shareholder Services Fee (after waiver)(2) 0.00% Total Operating Expenses(3) 0.49%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40% (2) The shareholder services fee has been reduced to reflect the voluntary waiver of the shareholder services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (3) The total operating expenses would have been 0.89% absent the voluntary waivers of a portion of the management fee and the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time $5 $16 $27 $62 period
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. VIRGINIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 27.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.04 0.03 0.003 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.04) (0.03) (0.003) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 TOTAL RETURN(B) 3.24% 3.56% 2.57% 0.35% RATIOS TO AVERAGE NET ASSETS Expenses 0.49% 0.49% 0.33% 0.09%* Net investment income 3.19% 3.50% 2.56% 2.68%* Expense waiver/reimbursement(c) 0.40% 0.42% 0.37% 1.04%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $26,302 $22,642 $20,360 $7,210
* Computed on an annualized basis. (a) Reflects operations for the period from September 16, 1993 (date of initial public investment) to October 31, 1993. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees has established two classes of shares known as Institutional Shares and Institutional Service Shares. This prospectus relates only to Institutional Shares of the Fund, which are designed primarily for financial institutions acting in a fiduciary capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing primarily in short-term Virginia municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Virginia taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the income tax imposed by the Commonwealth of Virginia consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Virginia state income tax or at least 80% of its net assets will be invested in obligations, the interest income from which is exempt from federal regular and Virginia state income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Virginia and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and the income tax imposed by the Commonwealth of Virginia ("Virginia Municipal Securities"). Examples of Virginia Municipal Securities include, but are not limited to: * tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; * bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; * municipal commercial paper and other short-term notes; * variable rate demand notes; * municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and * participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Virginia Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Virginia Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other depository institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Virginia Municipal Securities is subject to the federal alternative minimum tax. VIRGINIA MUNICIPAL SECURITIES Virginia Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Virginia Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Virginia Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Virginia Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Virginia Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Virginia Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Virginia Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Virginia Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Virginia Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations, the Fund's concentration in Virginia Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of its total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to 0.40% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SHARES Federated Securities Corp. is the principal distributor for Institutional Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to 0.25% of the average daily net asset value of its shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below: AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS 0.15% on the first $250 million 0.125% on the next $250 million 0.10% on the next $250 million 0.075% on assets in excess of $750 million The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE The Fund attempts to stabilize the net asset value of Institutional Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to shares from the value of Fund assets attributable to shares, and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased either by wire or by check. The Fund reserves the right to reject any purchase request. To make a purchase, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken by telephone. The minimum initial investment is $25,000. However, an account may be opened with a smaller amount as long as the minimum is reached over a 90-day period. Minimum investments will be calculated by combining all accounts maintained with the Fund. Financial institutions may impose different minimum investment requirements on their customers. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Virginia Municipal Cash Trust -- Institutional Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Virginia Municipal Cash Trust -- Institutional Shares. Please include an account number on the check. 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. HOW TO REDEEM SHARES Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company, or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. ACCOUNT AND SHARE INFORMATION DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights; except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 2, 1996, Comfort & Company, Hampton, Virginia owned 29.94% of the voting securities of the Fund, and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Virginia. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. VIRGINIA TAXES. Under existing Virginia laws, distributions made by the Fund will not be subject to Virginia income taxes to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest from obligations issued by or on behalf of the Commonwealth of Virginia or any political subdivision thereof; or (ii) interest from obligations issued by a territory or possession of the United States or any political subdivision thereof which federal law exempts from state income taxes. Conversely, to the extent that distributions made by the Fund are attributable to other types of obligations, such distributions will be subject to Virginia income taxes. OTHER CLASSES OF SHARES The Fund also offers another class of shares called Institutional Service Shares. Institutional Service Shares are sold at net asset value primarily to financial institutions acting in an agency capacity and are subject to a minimum initial investment of $25,000 over a 90-day period. All classes are subject to certain of the same expenses. Institutional Service Shares are distributed with no 12b-1 Plan but are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. VIRGINIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 27.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.03 0.02 0.003 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.03) (0.02) (0.003) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 TOTAL RETURN(B) 3.14% 3.46% 2.44% 0.34% RATIOS TO AVERAGE NET ASSETS Expenses 0.59% 0.59% 0.40% 0.19%* Net investment income 3.10% 3.38% 2.42% 2.67%* Expense waiver/reimbursement(c) 0.30% 0.32% 0.37% 1.04%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $177,575 $127,083 $100,084 $45,648
* Computed on an annualized basis. (a) Reflects operations for the period from September 16, 1993 (date of initial public investment) to October 31, 1993. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) VIRGINIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--100.8% VIRGINIA--92.9% $ 6,552,000 Alexandria, VA IDA Weekly VRDNs (American Red Cross)/(Sanwa Bank Ltd, Osaka LOC) $ 6,552,000 7,100,000 Alexandria, VA Redevelopment and Housing Authority Weekly VRDNs (Crystal City Apartments)/(Safeco Insurance Co. of America INS)/(Sumitomo Bank Ltd., Osaka LIQ) 7,100,000 2,300,000 Alexandria, VA Redevelopment and Housing Authority, (Series 1996A) Weekly VRDNs (Glebe Park Apartments Project)/ (Kredietbank N.V., Brussels LOC) 2,300,000 3,500,000 Alexandria, VA Redevelopment and Housing Authority, Series 1996B Weekly VRDNs (Buckingham Village Apartments)/(First Union National Bank, Charlotte, N.C. LOC) 3,500,000 2,200,000 Amelia County, VA IDA, (Series 1991) Weekly VRDNs (Chambers Waste System)/(Morgan Guaranty Trust Co., New York LOC) 2,200,000 750,000 Arlington County, VA Weekly VRDNs (Ballston Public Parking)/ (Citibank NA, New York LOC) 750,000 2,500,000 Bedford County, VA IDA, (Series 1996) Weekly VRDNs (Nekoosa Packaging Corporation Project)/(Canadian Imperial Bank of Commerce, Toronto LOC) 2,500,000 3,200,000 Botetourt County, VA IDA, IDRB (Series 1995) Weekly VRDNs (Emkay Holdings, L.L.C. Project)/(State Street Bank and Trust Co. LOC) 3,200,000 9,900,000 Campbell County, VA IDA, Solid Waste Disposal Facilities Revenue ACES Weekly VRDNs (Georgia-Pacific Corp.)/(Industrial Bank of Japan Ltd., Tokyo LOC) 9,900,000 7,250,000 Carroll County, VA IDA, IDRB (Series 1995) Weekly VRDNs (Kentucky Derby Hosiery Co, Inc. Project)/(Liberty National Bank & Trust Co. LOC) 7,250,000 1,000,000 Charles County, VA IDA, Solid Waste Disposal Facility Revenue Bonds (Series 1996) Weekly VRDNs (Chambers Development of Virginia, Inc. Project)/(Morgan Guaranty Trust Co., New York LOC) 1,000,000
VIRGINIA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED VIRGINIA--CONTINUED $ 1,900,000 Chesapeake, VA IDA, (Series 1986) Weekly VRDNs (Volvo)/(Union Bank of Switzerland, Zurich LOC) $ 1,900,000 2,000,000 Chesapeake, VA IDA, IDRB (Series 1988) Weekly VRDNs (Sumitomo Machinery Corp. of America Corp.)/(Sumitomo Bank Ltd., Osaka LOC) 2,000,000 1,500,000 Chesapeake, VA, 6.50% Bonds (United States Treasury PRF), 7/1/1997 (@102) 1,555,954 5,000,000 Commonwealth of Virginia, GO BANs (1996 Series), 3.50% CP, Mandatory Tender 11/8/1996 5,000,000 1,357,000 Dinwiddie County, VA IDA, IDRB (Series 1989) Weekly VRDNs (Tindall Concrete VA, Inc.)/(First Union National Bank, Charlotte, N.C. LOC) 1,357,000 3,515,000 Dinwiddie County, VA IDA, IDRB (Series 1991) Weekly VRDNs (Maclin-Zimmer-Mcgill Tobacco Co., Inc.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) 3,515,000 1,000,000 Fairfax County, VA EDA, (Series 1995) Weekly VRDNs (American Society of Civil Engineers Foundation, Inc. Project)/(Mellon Bank NA, Pittsburgh LOC) 1,000,000 3,000,000 Fairfax County, VA Housing Authority Weekly VRDNs (Chase Commons Associates)/(Bankers Trust Co., New York LOC) 3,000,000 1,900,000 Fairfax County, VA IDA Weekly VRDNs (Inova Health System)/ (Credit Suisse, Zurich LIQ) 1,900,000 4,000,000 Fairfax County, VA IDA, (Series 1993B), 3.45% CP (Inova Health System), Mandatory Tender 11/21/1996 4,000,000 5,710,000 Fairfax County, VA, Public Improvement Bonds (Series A), 5.50% Bonds, 6/1/1997 5,769,921 1,250,000 Fairfax County, VA, UT GO Refunding Bonds (Series B), 6.60% Bonds (United States Treasury PRF), 11/1/1996 (@101) 1,262,500 6,100,000 Falls Church, VA IDA, (Series 1985), 3.70% TOBs (Kaiser Permanente Medical Care Program), Mandatory Tender 11/1/1996 6,100,000 600,000 Fauquier County, VA IDA, Refunding Revenue Bonds Weekly VRDNs (Warrenton Development Co.)/(Nationsbank, N.A. LOC) 600,000
VIRGINIA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED VIRGINIA--CONTINUED $ 7,113,000 Fluvanna County, VA IDA, (Series 1986) Weekly VRDNs (Thomasville Furniture Industries)/(Union Bank of Switzerland, Zurich LOC) $ 7,113,000 4,500,000 Front Royal & Warren County, VA IDA, IDRB (Series 1995) Weekly VRDNs (Pen-Tab Industries, Inc. Project)/(Bank of America Illinois LOC) 4,500,000 1,070,000 Grayson County, VA IDA, (Series 1987) Weekly VRDNs (Robertshaw Controls Company Project)/(Nationsbank, N.A. LOC) 1,070,000 3,000,000 Halifax, VA IDA, MMMs, PCR, 3.65% CP (Virginia Electric Power Co.), Mandatory Tender 12/10/1996 3,000,000 7,500,000 Halifax, VA IDA, MMMs, PCR, 3.80% CP (Virginia Electric Power Co.), Mandatory Tender 2/14/1997 7,500,000 4,000,000 Halifax, VA IDA, MMMs, PCR, 3.85% CP (Virginia Electric Power Co.), Mandatory Tender 11/13/1996 4,000,000 900,000 Hanover County, VA IDA Weekly VRDNs (Fiber-Lam, Inc. Project)/ (Nationsbank, N.A. LOC) 900,000 1,535,000 Loudoun County, VA, 6.70% Bonds, 6/1/1997 1,560,224 2,000,000 Lynchburg, VA, 3.15% BANs, 3/1/1997 2,000,315 3,000,000 Newport News, VA Redevelopment & Housing Authority, (Series 1990) Weekly VRDNs (Fredericksburg-Oxford)/(Bankers Trust Co., New York LOC) 3,000,000 570,000 Newport News, VA, UT GO, 7.10% Bonds (United States Treasury PRF), 7/1/1997 (@100.25) 583,183 1,435,000 Newport News, VA, UT GO, 7.10% Bonds (United States Treasury PRF), 7/1/1997 (@100.25) 1,468,661 1,540,000 Newport News, VA, UT GO, 7.10% Bonds (United States Treasury PRF), 7/1/1997 (@100.5) 1,579,885 470,000 Newport News, VA, UT GO, 7.10% Bonds (United States Treasury PRF), 7/1/1997 (@100.5) 482,014 3,000,000 Norfolk, VA, UT GO, 6.60% Bonds (United States Treasury PRF), 6/1/1997 (@102) 3,107,742 1,500,000 Norfolk, VA, UT GO, 6.70% Bonds (United States Treasury PRF), 6/1/1997 (@102) 1,553,561
VIRGINIA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED VIRGINIA--CONTINUED $ 1,425,000 Pulaski County, VA IDA, (Series 1995) Weekly VRDNs (Balogh Real Estate Ltd. Partnership Mar-Bal Inc. Project)/(Bank One, Cleveland, N.A. LOC) $ 1,425,000 915,000 Richmond, VA IDA, Industrial Development Revenue Refunding Bonds (Series 1987-B), 3.75% TOBs (Crow-Klein-Macfarlane Project)/ (First Union National Bank of Virginia LOC), Optional Tender 11/15/1996 915,000 3,200,000 Richmond, VA Redevelopment & Housing Authority, (Series 1989) Weekly VRDNs (Belmont Apartment)/(First Union National Bank, Charlotte, N.C. LOC) 3,200,000 2,160,000 Richmond, VA Redevelopment & Housing Authority, (Series B-5) Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Westdeutsche Landesbank Girozentrale LOC) 2,160,000 3,555,000 Richmond, VA Redevelopment & Housing Authority, (Series B-6) Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Westdeutsche Landesbank Girozentrale LOC) 3,555,000 3,500,000 Richmond, VA Redevelopment & Housing Authority, (Series B-9) Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Westdeutsche Landesbank Girozentrale LOC) 3,500,000 2,900,000 South Hill, VA IDA, IDRB (Series 1987) Weekly VRDNs (South Hill Veneers, Inc Project)/(Bank One, Columbus, N.A. LOC) 2,900,000 2,375,000 Tazewell County, VA IDA, (Series 1993) Weekly VRDNs (Seville Properties Bluefield)/(Huntington National Bank, Columbus, OH LOC) 2,375,000 2,105,000 Virginia Beach, VA IDA, (Series 1993) Weekly VRDNs (Ocean Ranch Motel Corp.)/(Nationsbank, N.A. LOC) 2,105,000 6,400,000 Virginia Peninsula Port Authority Daily VRDNs (Kinyo Virginia, Inc.)/(Industrial Bank of Japan Ltd., Tokyo LOC) 6,400,000 3,200,000 Virginia Peninsula Port Authority, Coal Terminal Revenue Refunding Bonds (Series 1987A), 3.50% CP (Dominion Terminal Associates)/ (National Westminster Bank, PLC, London LOC), Mandatory Tender 11/25/1996 3,200,000
VIRGINIA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED VIRGINIA--CONTINUED $ 3,135,000 Virginia Peninsula Port Authority, Coal Terminal Revenue Refunding Bonds (Series 1987A), 3.65% CP (Dominion Terminal Associates)/ (National Westminster Bank, PLC, London LOC), Mandatory Tender 1/22/1997 $ 3,135,000 5,500,000 Virginia Peninsula Port Authority, Facility Revenue Refunding Bonds (Series 1992), 3.60% CP (CSX Corp.)/(Bank of Nova Scotia, Toronto LOC), Mandatory Tender 1/17/1997 5,500,000 2,000,000 Virginia Peninsula Port Authority, Facility Revenue Refunding Bonds (Series 1992), 3.75% CP (CSX Corp.)/(Bank of Nova Scotia, Toronto LOC), Mandatory Tender 1/21/1997 2,000,000 4,944,000 Virginia Peninsula Port Authority, IDRB (Series 1986) Weekly VRDNs (Eeco Project)/(Nationsbank, N.A. LOC) 4,944,000 1,000,000 Virginia State Public Building Authority, (Series C), 4.35% Bonds, 8/1/1997 1,003,969 1,060,000 Virginia State Public School Authority, Series A, 6.85% Bonds (United States Treasury PRF), 1/1/1997 (@102) 1,086,499 1,507,000 Williamsburg, VA IDA, (Series 1988) Weekly VRDNs (Colonial Williamsburg Foundation Museum)/(Nationsbank, N.A. LOC) 1,507,000 1,575,000 Winchester, VA IDA, (Series 1995) Weekly VRDNs (Midwesco Filter Resources, Inc. Project)/(Harris Trust & Savings Bank, Chicago LOC) 1,575,000 3,300,000 Winchester, VA IDA, Hospital Revenue Bonds, 4.05% Bonds (Winchester Medical Center, Inc.)/(AMBAC INS), 1/1/1997 3,303,454 5,000,000 York County, VA IDA, (Series 1985), 3.80% CP (Virginia Electric Power Co.), Mandatory Tender 1/23/1997 5,000,000 Total 189,420,882 VIRGIN ISLANDS--2.9% 6,000,000 Virgin Islands HFA, Single Family Mortgage Revenue Refunding Bonds (1995 Series B), 3.50%, 3.75% TOBs (Trinity Funding Company INV), Mandatory Tender 11/1/1996, 6/1/1997 6,000,000 PUERTO RICO--5.0% 1,500,000 Puerto Rico Electric Power Authority, (Series L), 8.40% Bonds (United States Treasury PRF), 7/1/1997 (@102) 1,573,424
VIRGINIA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED PUERTO RICO--CONTINUED $ 5,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory Tender 2/14/1997 $ 5,000,000 3,500,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 1983A), 3.80% TOBs (Reynolds Metals Co.)/(ABN AMRO Bank N.V., Amsterdam LOC), Optional Tender 9/1/1997 3,501,407 TOTAL 10,074,831 TOTAL INVESTMENTS (AT AMORTIZED COST)(B) $ 205,495,713
Securities that are subject to Alternative Minimum Tax represent 52% of the portion as calculated based upon total market value. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term rating categories. Securities rated in the highest short-term rating category (and unrated securities of comparable quality) are identified as First Tier securities. Securities rated in the second highest short-term rating category (and unrated securities of comparable quality) are identified as Second Tier securities. The Fund follows applicable regulations in determining whether a security is rated and whether a security rated by multiple NRSROs in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENT BASED ON TOTAL MARKET VALUE (UNAUDITED) FIRST TIER SECOND TIER 100.00% 0.00% (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($203,876,450) at October 31, 1996. The following acronyms are used throughout this portfolio: ACES -- Adjustable Convertible Extendable Securities AMBAC -- American Municipal Bond Assurance Corporation BANs -- Bond Anticipation Notes CP -- Commercial Paper EDA -- Economic Development Authority GO -- General Obligation HFA -- Housing Finance Authority IDA -- Industrial Development Authority IDRB -- Industrial Development Revenue Bond INS -- Insured INV -- Investment Agreement LIQ -- Liquidity Agreement LOC -- Letter of Credit MMMs -- Money Market Municipals PCA -- Pollution Control Authority PCR -- Pollution Control Revenue PLC -- Public Limited Company PRF -- Prerefunded TOBs -- Tender Option Bonds UT -- Unlimited Tax VRDNs -- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) VIRGINIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996
ASSETS: Total investments in securities, at amortized cost and value $ 205,495,713 Cash 187,299 Income receivable 1,414,115 Receivable for shares sold 327 Deferred expenses 17,555 Total assets 207,115,009 LIABILITIES: Payable for investments purchased $ 3,000,000 Income distribution payable 179,523 Accrued expenses 59,036 Total liabilities 3,238,559 Net Assets for 203,876,450 shares outstanding $ 203,876,450 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: INSTITUTIONAL SHARES: $26,301,933 / 26,301,933 shares outstanding $1.00 INSTITUTIONAL SERVICE SHARES: $177,574,517 / 177,574,517 shares outstanding $1.00
(See Notes which are an integral part of the Financial Statements) VIRGINIA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996
INVESTMENT INCOME: Interest $ 6,065,502 EXPENSES: Investment advisory fee $ 657,332 Administrative personnel and services fee 155,000 Custodian fees 23,447 Transfer and dividend disbursing agent fees and expenses 53,778 Directors'/Trustees' fees 1,937 Auditing fees 13,561 Legal fees 4,324 Portfolio accounting fees 62,801 Shareholder services fee -- Institutional Shares 59,623 Shareholder services fee -- Institutional Service Shares 351,209 Share registration costs 49,212 Printing and postage 18,973 Insurance premiums 5,484 Miscellaneous 9,703 Total expenses 1,466,384 Waivers -- Waiver of investment advisory fee $ (243,090) Waiver of shareholder services fee -- Institutional Shares (59,623) Waiver of shareholder services fee -- Institutional Service Shares (210,725) Total waivers (513,438) Net expenses 952,946 Net investment income $ 5,112,556
(See Notes which are an integral part of the Financial Statements) VIRGINIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS-- Net investment income $ 5,112,556 $ 4,384,563 DISTRIBUTIONS TO SHAREHOLDERS-- Distributions from net investment income Institutional Shares (761,548) (834,541) Institutional Service Shares (4,351,008) (3,550,022) Change in net assets resulting from distributions to shareholders (5,112,556) (4,384,563) SHARE TRANSACTIONS-- Proceeds from sale of shares 1,246,683,348 1,020,240,888 Net asset value of shares issued to shareholders in payment of distributions declared 3,397,142 2,822,568 Cost of shares redeemed (1,195,928,451) (993,783,278) Change in net assets resulting from share transactions 54,152,039 29,280,178 Change in net assets 54,152,039 29,280,178 NET ASSETS: Beginning of period 149,724,411 120,444,233 End of period $ 203,876,450 $ 149,724,411
(See Notes which are an integral part of the Financial Statements) VIRGINIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 1. ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of Virginia Municipal Cash Trust (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 Fund offers two classes of shares: Institutional Shares and Institutional Service Shares. The investment objective of the Fund is current income exempt from federal regular income tax and the income tax imposed by the Commonwealth of Virginia consistent with stability of principal. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. DEFERRED EXPENSES -- The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized over a period not to exceed five years from the Fund's commencement date. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER -- Investment transactions are accounted for on the trade date. 3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, 1996 1995 INSTITUTIONAL SHARES SHARES SHARES Shares sold 113,430,564 87,290,291 Shares issued to shareholders in payment of distributions declared 6,598 15,666 Shares redeemed (109,777,058) (85,024,334) Net change resulting from Institutional share transactions 3,660,104 2,281,623 YEAR ENDED OCTOBER 31, 1996 1995 INSTITUTIONAL SERVICE SHARES SHARES SHARES Shares sold 1,133,252,784 932,950,597 Shares issued to shareholders in payment of distributions declared 3,390,544 2,806,902 Shares redeemed (1,086,151,393) (908,758,944) Net change resulting from Institutional Service share transactions 50,491,935 26,998,555 Net change resulting from share transactions 54,152,039 29,280,178
At October 31, 1996, capital paid-in aggregated $203,876,450. 4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement with Federated Shareholder Services, ("FSS") the Fund will pay FSS up to 0.25% of average daily net assets of the Fund for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES -- Organizational expenses of $33,493 were borne initially by Adviser. The Fund has agreed to reimburse Adviser for the organizational expenses during the five-year period following effective date. For the period ended October 31, 1996, the Fund paid $6,699 pursuant to this agreement. INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, the Trust 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 $356,280,000 and $348,905,000, respectively. GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 5. CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 65% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 5% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (VIRGINIA MUNICIPAL CASH TRUST): We have audited the accompanying statement of assets and liabilities of Virginia Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1996, and the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see pages 2 and 13 of the prospectus) for the periods presented. 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 October 31, 1996, by correspondence with the custodian and broker. 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 Virginia Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1996 ADDRESSES Virginia Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, PA 15222-3779 Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 Transfer Agent and Dividend Disbursing Agent Federated Shareholder P.O. Box 8600 Services Company Boston, MA 02266-8600 Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 VIRGINIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End, Management Investment Company Prospectus dated December 31, 1996 [Graphic] Federated Investors Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. Cusip 314229816 3080501A-IS (12/96) VIRGINIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS The Institutional Service Shares of Virginia Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Virginia municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Virginia, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and the income tax imposed by the Commonwealth of Virginia consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS SUMMARY OF FUND EXPENSES 1 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES 2 GENERAL INFORMATION 3 INVESTMENT INFORMATION 3 Investment Objective 3 Investment Policies 3 Virginia Municipal Securities 6 Investment Risks 6 Investment Limitations 7 FUND INFORMATION 7 Management of the Fund 7 Distribution of Institutional Service Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 HOW TO PURCHASE SHARES 9 Special Purchase Features 10 HOW TO REDEEM SHARES 10 Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 11 TAX INFORMATION 12 Federal Income Tax 12 State and Local Taxes 13 OTHER CLASSES OF SHARES 13 PERFORMANCE INFORMATION 13 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES 14 FINANCIAL STATEMENTS 15 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 28 ADDRESSES 29 SUMMARY OF FUND EXPENSES
INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable) None Redemption Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1) 0.25% 12b-1 Fee None Total Other Expenses 0.34% Shareholder Services Fee (after waiver)(2) 0.10% Total Operating Expenses(3) 0.59%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40% (2) The shareholder services fee has been reduced to reflect the voluntary waiver of a portion of the shareholder services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (3) The total operating expenses would have been 0.89% absent the voluntary waivers of portions of the management fee and the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Service Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period $6 $19 $33 $74
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. VIRGINIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 27.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.03 0.02 0.003 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.03) (0.02) (0.003) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 TOTAL RETURN(B) 3.14% 3.46% 2.44% 0.34% RATIOS TO AVERAGE NET ASSETS Expenses 0.59% 0.59% 0.40% 0.19%* Net investment income 3.10% 3.38% 2.42% 2.67%* Expense waiver/reimbursement(c) 0.30% 0.32% 0.37% 1.04%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $177,575 $127,083 $100,084 $45,648
* Computed on an annualized basis. (a) Reflects operations for the period from September 16, 1993 (date of initial public investment) to October 31, 1993. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees has established two classes of shares known as Institutional Service Shares and Institutional Shares. This prospectus relates only to Institutional Service Shares of the Fund, which are designed primarily for financial institutions acting in an agency capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing primarily in short-term Virginia municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Virginia taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the income tax imposed by the Commonwealth of Virginia consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Virginia state income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Virginia and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and the income tax imposed by the Commonwealth of Virginia ("Virginia Municipal Securities"). Examples of Virginia Municipal Securities include, but are not limited to: * tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; * bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; * municipal commercial paper and other short-term notes; * variable rate demand notes; * municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and * participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Virginia Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Virginia Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other depository institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Virginia Municipal Securities is subject to the federal alternative minimum tax. VIRGINIA MUNICIPAL SECURITIES Virginia Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Virginia Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Virginia Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Virginia Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Virginia Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Virginia Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Virginia Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Virginia Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Virginia Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations, the Fund's concentration in Virginia Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to 0.40% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) Shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES Federated Securities Corp. is the principal distributor for Institutional Service Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to 0.25% of the average daily net asset value of its shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below: AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS 0.15% on the first $250 million 0.125% on the next $250 million 0.10% on the next $250 million 0.075% on assets in excess of $750 million The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE The Fund attempts to stabilize the net asset value of Institutional Service Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to shares from the value of Fund assets attributable to shares, and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $25,000 or more over a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. Eastern time to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. Eastern time in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Virginia Municipal Cash Trust--Institutional Service Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Virginia Municipal Cash Trust -- Institutional Service Shares. Please include an account number on the check. 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. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $25,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights; except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Virginia. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. VIRGINIA TAXES. Under existing Virginia laws, distributions made by the Fund will not be subject to Virginia income taxes to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest from obligations issued by or on behalf of the Commonwealth of Virginia or any political subdivision thereof; or (ii) interest from obligations issued by a territory or possession of the United States or any political subdivision thereof which federal law exempts from state income taxes. Conversely, to the extent that distributions made by the Fund are attributable to other types of obligations, such distributions will be subject to Virginia income taxes. OTHER CLASSES OF SHARES The Fund also offers another class of shares called Institutional Shares that are sold primarily to financial institutions acting in a fiduciary capacity. Institutional Shares are sold at net asset value and are subject to a Shareholder Services Agreement. Investment in Institutional Shares are subject to a minimum initial investment of $25,000 over a 90-day period. All classes are subject to certain of the same expenses. Institutional Shares are distributed with no 12b-1 Plan but are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. VIRGINIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 27.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.04 0.03 0.003 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.04) (0.03) (0.003) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 TOTAL RETURN(B) 3.24% 3.56% 2.57% 0.35% RATIOS TO AVERAGE NET ASSETS Expenses 0.49% 0.49% 0.33% 0.09%* Net investment income 3.19% 3.50% 2.56% 2.68%* Expense waiver/reimbursement(c) 0.40% 0.42% 0.37% 1.04%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $26,302 $22,642 $20,360 $7,210
* Computed on an annualized basis. (a) Reflects operations for the period from September 16, 1993 (date of initial public investment) to October 31, 1993. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) VIRGINIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--100.8% VIRGINIA--92.9% $ 6,552,000 Alexandria, VA IDA Weekly VRDNs (American Red Cross)/(Sanwa Bank Ltd, Osaka LOC) $ 6,552,000 7,100,000 Alexandria, VA Redevelopment and Housing Authority Weekly VRDNs (Crystal City Apartments)/(Safeco Insurance Co. of America INS)/(Sumitomo Bank Ltd., Osaka LIQ) 7,100,000 2,300,000 Alexandria, VA Redevelopment and Housing Authority, (Series 1996A) Weekly VRDNs (Glebe Park Apartments Project)/ (Kredietbank N.V., Brussels LOC) 2,300,000 3,500,000 Alexandria, VA Redevelopment and Housing Authority, Series 1996B Weekly VRDNs (Buckingham Village Apartments)/(First Union National Bank, Charlotte, N.C. LOC) 3,500,000 2,200,000 Amelia County, VA IDA, (Series 1991) Weekly VRDNs (Chambers Waste System)/(Morgan Guaranty Trust Co., New York LOC) 2,200,000 750,000 Arlington County, VA Weekly VRDNs (Ballston Public Parking)/ (Citibank NA, New York LOC) 750,000 2,500,000 Bedford County, VA IDA, (Series 1996) Weekly VRDNs (Nekoosa Packaging Corporation Project)/(Canadian Imperial Bank of Commerce, Toronto LOC) 2,500,000 3,200,000 Botetourt County, VA IDA, IDRB (Series 1995) Weekly VRDNs (Emkay Holdings, L.L.C. Project)/(State Street Bank and Trust Co. LOC) 3,200,000 9,900,000 Campbell County, VA IDA, Solid Waste Disposal Facilities Revenue ACES Weekly VRDNs (Georgia-Pacific Corp.)/(Industrial Bank of Japan Ltd., Tokyo LOC) 9,900,000 7,250,000 Carroll County, VA IDA, IDRB (Series 1995) Weekly VRDNs (Kentucky Derby Hosiery Co, Inc. Project)/(Liberty National Bank & Trust Co. LOC) 7,250,000 1,000,000 Charles County, VA IDA, Solid Waste Disposal Facility Revenue Bonds (Series 1996) Weekly VRDNs (Chambers Development of Virginia, Inc. Project)/(Morgan Guaranty Trust Co., New York LOC) 1,000,000
VIRGINIA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED VIRGINIA--CONTINUED $ 1,900,000 Chesapeake, VA IDA, (Series 1986) Weekly VRDNs (Volvo)/(Union Bank of Switzerland, Zurich LOC) $ 1,900,000 2,000,000 Chesapeake, VA IDA, IDRB (Series 1988) Weekly VRDNs (Sumitomo Machinery Corp. of America Corp.)/(Sumitomo Bank Ltd., Osaka LOC) 2,000,000 1,500,000 Chesapeake, VA, 6.50% Bonds (United States Treasury PRF), 7/1/1997 (@102) 1,555,954 5,000,000 Commonwealth of Virginia, GO BANs (1996 Series), 3.50% CP, Mandatory Tender 11/8/1996 5,000,000 1,357,000 Dinwiddie County, VA IDA, IDRB (Series 1989) Weekly VRDNs (Tindall Concrete VA, Inc.)/(First Union National Bank, Charlotte, N.C. LOC) 1,357,000 3,515,000 Dinwiddie County, VA IDA, IDRB (Series 1991) Weekly VRDNs (Maclin-Zimmer-Mcgill Tobacco Co., Inc.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) 3,515,000 1,000,000 Fairfax County, VA EDA, (Series 1995) Weekly VRDNs (American Society of Civil Engineers Foundation, Inc. Project)/(Mellon Bank NA, Pittsburgh LOC) 1,000,000 3,000,000 Fairfax County, VA Housing Authority Weekly VRDNs (Chase Commons Associates)/(Bankers Trust Co., New York LOC) 3,000,000 1,900,000 Fairfax County, VA IDA Weekly VRDNs (Inova Health System)/ (Credit Suisse, Zurich LIQ) 1,900,000 4,000,000 Fairfax County, VA IDA, (Series 1993B), 3.45% CP (Inova Health System), Mandatory Tender 11/21/1996 4,000,000 5,710,000 Fairfax County, VA, Public Improvement Bonds (Series A), 5.50% Bonds, 6/1/1997 5,769,921 1,250,000 Fairfax County, VA, UT GO Refunding Bonds (Series B), 6.60% Bonds (United States Treasury PRF), 11/1/1996 (@101) 1,262,500 6,100,000 Falls Church, VA IDA, (Series 1985), 3.70% TOBs (Kaiser Permanente Medical Care Program), Mandatory Tender 11/1/1996 6,100,000 600,000 Fauquier County, VA IDA, Refunding Revenue Bonds Weekly VRDNs (Warrenton Development Co.)/(Nationsbank, N.A. LOC) 600,000
VIRGINIA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED VIRGINIA--CONTINUED $ 7,113,000 Fluvanna County, VA IDA, (Series 1986) Weekly VRDNs (Thomasville Furniture Industries)/(Union Bank of Switzerland, Zurich LOC) $ 7,113,000 4,500,000 Front Royal & Warren County, VA IDA, IDRB (Series 1995) Weekly VRDNs (Pen-Tab Industries, Inc. Project)/(Bank of America Illinois LOC) 4,500,000 1,070,000 Grayson County, VA IDA, (Series 1987) Weekly VRDNs (Robertshaw Controls Company Project)/(Nationsbank, N.A. LOC) 1,070,000 3,000,000 Halifax, VA IDA, MMMs, PCR, 3.65% CP (Virginia Electric Power Co.), Mandatory Tender 12/10/1996 3,000,000 7,500,000 Halifax, VA IDA, MMMs, PCR, 3.80% CP (Virginia Electric Power Co.), Mandatory Tender 2/14/1997 7,500,000 4,000,000 Halifax, VA IDA, MMMs, PCR, 3.85% CP (Virginia Electric Power Co.), Mandatory Tender 11/13/1996 4,000,000 900,000 Hanover County, VA IDA Weekly VRDNs (Fiber-Lam, Inc. Project)/ (Nationsbank, N.A. LOC) 900,000 1,535,000 Loudoun County, VA, 6.70% Bonds, 6/1/1997 1,560,224 2,000,000 Lynchburg, VA, 3.15% BANs, 3/1/1997 2,000,315 3,000,000 Newport News, VA Redevelopment & Housing Authority, (Series 1990) Weekly VRDNs (Fredericksburg-Oxford)/(Bankers Trust Co., New York LOC) 3,000,000 570,000 Newport News, VA, UT GO, 7.10% Bonds (United States Treasury PRF), 7/1/1997 (@100.25) 583,183 1,435,000 Newport News, VA, UT GO, 7.10% Bonds (United States Treasury PRF), 7/1/1997 (@100.25) 1,468,661 1,540,000 Newport News, VA, UT GO, 7.10% Bonds (United States Treasury PRF), 7/1/1997 (@100.5) 1,579,885 470,000 Newport News, VA, UT GO, 7.10% Bonds (United States Treasury PRF), 7/1/1997 (@100.5) 482,014 3,000,000 Norfolk, VA, UT GO, 6.60% Bonds (United States Treasury PRF), 6/1/1997 (@102) 3,107,742 1,500,000 Norfolk, VA, UT GO, 6.70% Bonds (United States Treasury PRF), 6/1/1997 (@102) 1,553,561
VIRGINIA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED VIRGINIA--CONTINUED $ 1,425,000 Pulaski County, VA IDA, (Series 1995) Weekly VRDNs (Balogh Real Estate Ltd. Partnership Mar-Bal Inc. Project)/(Bank One, Cleveland, N.A. LOC) $ 1,425,000 915,000 Richmond, VA IDA, Industrial Development Revenue Refunding Bonds (Series 1987-B), 3.75% TOBs (Crow-Klein-Macfarlane Project)/ (First Union National Bank of Virginia LOC), Optional Tender 11/15/1996 915,000 3,200,000 Richmond, VA Redevelopment & Housing Authority, (Series 1989) Weekly VRDNs (Belmont Apartment)/(First Union National Bank, Charlotte, N.C. LOC) 3,200,000 2,160,000 Richmond, VA Redevelopment & Housing Authority, (Series B-5) Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Westdeutsche Landesbank Girozentrale LOC) 2,160,000 3,555,000 Richmond, VA Redevelopment & Housing Authority, (Series B-6) Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Westdeutsche Landesbank Girozentrale LOC) 3,555,000 3,500,000 Richmond, VA Redevelopment & Housing Authority, (Series B-9) Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Westdeutsche Landesbank Girozentrale LOC) 3,500,000 2,900,000 South Hill, VA IDA, IDRB (Series 1987) Weekly VRDNs (South Hill Veneers, Inc Project)/(Bank One, Columbus, N.A. LOC) 2,900,000 2,375,000 Tazewell County, VA IDA, (Series 1993) Weekly VRDNs (Seville Properties Bluefield)/(Huntington National Bank, Columbus, OH LOC) 2,375,000 2,105,000 Virginia Beach, VA IDA, (Series 1993) Weekly VRDNs (Ocean Ranch Motel Corp.)/(Nationsbank, N.A. LOC) 2,105,000 6,400,000 Virginia Peninsula Port Authority Daily VRDNs (Kinyo Virginia, Inc.)/(Industrial Bank of Japan Ltd., Tokyo LOC) 6,400,000 3,200,000 Virginia Peninsula Port Authority, Coal Terminal Revenue Refunding Bonds (Series 1987A), 3.50% CP (Dominion Terminal Associates)/ (National Westminster Bank, PLC, London LOC), Mandatory Tender 11/25/1996 3,200,000
VIRGINIA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED VIRGINIA--CONTINUED $ 3,135,000 Virginia Peninsula Port Authority, Coal Terminal Revenue Refunding Bonds (Series 1987A), 3.65% CP (Dominion Terminal Associates)/ (National Westminster Bank, PLC, London LOC), Mandatory Tender 1/22/1997 $ 3,135,000 5,500,000 Virginia Peninsula Port Authority, Facility Revenue Refunding Bonds (Series 1992), 3.60% CP (CSX Corp.)/(Bank of Nova Scotia, Toronto LOC), Mandatory Tender 1/17/1997 5,500,000 2,000,000 Virginia Peninsula Port Authority, Facility Revenue Refunding Bonds (Series 1992), 3.75% CP (CSX Corp.)/(Bank of Nova Scotia, Toronto LOC), Mandatory Tender 1/21/1997 2,000,000 4,944,000 Virginia Peninsula Port Authority, IDRB (Series 1986) Weekly VRDNs (Eeco Project)/(Nationsbank, N.A. LOC) 4,944,000 1,000,000 Virginia State Public Building Authority, (Series C), 4.35% Bonds, 8/1/1997 1,003,969 1,060,000 Virginia State Public School Authority, Series A, 6.85% Bonds (United States Treasury PRF), 1/1/1997 (@102) 1,086,499 1,507,000 Williamsburg, VA IDA, (Series 1988) Weekly VRDNs (Colonial Williamsburg Foundation Museum)/(Nationsbank, N.A. LOC) 1,507,000 1,575,000 Winchester, VA IDA, (Series 1995) Weekly VRDNs (Midwesco Filter Resources, Inc. Project)/(Harris Trust & Savings Bank, Chicago LOC) 1,575,000 3,300,000 Winchester, VA IDA, Hospital Revenue Bonds, 4.05% Bonds (Winchester Medical Center, Inc.)/(AMBAC INS), 1/1/1997 3,303,454 5,000,000 York County, VA IDA, (Series 1985), 3.80% CP (Virginia Electric Power Co.), Mandatory Tender 1/23/1997 5,000,000 Total 189,420,882 VIRGIN ISLANDS--2.9% 6,000,000 Virgin Islands HFA, Single Family Mortgage Revenue Refunding Bonds (1995 Series B), 3.50%, 3.75% TOBs (Trinity Funding Company INV), Mandatory Tender 11/1/1996, 6/1/1997 6,000,000 PUERTO RICO--5.0% 1,500,000 Puerto Rico Electric Power Authority, (Series L), 8.40% Bonds (United States Treasury PRF), 7/1/1997 (@102) 1,573,424
VIRGINIA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED PUERTO RICO--CONTINUED $ 5,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory Tender 2/14/1997 $ 5,000,000 3,500,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 1983A), 3.80% TOBs (Reynolds Metals Co.)/(ABN AMRO Bank N.V., Amsterdam LOC), Optional Tender 9/1/1997 3,501,407 TOTAL 10,074,831 TOTAL INVESTMENTS (AT AMORTIZED COST)(B) $ 205,495,713
Securities that are subject to Alternative Minimum Tax represent 52% of the portion as calculated based upon total market value. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term rating categories. Securities rated in the highest short-term rating category (and unrated securities of comparable quality) are identified as First Tier securities. Securities rated in the second highest short-term rating category (and unrated securities of comparable quality) are identified as Second Tier securities. The Fund follows applicable regulations in determining whether a security is rated and whether a security rated by multiple NRSROs in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENT BASED ON TOTAL MARKET VALUE (UNAUDITED) FIRST TIER SECOND TIER 100.00% 0.00% (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($203,876,450) at October 31, 1996. The following acronyms are used throughout this portfolio: ACES -- Adjustable Convertible Extendable Securities AMBAC -- American Municipal Bond Assurance Corporation BANs -- Bond Anticipation Notes CP -- Commercial Paper EDA -- Economic Development Authority GO -- General Obligation HFA -- Housing Finance Authority IDA -- Industrial Development Authority IDRB -- Industrial Development Revenue Bond INS -- Insured INV -- Investment Agreement LIQ -- Liquidity Agreement LOC -- Letter of Credit MMMs -- Money Market Municipals PCA -- Pollution Control Authority PCR -- Pollution Control Revenue PLC -- Public Limited Company PRF -- Prerefunded TOBs -- Tender Option Bonds UT -- Unlimited Tax VRDNs -- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) VIRGINIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996
ASSETS: Total investments in securities, at amortized cost and value $ 205,495,713 Cash 187,299 Income receivable 1,414,115 Receivable for shares sold 327 Deferred expenses 17,555 Total assets 207,115,009 LIABILITIES: Payable for investments purchased $ 3,000,000 Income distribution payable 179,523 Accrued expenses 59,036 Total liabilities 3,238,559 Net Assets for 203,876,450 shares outstanding $ 203,876,450 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: INSTITUTIONAL SHARES: $26,301,933 / 26,301,933 shares outstanding $1.00 INSTITUTIONAL SERVICE SHARES: $177,574,517 / 177,574,517 shares outstanding $1.00
(See Notes which are an integral part of the Financial Statements) VIRGINIA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 INVESTMENT INCOME: Interest $ 6,065,502 EXPENSES: Investment advisory fee $ 657,332 Administrative personnel and services fee 155,000 Custodian fees 23,447 Transfer and dividend disbursing agent fees and expenses 53,778 Directors'/Trustees' fees 1,937 Auditing fees 13,561 Legal fees 4,324 Portfolio accounting fees 62,801 Shareholder services fee -- Institutional Shares 59,623 Shareholder services fee -- Institutional Service Shares 351,209 Share registration costs 49,212 Printing and postage 18,973 Insurance premiums 5,484 Miscellaneous 9,703 Total expenses 1,466,384 Waivers -- Waiver of investment advisory fee $ (243,090) Waiver of shareholder services fee -- Institutional Shares (59,623) Waiver of shareholder services fee -- Institutional Service Shares (210,725) Total waivers (513,438) Net expenses 952,946 Net investment income $ 5,112,556
(See Notes which are an integral part of the Financial Statements) VIRGINIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS-- Net investment income $ 5,112,556 $ 4,384,563 DISTRIBUTIONS TO SHAREHOLDERS-- Distributions from net investment income Institutional Shares (761,548) (834,541) Institutional Service Shares (4,351,008) (3,550,022) Change in net assets resulting from distributions to shareholders (5,112,556) (4,384,563) SHARE TRANSACTIONS-- Proceeds from sale of shares 1,246,683,348 1,020,240,888 Net asset value of shares issued to shareholders in payment of distributions declared 3,397,142 2,822,568 Cost of shares redeemed (1,195,928,451) (993,783,278) Change in net assets resulting from share transactions 54,152,039 29,280,178 Change in net assets 54,152,039 29,280,178 NET ASSETS: Beginning of period 149,724,411 120,444,233 End of period $ 203,876,450 $ 149,724,411
(See Notes which are an integral part of the Financial Statements) VIRGINIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 1. ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of Virginia Municipal Cash Trust (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 Fund offers two classes of shares: Institutional Shares and Institutional Service Shares. The investment objective of the Fund is current income exempt from federal regular income tax and the income tax imposed by the Commonwealth of Virginia consistent with stability of principal. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. DEFERRED EXPENSES -- The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized over a period not to exceed five years from the Fund's commencement date. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER -- Investment transactions are accounted for on the trade date. 3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, 1996 1995 INSTITUTIONAL SHARES SHARES SHARES Shares sold 113,430,564 87,290,291 Shares issued to shareholders in payment of distributions declared 6,598 15,666 Shares redeemed (109,777,058) (85,024,334) Net change resulting from Institutional share transactions 3,660,104 2,281,623 YEAR ENDED OCTOBER 31, 1996 1995 INSTITUTIONAL SERVICE SHARES SHARES SHARES Shares sold 1,133,252,784 932,950,597 Shares issued to shareholders in payment of distributions declared 3,390,544 2,806,902 Shares redeemed (1,086,151,393) (908,758,944) Net change resulting from Institutional Service share transactions 50,491,935 26,998,555 Net change resulting from share transactions 54,152,039 29,280,178
At October 31, 1996, capital paid-in aggregated $203,876,450. 4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement with Federated Shareholder Services, ("FSS") the Fund will pay FSS up to 0.25% of average daily net assets of the Fund for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES -- Organizational expenses of $33,493 were borne initially by Adviser. The Fund has agreed to reimburse Adviser for the organizational expenses during the five-year period following effective date. For the period ended October 31, 1996, the Fund paid $6,699 pursuant to this agreement. INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, the Trust 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 $356,280,000 and $348,905,000, respectively. GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 5. CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 65% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 5% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (VIRGINIA MUNICIPAL CASH TRUST): We have audited the accompanying statement of assets and liabilities of Virginia Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996, and the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see pages 2 and 14 of the prospectus) for the periods presented. 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 October 31, 1996, by correspondence with the custodian and broker. 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 Virginia Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 15, 1996 ADDRESSES Virginia Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, PA 15222-3779 Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 Transfer Agent and Dividend Disbursing Agent Federated Shareholder P.O. Box 8600 Services Company Boston, MA 02266-8600 Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 VIRGINIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End, Management Investment Company Prospectus dated December 31 ,1996 [Graphic] Federated Investors Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. Cusip 314229824 3080501A-SS (12/96) VIRGINIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES INSTITUTIONAL SERVICE SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus of Virginia Municipal Cash Trust (the ``Fund'), a portfolio of Federated Municipal Trust (the ``Trust') dated December 31, 1996. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-341-7400. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1996 Federated Securities Corp. is the distributor of the Funds and is a subsidiary of Federated Investors. Cusip 314229824 Cusip 314229816 3080501B (12/96) INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1 Repurchase Agreements 2 Reverse Repurchase Agreements 2 Credit Enhancement 2 VIRGINIA INVESTMENT RISKS 2 INVESTMENT LIMITATIONS 3 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 Share Ownership 9 Trustee Liability 10 INVESTMENT ADVISORY SERVICES 11 Investment Adviser 11 Advisory Fees 11 BROKERAGE TRANSACTIONS 11 OTHER SERVICES 11 Fund Administration 11 Custodian and Portfolio Accountant 11 Transfer Agent 12 Independent Public Accountants 12 SHAREHOLDER SERVICES 12 DETERMINING NET ASSET VALUE 12 REDEMPTION IN KIND 12 MASSACHUSETTS PARTNERSHIP LAW 13 THE FUND'S TAX STATUS 13 PERFORMANCE INFORMATION 13 Yield 13 Effective Yield 13 Tax-Equivalent Yield 13 Tax-Equivalency Table 14 Total Return 16 Performance Comparisons 16 Economic and Market Information 16 ABOUT FEDERATED INVESTORS 16 Mutual Fund Market 17 Institutional Clients 17 Trust Organizations 17 Broker/Dealers and Bank Broker/Dealer Subsidiaries 17 APPENDIX 18 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security; the issuer of any demand feature applicable to the security; or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an `event of non-appropriation''); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations (`NRSROs'') or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group (`S&P''), MIG-1 or MIG-2 by Moody's Investors Service, Inc. (`Moody's''), or F-1+, F-1, or F-2 by Fitch Investors Service, Inc. (`Fitch'') are all considered rated in one of the two highest short-term rating categories. The Fund will follow applicable regulations in determining whether a security rated by more than one NRSRO can be treated as being in one of the two highest short-term rating categories; currently, such securities must be rated by two NRSROs in one of their two highest rating categories. See `Regulatory Compliance.'' WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund in a dollar amount sufficient to make payment for the securities to be purchased are: segregated on the Fund`s records at the trade date; marked to market daily; and maintained until the transaction is settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument in return for a percentage of the instrument's market value in cash and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but does not ensure this result. However, liquid assets of the Fund, in a dollar amount sufficient to make payment for the securities to be purchased, are: segregated on the Fund's records at the trade date; marked to market daily; and maintained until the transaction is settled. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the `credit enhancer''), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. VIRGINIA INVESTMENT RISKS The Fund invests in obligations of Commonwealth of Virginia (Virginia''or the `Commonwealth'') issuers which results in the Fund's performance being subject to risks associated with the overall conditions present within the Commonwealth. The following information is a brief summary of the recent prevailing economic conditions and a general summary of the Commonwealth's financial status. This information is based on official statements related to securities that have been offered by Virginia issuers and from other sources believed to be reliable but should not be relied upon as a complete description of all relevant information. The Commonwealth's credit strength is derived from a diversified economy, above average wealth levels, low unemployment rates, conservative financial management, and a low debt burden. Virginia benefits from its proximity to the nations capital and its employment base remains substantially tied to government and defense-related industries (25% of the Commonwealth's earning are derived from government versus a 16% average for the U.S.). Although defense cutbacks and base closings have left Virginia relatively unscathed in recent years, the potential for future closings and cutbacks remains alive; consequently, Virginia's legislators have been budgeting conservative growth in the future and have implemented spending restraints. To counter the contracting defense/government related declines, the Commonwealth is actively seeking economic diversification, focusing particularly on high technology, trade, and tourism. Virginia's pro- business environment has attracted many high technology firms. Virginia remains a conservative debt issuer and maintains debt levels that are low in relation to its substantial resources. The Commonwealth actively manages its debt position and continually demonstrates its ability and willingness to adjust financial planning and budgeting to preserve financial balance. In 1991, the Commonwealth established a Debt Capacity Advisory Committee which annually estimates the amount of tax-supported debt that the Commonwealth can prudently authorize, issue, and support. The Commonwealth and the Committee have decided that the ratio of debt service to revenues should be maintained below 5%, and the Commonwealth has actually kept the level at or below 2.5%. The Fund's concentration in securities issued by the Commonwealth and its political subdivisions provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. The ability of the Commonwealth or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the Commonwealth; and the underlying fiscal condition of the Commonwealth and its municipalities. INVESTMENT LIMITATIONS 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 may be necessary for the clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money directly or through reverse repurchase agreements in amounts up to one-third of the value of its net assets, including the amounts borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of its total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may acquire publicly or nonpublicly issued Virginia municipal securities or temporary investments or enter into repurchase agreements, in accordance with its investment objective, policies, limitations and its Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate or real estate limited partnerships, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry or in industrial development bonds or other securities, the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above limitations cannot be changed without shareholder approval. The following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities including certain restricted securities not determined to be liquid under criteria established by the Trustees, and repurchase agreements providing for settlement in more than seven days after notice. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be `cash items.'' Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments , as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its ability to participate in volume transactions will be to the benefit of the Fund. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director or Trustee of the Funds. Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee, University of Pittsburgh; Director or Trustee of the Funds. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest Florida; formerly, President, Naples Property Management, Inc. and Northgate Village Development Corporation; Director or Trustee of the Funds. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds. Edward L. Flaherty, Jr.@ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region; Director or Trustee of the Funds. Glen R. Johnson* Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. Peter E. Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16, 1942 Trustee Consultant; Former State Representative, Commonwealth of Massachusetts; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation; Director or Trustee of the Funds. Gregor F. Meyer Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare, Inc.; Director, Eat `N Park Restaurants, Inc.; Director or Trustee of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director or Trustee of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics; Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., National Defense University, U.S. Space Foundation and Czech Management Center; President Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council for Environmental Policy and Technology, Federal Emergency Management Advisory Board and Czech Management Center; Director or Trustee of the Funds. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/Marketing/Conference Planning, Manchester Craftsmen's Guild; Restaurant Consultant, Frick Art & History Center; Conference Coordinator, University of Pittsburgh Art History Department; Director or Trustee of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated Shareholder Services; Director, Federated Services Company; President or Executive Vice President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Shareholder Services Company; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President, Secretary and Treasurer Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. oThis Trustee is deemed to be an ``interested person'' as defined in the Investment Company Act of 1940. @Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board between meetings of the Board. As referred to in the list of Trustees and Officers, `Funds'' includes the following investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated Investment Portfolios; Federated Investment Trust; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 2, 1996, the following shareholders of record owned 5% or more of the outstanding Institutional Shares of Virginia Municipal Cash Trust: Chesnat, Kilmarnock, Virginia, owned approximately 1,291,121 shares (5.74%); First Community Bank, Bluefield, West Virginia, owned approximately 1,367,700 shares (6.08%); FirstBlue & Company, Bluefield, West Virginia, owned approximately 1,572,003 shares (6.99%); Nabaf & Company, Fredericksburg, Virginia, owned approximately 2,092,247 shares (9.30%); VATCO, Richland, Virginia, owned approximately 2,114,938 shares (9.40%); Hamac & Co., Richmond, Virginia, owned approximately 3,684,166 shares (16.38%); and Comfort & Co., Hampton, Virginia, owned approximately 6,735,750 shares (29.94%). As of December 2, 1996, the following shareholders of record owned 5% or more of the outstanding Institutional Service Shares of Virginia Municipal Cash Trust: WC English, Inc., Lynchburg, Virginia, owned approximately 12,215,000 shares (5.78%); and Scott & Stringfellow, Inc., Richmond, Virginia,owned approximately 25,542,669 shares (12.08%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 54 other investment companies in the Fund Complex Thomas G. Bigley++ $3,611 $86,331 for the Trust and Trustee 54 other investment companies in the Fund Complex John T. Conroy, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex William J. Copeland $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Peter E. Madden $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Gregor F. Meyer $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex John E. Murray, Jr., $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Wesley W. Posvar $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Marjorie P. Smuts $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1996. #The aggregate compensation is provided for the Trust which is comprised of 16 portfolios. +The information is provided for the last calendar year. ++ Mr. Bigley served on 39 investment companies in the Federated Funds complex from January 1 through September 30, 1995. On October 1, 1995, he was appointed a Trustee on 15 additional Federated Funds. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1996 and 1995, the adviser earned $657,332, and $514,947, respectively, of which $243,090 and $224,073, respectively, were voluntarily waived. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. From March 1, 1994, to March 1, 1996, Federated Administrative Services served as the Fund's Administrator. Prior to March 1, 1994, Federated Administrative Services, Inc. served as the Fund's Administrator. Both former Administrators are subsidiaries of Federated Investors. For purposes of this Statement of Additional Information, Federated Services Company and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the `Administrators.'' For the fiscal years ended October 31, 1996, 1995, and 1994, the Administrators earned $155,000, $155,000, and $145,109, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. The fee paid for this service is based upon the level of the Fund's average net assets for the period plus out-of- pocket expenses. TRANSFER AGENT Federated Services Company, through its registered transfer agent, Federated Shareholder Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. SHAREHOLDER SERVICES This arrangement permits the payment of fees to Federated Shareholder Services to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Agreement, the Trustees expect that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal period ended October 31, 1996, the Fund paid shareholder service fees in the amounts of $59,623 and $351,209, on behalf of Institutional Shares and Institutional Service Shares, respectively, of which $59,623 and $210,725, respectively were voluntarily waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the `Rule'') promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than .50% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the `base period.'' This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. For the seven-day period ended October 31, 1996, the yields for Institutional Shares and Institutional Service Shares were 3.19% and 3.09%, respectively. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. For the seven-day period ended October 31, 1996, the effective yields for Institutional Shares and Institutional Service Shares were 3.24% and 3.14%, respectively, TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming 45.35% tax rate (the maximum combined effective federal and state rate for individuals) and assuming that the income is 100% tax exempt. For the seven-day period ended October 31, 1996, the tax-equivalent yields for Institutional Shares and Institutional Service Shares were 5.84% and 5.65%, respectively, TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a `tax- free''investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1996 STATE OF VIRGINIA COMBINED FEDERAL AND STATE INCOME TAX BRACKET: 20.75% 33.75% 36.75% 41.75% 45.35% JOINT $1- $40,101- $96,901- $147,701- OVER RETURN 40,100 96,900 147,700 263,750 $263,750 SINGLE $1- $24,001- $58,151- $121,301- OVER RETURN 24,000 58,150 121,300 263,750 $263,750 Tax-Exempt Yield Taxable Yield Equivalent 3.50% 4.42% 5.28% 5.53% 6.01% 6.40% 4.00% 5.05% 6.04% 6.32% 6.87% 7.32% 4.50% 5.68% 6.79% 7.11% 7.73% 8.23% 5.00% 6.31% 7.55% 7.91% 8.58% 9.15% 5.50% 6.94% 8.30% 8.70% 9.44% 10.06% 6.00% 7.57% 9.06% 9.49% 10.30% 10.98% 6.50% 8.20% 9.81% 10.28% 11.16% 11.89% 7.00% 8.83% 10.57% 11.07% 12.02% 12.81% 7.50% 9.46% 11.32% 11.86% 12.88% 13.72% 8.00% 10.09% 12.08% 12.65% 13.73% 14.64% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. o Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. For the one-year period ended October 31, 1996, and for the period from September 16, 1993 (date of initial public investment) through October 31, 1996, the average annual total returns were 3.11% and 3.56%, respectively, for Institutional Shares, and were 3.14% and 3.00%, respectively, for Institutional Service Shares. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. oMONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. Advertising and other promotional literature may include charts, graphs and other illustrations using the Fund`s returns, or returns in general, that demonstrate basic investment concepts such as tax-deferred compounding, dollar-cost averaging and systematic investment. In addition, the Fund can compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, such as bank savings accounts, certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION Advertising and sales literature for the Fund may include discussions of economic, financial and political developments and their effect on the securities market. Such discussions may take the form of commentary on these developments by the Fund portfolio mangers and their views and analysis on how such developments could affect the Funds. In addition, advertising and sales literature may quote statistics and give general information about the mutual fund industry, including growth of the industry, from sources such as the Investment Company Institute. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. These traders handle trillions of dollars in annual trading volume. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1995, Federated Investors managed more than $40.2 billion in assets across approximately 47 money market funds, including 17 government, 10 prime and 20 municipal with assets approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $3 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide-including 200 New York Stock Exchange firms-supported by more wholesalers than any other mutual fund distributor. Federated's service to financial professionals and institutions has earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for service quality measurement. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (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 rate `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. MOODYS 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 SERVICES, INC. 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. ALABAMA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) PROSPECTUS The Shares of Alabama Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Alabama municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Alabama, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and income tax imposed by the State of Alabama consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Alabama Municipal Securities 5 Investment Risks 6 Investment Limitations 6 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ Special Purchase Features 10 HOW TO REDEEM SHARES 10 - ------------------------------------------------------ Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 11 - ------------------------------------------------------ TAX INFORMATION 12 - ------------------------------------------------------ Federal Income Tax 12 State and Local Taxes 13 PERFORMANCE INFORMATION 13 - ------------------------------------------------------ FINANCIAL STATEMENTS 14 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 28 - ------------------------------------------------------ ADDRESSES 29 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)........................................ None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)........................................ None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)...................... None Redemption Fee (as a percentage of amount redeemed, if applicable)........... None Exchange Fee................................................................. None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)............................................. 0.17% 12b-1 Fee.................................................................... None Total Other Expenses......................................................... 0.42% Shareholder Services Fee................................................ 0.25% Total Operating Expenses(2)........................................ 0.59%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The Total Operating Expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1997. The Total Operating Expenses were 0.55% for fiscal year ended October 31, 1996 and would have been .92% absent the voluntary waiver of a portion of the management fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information". Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ---------------------------------------------------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period........... $6 $19 $33 $ 74
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. ALABAMA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 28.
YEAR ENDED OCTOBER 31, ------------------------------ 1996 1995 1994(a) -------- -------- -------- - --------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 - --------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------------------------------- Net investment income 0.03 0.04 0.02 - --------------------------------------------------------------- LESS DISTRIBUTIONS - --------------------------------------------------------------- Distributions from net investment income (0.03) (0.04) (0.02) - --------------------------------------------------------------- ----- ----- ----- NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 - --------------------------------------------------------------- ----- ----- ----- TOTAL RETURN (b) 3.22% 3.66% 2.31% - --------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------------------------- Expenses 0.55% 0.48% 0.36%* - --------------------------------------------------------------- Net investment income 3.18% 3.59% 2.67%* - --------------------------------------------------------------- Expense waiver/reimbursement (c) 0.37% 0.44% 0.62%* - --------------------------------------------------------------- SUPPLEMENTAL DATA - --------------------------------------------------------------- Net assets, end of period (000 omitted) $233,720 $209,490 $142,804 - ---------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from December 3, 1993 (date of initial public investment) to October 31, 1994. For the period from November 29, 1993 (start of business) to December 3, 1993 the Fund had no investment activity. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989 The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The Fund is designed for financial institutions acting in an agency or fiduciary capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Alabama taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the income tax imposed by the State of Alabama consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and the income tax imposed by the State of Alabama. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Alabama and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and the income tax imposed by the State of Alabama ("Alabama Municipal Securities"). Examples of Alabama Municipal Securities include, but are not limited to: - tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; - bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; - municipal commercial paper and other short-term notes; - variable rate demand notes; - municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and - participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Alabama Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Alabama Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other depository institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Alabama Municipal Securities is subject to the federal alternative minimum tax. ALABAMA MUNICIPAL SECURITIES Alabama Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Alabama Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Alabama Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Alabama Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Alabama Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Alabama Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Alabama Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Alabama Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Alabama Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations, the Fund's concentration in Alabama Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its net assets and pledge assets not exceeding 15% of the value of its total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS - ------------ ------------------------------------ .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of its shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting total liabilities from total assets and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more over a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Alabama Municipal Cash Trust; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Alabama Municipal Cash Trust. 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. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Shareholder Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company, or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of each portfolio in the Trust have equal voting rights; except that in matters affecting only a particular portfolio, only shareholders of that portfolio are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Alabama. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. ALABAMA TAXES. Under existing Alabama laws, distributions made by the Fund will not be subject to Alabama personal income taxes to the extent that such distributions are attributable to interest earned on obligations that would be exempt from Alabama personal income taxes if held directly by shareholders (such as obligations of Alabama or its political subdivisions, of the United States or of certain territories or possessions of the United States). Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to Alabama personal income taxes. Shareholders may exclude from the share value of the Fund, for purposes of the Alabama personal property tax, that portion of the total share value which is attributable to the value of the obligations of Alabama or its political subdivisions, of the United States or of certain territories or possessions of the United States. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the Fund after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. ALABAMA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ----------------------------------------------------------------- ------------ (a)SHORT-TERM MUNICIPALS--100.0% - -------------------------------------------------------------------------------- ALABAMA--90.6% ----------------------------------------------------------------- $3,000,000 Alabama State IDA Weekly VRDNs (Columbus Mills Inc. Project)/ $ 3,000,000 (SunTrust Bank, Atlanta LOC) ----------------------------------------------------------------- 3,970,000 Alabama State IDA, IDRB (Series 1994) Weekly VRDNs 3,970,000 (Decatur Aluminum Corp.)/(Star Bank, NA, Cincinnati LOC) ----------------------------------------------------------------- 1,600,000 Alabama State IDA, IDRB Weekly VRDNs (Monarch Tile, Inc. 1,600,000 Project)/ (Nationsbank of Texas, N.A. LOC) ----------------------------------------------------------------- 3,250,000 Alabama State IDA, IDRB's (Series 1996) Weekly VRDNs 3,250,000 (IMI Cash Valve Project)/(First Alabama Bank, Birmingham LOC) ----------------------------------------------------------------- 3,350,000 Alabama State IDA, Industrial Revenue Bonds Weekly VRDNs 3,350,000 (Kappler USA, Inc. Project)/(National Bank of Canada, Montreal LOC) ----------------------------------------------------------------- 5,600,000 Alabama State IDA, Revenue Bonds Weekly VRDNs (Southern Bag 5,600,000 Corporation, Ltd.)/(SouthTrust Bank of Alabama, Birmingham LOC) ----------------------------------------------------------------- 1,245,000 Alabama State Public School & College Authority, Capital 1,245,000 Improvement Bonds (Series 1996), 4.50% Bonds, 11/1/1996 ----------------------------------------------------------------- 1,100,000 Arab, AL IDB, Revenue Refunding Bonds (Series 1989) Weekly VRDNs 1,100,000 (SCI Manufacturing, Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC) ----------------------------------------------------------------- 1,750,000 Ashland, AL IDB, (Series 1996) Weekly VRDNs 1,750,000 (Tru-Wood Cabinets)/(First Alabama Bank, Birmingham LOC) ----------------------------------------------------------------- 1,720,000 Ashland, AL IDB, Refunding Revenue Bonds (Series 1992) 1,720,000 Weekly VRDNs (Russell Corp.)/(SunTrust Bank, Atlanta LOC) ----------------------------------------------------------------- 2,000,000 Birmingham, AL IDA Weekly VRDNs (Altec Industries, Inc.)/ 2,000,000 (Wachovia Bank of Georgia NA, Atlanta LOC) ----------------------------------------------------------------- 1,715,000 Birmingham, AL IDA Weekly VRDNs (Glasforms, Inc.)/ 1,715,000 (First Alabama Bank, Birmingham LOC) ----------------------------------------------------------------- 2,525,000 Birmingham, AL IDA, Revenue Refunding Bonds Weekly VRDNs 2,525,000 (S.P. Hotel Company)/(Amsouth Bank N.A., Birmingham LOC) ----------------------------------------------------------------- 535,000 Birmingham, AL Waterworks & Sewer Board, Water and Sewer Revenue 535,000 Bonds (Series 1996), 3.40% Bonds, 1/1/1997 -----------------------------------------------------------------
ALABAMA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ----------------------------------------------------------------- ------------ (a)SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- ALABAMA--CONTINUED ----------------------------------------------------------------- $1,695,000 Calhoun County, AL Economic Development Council Weekly VRDNs $ 1,695,000 (Food Ingredients Tech. Co.)/(Nationsbank, N.A. LOC) ----------------------------------------------------------------- 4,230,000 Chatom, AL, (National Rural Utilities Series 1984M), 3.65% TOBs 4,230,000 (Alabama Electric Co-op, Inc.)/(National Rural Utilities Cooperative Finance Corp. GTD), Optional Tender 2/15/1997 ----------------------------------------------------------------- 3,000,000 Chatom, AL, IDB PCR, 3.70% CP (Alabama Electric Co-op, Inc.)/ 3,000,000 (National Rural Utilities Cooperative Finance Corp. GTD), Mandatory Tender 2/14/1997 ----------------------------------------------------------------- 6,200,000 Chatom, AL, IDB PCR, 3.80% CP (Alabama Electric Co-op, Inc.)/ 6,200,000 (National Rural Utilities Cooperative Finance Corp. GTD), Mandatory Tender 1/16/1997 ----------------------------------------------------------------- 2,200,000 Cullman, AL IDB, IRB's (Series 1992) Weekly VRDNs 2,200,000 (Pressac Holdings PLC)/(NBD Bank, Michigan LOC) ----------------------------------------------------------------- 3,000,000 Cullman, AL IDB, Variable Fixed Rate IDRB Weekly VRDNs 3,000,000 (National Bedding Company)/(Bank of America Illinois LOC) ----------------------------------------------------------------- 3,000,000 Decatur, AL IDB, Revenue Refunding Bonds (Series 1993) 3,000,000 Weekly VRDNs (Allied-Signal, Inc.) ----------------------------------------------------------------- 8,000,000 Decatur, AL IDB, Solid Waste Disposal Revenue Bonds (Series 1996) 8,000,000 Weekly VRDNs (Trico Steel Company, L.L.C. Project)/ (Chase Manhattan Bank N.A., New York LOC) ----------------------------------------------------------------- 2,200,000 Eutaw, AL IDB Weekly VRDNs (Mississippi Power Co.)/ 2,200,000 (Mississippi Power Co. GTD) ----------------------------------------------------------------- 3,400,000 Fairfield, AL IDA, Variable Rate Environmental Improvement 3,400,000 Revenue Bonds (Series 1995), 3.65% TOBs (USX Corp.)/(Wachovia Bank of NC, NA, Winston-Salem LOC), Optional Tender 11/1/1996 ----------------------------------------------------------------- 1,595,000 Fort Payne, AL IDB, IDRB Weekly VRDNs (Ovalstrapping, Inc.)/ 1,595,000 (U.S. Bank of Washington NA LOC) ----------------------------------------------------------------- 5,900,000 Geneva County, AL IDB, Adjustable Fixed Rate IDRB's (Series 1996) 5,900,000 Weekly VRDNs (Brooks AG Co., Inc.)/ (First Alabama Bank, Birmingham LOC) -----------------------------------------------------------------
ALABAMA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ----------------------------------------------------------------- ------------ (a)SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- ALABAMA--CONTINUED ----------------------------------------------------------------- $4,000,000 Guntersville, AL IDB, (Series 1995) Weekly VRDNs (Hercules Rubber $ 4,000,000 Co. Project)/(SouthTrust Bank of Alabama, Birmingham LOC) ----------------------------------------------------------------- 3,915,000 Hoover, AL IDA Weekly VRDNs (Bud's Best Cookies, Inc.)/ 3,915,000 (SouthTrust Bank of Alabama, Birmingham LOC) ----------------------------------------------------------------- 235,000 Huntsville, AL IDA Weekly VRDNs (Parkway Project (Huntsville, 235,000 AL))/ (First Alabama Bank, Birmingham LOC) ----------------------------------------------------------------- 1,910,000 Huntsville, AL, Warrants (Series A), 4.75% Bonds, 11/1/1997 1,926,606 ----------------------------------------------------------------- 1,555,000 Ider, AL IDB, Industrial Development Bonds Weekly VRDNs 1,555,000 (Galbreath, Inc. Proj.)/(National Bank of Canada, Montreal LOC) ----------------------------------------------------------------- 7,200,000 Jefferson County, AL, GO Warrants (Series 1996) Weekly VRDNs 7,200,000 (Bayerische Landesbank Girozentrale LOC) ----------------------------------------------------------------- 1,900,000 Livingston, AL IDB, Floating/Fixed Rate IDRB's (Series 1989) 1,900,000 Weekly VRDNs (Toin Corporation U.S.A.)/ (Industrial Bank of Japan Ltd., Tokyo LOC) ----------------------------------------------------------------- 3,500,000 Lowndes County, AL IDB, (Series 1996) Weekly VRDNs 3,500,000 (Warren Oil Company Project)/ (First Union National Bank, Charlotte, NC LOC) ----------------------------------------------------------------- 2,540,000 Madison, AL IDA, (Series A) Weekly VRDNs (Executive Inn)/ 2,540,000 (Amsouth Bank N.A., Birmingham LOC) ----------------------------------------------------------------- 1,425,000 Marshall County, AL, Special Obligation School Refunding Warrant 1,425,000 (Series 1994) Weekly VRDNs (Marshall County, AL Board of Education)/(First Alabama Bank, Birmingham LOC) ----------------------------------------------------------------- 885,000 Mobile County, AL Board of School Commissioners, Capital Outlay 888,965 Warrants (Series 1996), 4.75% Bonds (AMBAC INS), 3/1/1997 ----------------------------------------------------------------- 1,200,000 Mobile, AL Board of Water and Sewer Commissioners, Subordinate 1,208,167 Special Obligation Revenue Bonds (Series A), 7.90% Bonds, 1/1/1997 ----------------------------------------------------------------- 2,540,000 Mobile, AL Downtown Redevelopment Authority, (Series 1992) Weekly 2,540,000 VRDNs (Mitchell Project)/(SunTrust Bank, Atlanta LOC) ----------------------------------------------------------------- 3,000,000 Mobile, AL IDB, (1994 Series A), 3.75% TOBs (International Paper 3,000,000 Co.), Optional Tender 12/1/1996 -----------------------------------------------------------------
ALABAMA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ----------------------------------------------------------------- ------------ (a)SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- ALABAMA--CONTINUED ----------------------------------------------------------------- $3,500,000 Mobile, AL IDB, PCR (Series 1993A) Weekly VRDNs $ 3,500,000 (Alabama Power Co.)/(Alabama Power Co. GTD) ----------------------------------------------------------------- 9,250,000 Mobile, AL IDB, PCR (Series 1993B) Weekly VRDNs 9,250,000 (Alabama Power Co.)/(Alabama Power Co. GTD) ----------------------------------------------------------------- 1,000,000 Mobile, AL IDB, Pollution Control Refunding Revenue Bonds, 1,000,000 (Series 1992) Weekly VRDNs (Air Products & Chemicals, Inc.)/ (Air Products & Chemicals, Inc. GTD) ----------------------------------------------------------------- 1,560,000 Mobile, AL, 3.95% Bonds (AMBAC INS), 2/15/1997 1,560,921 ----------------------------------------------------------------- 3,000,000 Montgomery -- Wynlakes Governmental Utility Services Corp., Bonds 3,000,000 (Series 1995-A) Weekly VRDNs (Vaughn Road, L.L.C., Project)/ (Amsouth Bank N.A., Birmingham LOC) ----------------------------------------------------------------- 800,000 Montgomery, AL IDB, (Series 1988A) Weekly VRDNs 800,000 (Smith Industries)/(SunTrust Bank, Atlanta LOC) ----------------------------------------------------------------- 2,665,000 Montgomery, AL IDB, (Series 1990-A) Weekly VRDNs 2,665,000 (Industrial Partners)/(Wachovia Bank of Georgia NA, Atlanta LOC) ----------------------------------------------------------------- 3,000,000 Montgomery, AL IDB, IDRB's (Series 1996) Weekly VRDNs 3,000,000 (CSC Fabrication, Inc. Project)/(First Union National Bank, Charlotte, NC LOC) ----------------------------------------------------------------- 3,650,000 Montgomery, AL IDB, Industrial Development Revenue Bonds 3,650,000 (Series 1996A) Weekly VRDNs (Jobs Company, L.L.C. Project)/ (Columbus Bank and Trust Co., GA LOC) ----------------------------------------------------------------- 500,000 Mountain Brook, AL, GO Warrants (Series 1996), 500,000 3.20% Bonds, 12/1/1996 ----------------------------------------------------------------- 5,500,000 Phoenix City, AL IDB, (Series 1988), 3.60% CP (Mead Coated 5,500,000 Board)/ (ABN AMRO Bank N.V., Amsterdam LOC), Mandatory Tender 11/21/1996 ----------------------------------------------------------------- 3,000,000 Phoenix City, AL IDB, (Series 1988), 3.63% CP (Mead Coated 3,000,000 Board)/ (ABN AMRO Bank N.V., Amsterdam LOC), Mandatory Tender 1/13/1997 -----------------------------------------------------------------
ALABAMA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ----------------------------------------------------------------- ------------ (a)SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- ALABAMA--CONTINUED ----------------------------------------------------------------- $4,000,000 Phoenix City, AL IDB, (Series 1988), 3.65% CP (Mead Coated $ 4,000,000 Board)/ (ABN AMRO Bank N.V., Amsterdam LOC), Mandatory Tender 11/27/1996 ----------------------------------------------------------------- 890,000 Piedmont, AL IDB Weekly VRDNs (Industrial Partners)/ 890,000 (Wachovia Bank of Georgia NA, Atlanta LOC) ----------------------------------------------------------------- 2,500,000 Prattville, AL IDB, IDR Bonds Weekly VRDNs 2,500,000 (Kuhnash Properties/Arkay Plastics Project)/ (PNC Bank, Ohio, N.A. LOC) ----------------------------------------------------------------- 3,600,000 Scottsboro, AL IDB, (Series 1994) Weekly VRDNs 3,600,000 (Maples Industries, Inc.)/(Amsouth Bank N.A., Birmingham LOC) ----------------------------------------------------------------- 1,500,000 Scottsboro, AL IDB, IDRB (Series 1991) Weekly VRDNs 1,500,000 (Maples Industries, Inc.)/(Amsouth Bank N.A., Birmingham LOC) ----------------------------------------------------------------- 5,000,000 Selma, AL IDB, Annual Tender PCR Refunding Bonds (1993 Series B), 5,000,000 4.15% TOBs (International Paper Co.), Optional Tender 7/15/1997 ----------------------------------------------------------------- 7,575,000 St. Clair County, AL IDB, (Series 1993) Weekly VRDNs (Ebsco 7,575,000 Industries, Inc.)/(National Australia Bank, Ltd., Melbourne LOC) ----------------------------------------------------------------- 4,000,000 Stevenson, AL IDB Daily VRDNs (Mead Corp.)/ 4,000,000 (Societe Generale, Paris LOC) ----------------------------------------------------------------- 4,500,000 Stevenson, AL IDB, Industrial Revenue Bonds (Series 1996-A) 4,500,000 Weekly VRDNs (Unitog Co.)/(UMB Bank, N.A. LOC) ----------------------------------------------------------------- 5,800,000 Sumter County, AL IDA, Industrial Revenue Bonds (Series 1995A) 5,800,000 Weekly VRDNs (Fulghum Fibres Project (AL))/ (First Alabama Bank, Birmingham LOC) ----------------------------------------------------------------- 1,200,000 Sumter County, AL IDA, Industrial Revenue Bonds (Series 1995B) 1,200,000 Weekly VRDNs (Canal Chip Project)/ (First Alabama Bank, Birmingham LOC) ----------------------------------------------------------------- 795,000 Sylacuaga, AL IDB Monthly VRDNs 795,000 (SouthTrust Bank of Alabama, Birmingham LOC) ----------------------------------------------------------------- 3,000,000 Troy, AL IDB, IRB's (Series 1996A) Weekly VRDNs (Hudson Sauces & 3,000,000 Dressings, Inc. )/(Amsouth Bank N.A., Birmingham LOC) -----------------------------------------------------------------
ALABAMA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ----------------------------------------------------------------- ------------ (a)SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- ALABAMA--CONTINUED ----------------------------------------------------------------- $ 405,000 Tuscaloosa County, AL Port Authority, (Series 1989A) Weekly VRDNs $ 405,000 (Capstone Hotel Ltd.)/(SouthTrust Bank of Alabama, Birmingham LOC) ----------------------------------------------------------------- 2,000,000 Tuscaloosa County, AL, GO Warrants (Series 1996), 3.55% Bonds, 2,000,000 1/1/1997 ----------------------------------------------------------------- 2,000,000 Tuskegee, AL IDB, IDRB (Series 1995) Weekly VRDNs 2,000,000 (Concrete Company)/(Columbus Bank and Trust Co., GA LOC) ----------------------------------------------------------------- 1,185,000 University of South Alabama, University Tuition Revenue 1,185,000 Refunding Bonds (Series 1996B), 3.80% Bonds (MBIA Insurance Corporation INS), 11/15/1997 ----------------------------------------------------------------- 5,425,000 Vincent, AL IDB Weekly VRDNs (Headquarters Partnership Project)/ 5,425,000 (National Australia Bank, Ltd., Melbourne LOC) ----------------------------------------------------------------- 2,400,000 Vincent, AL IDB, (Series 1993) Weekly VRDNs (Ebsco Industries, 2,400,000 Inc.)/ (National Australia Bank, Ltd., Melbourne LOC) ----------------------------------------------------------------- 2,900,000 Winfield, AL, Variable/Fixed Rate IRB's(Series 1984) Weekly VRDNs 2,900,000 (Union Underwear Company, Inc.)/(Bank of Nova Scotia, Toronto LOC) ----------------------------------------------------------------- ------------ Total 211,714,659 ----------------------------------------------------------------- ------------ PUERTO RICO--9.4% ----------------------------------------------------------------- 2,050,000 Puerto Rico Electric Power Authority, (Series K), 9.25% Bonds 2,161,632 (United States Treasury PRF), 7/1/1997 (@102) ----------------------------------------------------------------- 3,500,000 Puerto Rico Electric Power Authority, (Series K), 9.375% Bonds 3,697,028 (United States Treasury PRF), 7/1/1997 (@102) ----------------------------------------------------------------- 5,000,000 Puerto Rico Government Development Bank, 3.65% CP, 5,000,000 Mandatory Tender 2/14/1997 ----------------------------------------------------------------- 1,000,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 1,000,000 1983A), 3.80% TOBs (Reynolds Metals Co.)/(ABN AMRO Bank N.V., Amsterdam LOC), Optional Tender 9/1/1997 ----------------------------------------------------------------- 4,000,000 Puerto Rico Industrial, Tourist, Education, Medical & 4,000,000 Environmental Control Finance Authority, (Series 1994A), 3.80% CP (Inter American University of Puerto Rico)/(Banque Paribas, Paris LOC), Mandatory Tender 1/13/1997 -----------------------------------------------------------------
ALABAMA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ----------------------------------------------------------------- ------------ (a)SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- PUERTO RICO--9.4% ----------------------------------------------------------------- $5,100,000 Puerto Rico Industrial, Tourist, Education, Medical & $ 5,100,000 Environmental Control Finance Authority, (Series 1994A), 3.80% CP (Inter American University of Puerto Rico)/(Banque Paribas, Paris LOC), Mandatory Tender 12/9/1996 ----------------------------------------------------------------- 1,000,000 Puerto Rico Public Building Authority, Series H, 7.875% Bonds 1,046,410 (United States Treasury PRF), 7/1/1997 (@102) ----------------------------------------------------------------- ------------ Total 22,005,070 ----------------------------------------------------------------- ------------ TOTAL INVESTMENTS (AT AMORTIZED COST)(b) $233,719,729 ----------------------------------------------------------------- ------------
Securities that are subject to Alternative Minimum Tax represent 52.3% of the portfolio as calculated based upon total portfolio market value. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term rating categories. Securities rated in the highest short-term rating category (and unrated securities of comparable quality) are identified as First Tier securities. Securities rated in the second highest short-term rating category (and unrated securities of comparable quality) are identified as Second Tier securities. The Fund follows applicable regulations in determining whether a securitiy rated by multiple NRSROs in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED) First Tier Second Tier 96.6% 3.4% (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($233,720,146) at October 31, 1996. ALABAMA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronym(s) are used throughout this portfolio: AMBAC --American Municipal Bond Assurance Corporation CP --Commercial Paper GO --General Obligation GTD --Guaranty IDA --Industrial Development Authority IDB --Industrial Development Bond IDRB --Industrial Development Revenue Bond INS --Insured LOC --Letter of Credit MBIA --Municipal Bond Investors Assurance PCA --Pollution Control Authority PCR --Pollution Control Revenue PLC --Public Limited Company PRF --Prerefunded TOBs --Tender Option Bonds VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) ALABAMA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 - -------------------------------------------------------------------------------- ASSETS: - -------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $233,719,729 - -------------------------------------------------------------------------------- Cash 171,371 - -------------------------------------------------------------------------------- Income receivable 1,346,418 - -------------------------------------------------------------------------------- Receivable for shares sold 1,224 - -------------------------------------------------------------------------------- Deferred expenses 24,493 - -------------------------------------------------------------------------------- ------------ Total assets 235,263,235 - -------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------------------- Payable for investments purchased $1,188,377 - ------------------------------------------------------------------- Payable for shares redeemed 67,030 - ------------------------------------------------------------------- Income distribution payable 219,891 - ------------------------------------------------------------------- Accrued expenses 67,791 - ------------------------------------------------------------------- ---------- Total liabilities 1,543,089 - -------------------------------------------------------------------------------- ------------ NET ASSETS for 233,720,146 shares outstanding $233,720,146 - -------------------------------------------------------------------------------- ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - -------------------------------------------------------------------------------- $233,720,146 / 233,720,146 shares outstanding $1.00 - -------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) ALABAMA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ------------------------------------------------------------------------------------ Interest $7,837,454 - ------------------------------------------------------------------------------------ EXPENSES: - ------------------------------------------------------------------------------------ Investment advisory fee $1,049,210 - ---------------------------------------------------------------------- Administrative personnel and services fee 158,659 - ---------------------------------------------------------------------- Custodian fees 33,790 - ---------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 29,294 - ---------------------------------------------------------------------- Directors'/Trustees' fees 2,675 - ---------------------------------------------------------------------- Auditing fees 11,156 - ---------------------------------------------------------------------- Legal fees 4,073 - ---------------------------------------------------------------------- Portfolio accounting fees 56,451 - ---------------------------------------------------------------------- Shareholder services fee 524,605 - ---------------------------------------------------------------------- Share registration costs 32,587 - ---------------------------------------------------------------------- Printing and postage 12,675 - ---------------------------------------------------------------------- Insurance premiums 4,183 - ---------------------------------------------------------------------- Miscellaneous 12,837 - ---------------------------------------------------------------------- ---------- Total expenses 1,932,195 - ---------------------------------------------------------------------- Waivers -- - ---------------------------------------------------------------------- Waiver of investment advisory fee $(692,887) - ---------------------------------------------------------- Waiver of shareholder services fee (76,089) - ---------------------------------------------------------- --------- Total waivers (768,976) - ---------------------------------------------------------------------- ---------- Net expenses 1,163,219 - ------------------------------------------------------------------------------------ ---------- Net investment income $6,674,235 - ------------------------------------------------------------------------------------ ----------
(See Notes which are an integral part of the Financial Statements) ALABAMA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1996 1995 ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS: - --------------------------------------------------------- OPERATIONS-- - --------------------------------------------------------- Net investment income $ 6,674,235 $ 5,893,328 - --------------------------------------------------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS-- - --------------------------------------------------------- Distributions from net investment income (6,674,235) (5,893,328) - --------------------------------------------------------- SHARE TRANSACTIONS-- - --------------------------------------------------------- Proceeds from sale of shares 712,795,816 826,956,278 - --------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 3,730,255 2,071,166 - --------------------------------------------------------- Cost of shares redeemed (692,296,354) (762,340,876) - --------------------------------------------------------- ---------------- ---------------- Change in net assets resulting from share transactions 24,229,717 66,686,568 - --------------------------------------------------------- ---------------- ---------------- Change in net assets 24,229,717 66,686,568 - --------------------------------------------------------- NET ASSETS: - --------------------------------------------------------- Beginning of period 209,490,429 142,803,861 - --------------------------------------------------------- ---------------- ---------------- End of period $ 233,720,146 $ 209,490,429 - --------------------------------------------------------- ---------------- ----------------
(See Notes which are an integral part of the Financial Statements) ALABAMA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of Alabama Municipal Cash Trust (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 current income exempt from federal regular income tax and the income tax imposed by the State of Alabama consistent with stability of principal. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Trust in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. At October 30, 1996, the Fund, for federal tax purposes, had a capital loss carryforward of $5,068, which will reduce the Fund's taxable income arising from future net realized gain on investments, if any, to the extent permitted by the Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. The capital loss carryforward will expire in the year 2004. 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. ALABAMA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized over a period not to exceed five years from the Fund's commencement date. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). At October 31, 1996, capital paid-in aggregated $233,720,146. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, --------------------------- 1996 1995 - ------------------------------------------------------------------ ------------ ------------ Shares sold 712,795,816 826,956,278 - ------------------------------------------------------------------ Shares issued to shareholders in payment of distributions declared 3,730,255 2,071,166 - ------------------------------------------------------------------ Shares redeemed (692,296,354) (762,340,876) - ------------------------------------------------------------------ ------------ ------------ Net change resulting from share transactions 24,229,717 66,686,568 - ------------------------------------------------------------------ ------------ ------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.50% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund for the period. The fee paid to FSS is used to finance certain services for shareholders and to ALABAMA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational and start-up administrative service expenses of $57,711 were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser for the organizational and start-up administrative expenses during the five year period following effective date. For the period ended October 31, 1996, the Fund paid $12,153 pursuant to this agreement. INTERFUND TRANSACTIONS--During the period ended October 31, 1996, 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 $416,741,000 and $399,722,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. (5) CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 87.0% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 9.1% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Alabama Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Alabama Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996 and the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see page 2 of the prospectus) for the periods presented. 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 October 31, 1996, by correspondence with the custodian and broker. 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 Alabama Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania November 20, 1996 ADDRESSES - -------------------------------------------------------------------------------- Alabama Municipal Cash Trust Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ----------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ----------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ----------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, Massachusetts 02266-8600 - ----------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Shareholder Services Company P.O. Box 8600 Boston, Massachusetts 02266-8600 - ----------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, Pennsylvania 15222 - -----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ALABAMA MUNICIPAL CASH TRUST PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 LOGO FEDERATED INVESTORS Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors Cusip 3142229790 3090802A (12/96) ALABAMA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus of Alabama Municipal Cash Trust (the ``Fund'), a portfolio of Federated Municipal Trust (the ``Trust') dated December 31, 1996. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-341-7400. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1996 [LOGO] Federated Securities Corp. is the distributor of the Fund and is a subsidiary of Federated Investors. Cusip 314229790 3090802B (12/96) INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1 Repurchase Agreements 2 Reverse Repurchase Agreements 2 Credit Enhancement 2 ALABAMA INVESTMENT RISKS 2 INVESTMENT LIMITATIONS 3 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 Share Ownership 9 Trustees Compensation 9 Trustee Liability 10 INVESTMENT ADVISORY SERVICES 10 Investment Adviser 10 Advisory Fees 10 BROKERAGE TRANSACTIONS 10 OTHER SERVICES 11 Fund Administration 11 Custodian and Portfolio Accountant 11 Transfer Agent 11 Independent Public Accountants 11 DETERMINING NET ASSET VALUE 11 REDEMPTION IN KIND 12 MASSACHUSETTS PARTNERSHIP LAW 12 THE FUND'S TAX STATUS 12 PERFORMANCE INFORMATION 12 Yield 12 Effective Yield 13 Tax-Equivalent Yield 13 Tax-Equivalency Table 13 Total Return 14 Performance Comparisons 14 Economic and Market Information 14 ABOUT FEDERATED INVESTORS 14 Mutual Fund Market 15 Institutional Clients 15 Trust Organizations 15 Broker/Dealers and Bank Broker/Dealer Subsidiaries 15 APPENDIX 16 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security; the issuer of any demand feature applicable to the security; or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an `event of non-appropriation''); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations (`NRSROs'') or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group (`S&P''), MIG-1 or MIG-2 by Moody's Investors Service, Inc. (`Moody's''), or F-1+, F-1, or F-2 by Fitch Investors Service, Inc. (`Fitch'') are all considered rated in one of the two highest short-term rating categories. The Fund will follow applicable regulations in determining whether a security rated by more than one NRSRO can be treated as being in one of the two highest short-term rating categories; currently, such securities must be rated by two NRSROs in one of their two highest rating categories. See `Regulatory Compliance.'' WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund in a dollar amount sufficient to make payment for the securities to be purchased are: segregated on the Fund`s records at the trade date; marked to market daily; and maintained until the transaction is settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument in return for a percentage of the instrument's market value in cash and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but does not ensure this result. However, liquid assets of the Fund, in a dollar amount sufficient to make payment for the securities to be purchased, are: segregated on the Fund's records at the trade date; marked to market daily; and maintained until the transaction is settled. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the `credit enhancer''), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. ALABAMA INVESTMENT RISKS The State of Alabama has experienced some diversification of its economy primarily centered around its metropolitan areas. Agriculture, dominant prior to World War II has given way to the manufacturing of textiles, chemicals, paper, and metals. Manufacturing comprises roughly 23% of Alabama's non-agricultural employment, slightly above the rest of the US., and continues to remain strong as evidenced by Mercedes-Benz's decision to locate a plant in Alabama. Other major non-agricultural sectors include government (20%); wholesale and retail trade (22%); and services, including finance, insurance, and real estate (24%). Over the last decade, the economy has further diversified with the addition of high-tech firms to the Huntsville area and healthcare services to the Birmingham area. During the 1982 recession Alabama's unemployment rate climbed into double digits. The recent recession, however, has not been as severe to the Alabama economy. The state's unemployment rate has reflected national trends (4.7% as of September 1996). However the North American Free Trade Agreement leaves Alabama exposed to potential job losses in some traditional industries as Mexico offers a lower-cost environment. Alabama's overall debt structure is more complex than most states, due to its many issuing authorities. Roughly 60% of Alabama's debts are special or limited tax obligations, payable from designated sources. Debt service as a percentage of budget revenues is currently 4.8%, which is above average for the nation. However, since Alabama generally taxes and spends less than most states, debt service appears as a larger part of its revenue in relation to other states. Debt service on a per capita basis is moderate. The state has a strong balanced budget act that allows spending only from moneys on hand. The governor has the ability to prorate budgeted expenditures during the fiscal year in order to balance the budget. This proration ability has been challenged in court, and the outcome may adversely affect the mechanism by which the budget is balanced. Furthermore, Alabama's school funding has been challenged; resolution of this matter may affect the state budget. The Fund's concentration in securities issued by the state and its political subdivisions provides a greater level of risk than a fund whose assets are diversified across numerous states and municipal issuers. The ability of the state or its municipalities to meet their obligations will depend upon the availability of tax and other revenues; economic, political, and demographic conditions within the state; and the underlying fiscal condition of the state, its counties, and municipalities. INVESTMENT LIMITATIONS 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 may be necessary for clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money directly or through reverse repurchase agreements in amounts up to one-third of the value of its net assets, including the amounts borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of its total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets except that it may acquire publicly or nonpublicly issued Alabama municipal securities or temporary investments or enter into repurchase agreements in accordance with its investment objective, policies, limitations, and its Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate or real estate limited partnerships, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities, if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry or in industrial development bonds or other securities, the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above limitations cannot be changed without shareholder approval. The following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities including certain restricted securities not determined to be liquid under criteria established by the Trustees and repurchase agreements providing for settlement in more than seven days notice. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be `cash items.'' Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments , as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director or Trustee of the Funds. Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee, University of Pittsburgh; Director or Trustee of the Funds. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest Florida; formerly, President, Naples Property Management, Inc. and Northgate Village Development Corporation; Director or Trustee of the Funds. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds. Edward L. Flaherty, Jr.@ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region; Director or Trustee of the Funds. Glen R. Johnson* Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. Peter E. Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16, 1942 Trustee Consultant; Former State Representative, Commonwealth of Massachusetts; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation; Director or Trustee of the Funds. Gregor F. Meyer Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director or Trustee of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics; Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., National Defense University, U.S. Space Foundation and Czech Management Center; President Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council for Environmental Policy and Technology, Federal Emergency Management Advisory Board and Czech Management Center; Director or Trustee of the Funds. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/Marketing/Conference Planning, Manchester Craftsmen's Guild; Restaurant Consultant, Frick Art & History Center; Conference Coordinator, University of Pittsburgh Art History Department; Director or Trustee of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated Shareholder Services; Director, Federated Services Company; President or Executive Vice President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Shareholder Services Company; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President , Secretary and Treasurer Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. *This Trustee is deemed to be an ``interested person'' as defined in the Investment Company Act of 1940. @Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board between meetings of the Board. As referred to in the list of Trustees and Officers, `Funds'' includes the following investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated Investment Portfolios; Federated Investment Trust; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5- 10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 2, 1996, the following shareholders of record owned 5% or more of the outstanding shares of the Alabama Municipal Cash Trust: Hubco owned approximately 41,923,196 shares (16.07%); Lynspen & Co. owned approximately 32,212,242 shares (12.34%); EBSCO Investment Services, Inc. owned approximately 14,360,147 shares (5.50%); EBSCO Industries, Inc. owned approximately 20,748,534 shares (7.95%); Locust Mountain Partners owned approximately 14,492,073 shares (5.55%); and NBC Securities, Inc. owned approximately 15,390,497 shares (5.90%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 54 other investment companies in the Fund Complex Thomas G. Bigley++ $3,611 $86,331 for the Trust and Trustee 54 other investment companies in the Fund Complex John T. Conroy, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex William J. Copeland $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Peter E. Madden $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Gregor F. Meyer $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex John E. Murray, Jr., $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Wesley W. Posvar $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Marjorie P. Smuts $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1996. #The aggregate compensation is provided for the Trust which is comprised of 16 portfolios. +The information is provided for the last calendar year. ++ Mr. Bigley served on 39 investment companies in the Federated Funds complex from January 1 through September 30, 1995. On October 1, 1995, he was appointed a Trustee on 15 additional Federated Funds. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1996, 1995, and for the period from December 3, 1993 (date of initial public investment to October 31, 1994, the adviser earned $1,049,210, $820,528, and $243,579, respectively, of which $692,887, $606,516, and $243,579, respectively, were waived. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal years ended October 31, 1996, 1995, and for the period from December 3, 1993 (date of initial public investment to October 31, 1994, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative Services served as the Fund's Administrator. Prior to March 1, 1994, Federated Administrative Services, Inc. served as the Fund's Administrator. Both former Administrators are subsidiaries of Federated Investors. For purposes of this Statement of Additional Information, Federated Services Company, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the `Administrators.'' For the fiscal years ended October 31, 1996, 1995, and for the period from December 3, 1993 (date of initial public investment to October 31, 1994, the Administrators earned $158,659, $131,658, and $52,411, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. The fee paid for this service is based upon the level of the Fund's average net assets for the period plus out- of-pocket expenses. TRANSFER AGENT Federated Services Company, through its registered transfer agent, Federated Shareholder Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. SHAREHOLDER SERVICES This arrangement permits the payment of fees to Federated Shareholder Services to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Agreement, the Trustees expect that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal year ending October 31, 1996, the Fund paid Shareholder Services fees in the amount of $524,605, of which $76,089 was waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the `Rule'') promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the `base period.'' This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. The Fund's yield for the seven-day period ended October 31, 1996, was 3.20%. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. The Fund's effective yield for the seven-day period ended October 31, 1996, was 3.25%. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming 44.60% tax rate (the maximum combined effective federal and state rate for individuals) and assuming that the income is 100% tax exempt. The Fund's tax-equivalent yield for the seven-day period ended October 31, 1996, was 5.78%. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a `tax- free''investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1996 STATE OF ALABAMA COMBINED FEDERAL AND STATE INCOME TAX BRACKET: 20.00% 33.00% 36.00% 41.00% 44.60% JOINT $1 - $40,101 - $96,901 - $147,701 OVER RETURN 40,100 96,900 147,700 263,750 $263,750 SINGLE $1 - $24,001 - $58,151 - $121,301 - OVER RETURN 24,000 58,150 121,300 263,750 $263,750 TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT ---------------------------- 2.50% 3.13% 3.73% 3.91% 4.24% 4.51% 3.00% 3.75% 4.48% 4.69% 5.08% 5.42% 3.50% 4.38% 5.22% 5.47% 5.93% 6.32% 4.00% 5.00% 5.97% 6.25% 6.78% 7.22% 4.50% 5.63% 6.72% 7.03% 7.63% 8.12% 5.00% 6.25% 7.46% 7.81% 8.47% 9.03% 5.50% 6.88% 8.21% 8.59% 9.32% 9.93% 6.00% 7.50% 8.96% 9.38% 10.17% 10.83% 6.50% 8.13% 9.70% 10.16% 11.02% 11.73% 7.00% 8.75% 10.45% 10.94% 11.86% 12.64% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. The Fund's average annual total returns for the one-year period ended October 31, 1996 and for the period from December 3, 1993 (date of initial public investment) through October 31, 1996 were 3.22% and 3.16%, respectively. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. oMONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. Advertising and other promotional literature may include charts, graphs and other illustrations using the Fund`s returns, or returns in general, that demonstrate basic investment concepts such as tax-deferred compounding, dollar-cost averaging and systematic investment. In addition, the Fund can compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, such as bank savings accounts, certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION Advertising and sales literature for the Fund may include discussions of economic, financial and political developments and their effect on the securities market. Such discussions may take the form of commentary on these developments by the Fund portfolio mangers and their views and analysis on how such developments could affect the Funds. In addition, advertising and sales literature may quote statistics and give general information about the mutual fund industry, including growth of the industry, from sources such as the Investment Company Institute. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. These traders handle trillions of dollars in annual trading volume. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax- free money market fund. As of December 31, 1995, Federated Investors managed more than $40.2 billion in assets across approximately 47 money market funds, including 17 government, 10 prime and 20 municipal with assets approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $3 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. Federated's service to financial professionals and institutions has earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for service quality measurement.. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (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 rate `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. MOODYS 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 SERVICES, INC. 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. NORTH CAROLINA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) PROSPECTUS The shares of North Carolina Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term North Carolina municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of North Carolina, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and the income tax imposed by the State of North Carolina consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 North Carolina Municipal Securities 6 Investment Risks 6 Investment Limitations 7 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ Special Purchase Features 10 HOW TO REDEEM SHARES 10 - ------------------------------------------------------ Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 12 - ------------------------------------------------------ TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 State and Local Taxes 13 PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL STATEMENTS 15 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 27 - ------------------------------------------------------ ADDRESSES 28 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)............................. None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)..................................................................... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)............................................................ None Redemption Fee (as a percentage of amount redeemed, if applicable)........................................ None Exchange Fee.............................................................................................. None
ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)......................................................................... 0.08% 12b-1 Fee................................................................................................. None Total Other Expenses...................................................................................... 0.51% Shareholder Services Fee....................................................................... 0.25% Total Fund Operating Expenses (2).................................................................... 0.59%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The total operating expenses would have been 1.01% absent the voluntary waiver of a portion of the management fee. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE TRUST WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "FUND INFORMATION". Wire--transferred redemptions of less than $5,000 may be subject to additional fees. EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period............. $6 $19 $33 $74
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. NORTH CAROLINA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 27.
YEAR ENDED OCTOBER 31, 1996 1995 1994(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------------------------------------------- Net investment income 0.03 0.04 0.02 - ----------------------------------------------------------------------------- LESS DISTRIBUTIONS - ----------------------------------------------------------------------------- Distributions from net investment income (0.03) (0.04) (0.02) - ----------------------------------------------------------------------------- --------- --------- ----------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------------------------------------------- --------- --------- ----------- TOTAL RETURN (b) 3.23% 3.51% 2.06% - ----------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------------------------------------------- Expenses 0.59% 0.59% 0.49%* - ----------------------------------------------------------------------------- Net investment income 3.17% 3.46% 2.54%* - ----------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.42% 0.40% 0.44%* - ----------------------------------------------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------------------------------------------- Net assets, end of period (000 omitted) $137,749 $97,602 $85,249 - -----------------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from December 31, 1993 (date of initial public investment) to October 31, 1994. For the period from November 29, 1993 (start of business) to December 31, 1993, the Fund had no investment activity. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The Fund is designed for financial institutions acting in an agency or fiduciary capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing primarily in short-term North Carolina municipal securities. The Fund may not be a suitable investment for retirement plans or for non-North Carolina taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the income tax imposed by the State of North Carolina consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income and North Carolina state income tax or at least 80% of its net assets will be invested in obligations, the interest income from which is exempt from federal regular and North Carolina state income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of North Carolina and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and North Carolina income tax ("North Carolina Municipal Securities"). Examples of North Carolina Municipal Securities include, but are not limited to: tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; municipal commercial paper and other short-term notes; variable rate demand notes; municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in North Carolina--Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying North Carolina Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other depository institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain North Carolina Municipal Securities is subject to the federal alternative minimum tax. NORTH CAROLINA MUNICIPAL SECURITIES North Carolina Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. North Carolina Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of North Carolina Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on North Carolina Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of North Carolina Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of North Carolina Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in North Carolina Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these North Carolina Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of North Carolina Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations, the Fund's concentration in North Carolina Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of its shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting total liabilities from total assets and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more over a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. Eastern time to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. Eastern time that day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: North Carolina Municipal Cash Trust; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: North Carolina Municipal Cash Trust. Please include an account number on the check. 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. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Shareholder Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company, or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of each portfolio in the Trust have equal voting rights; except that in matters affecting only a particular portfolio, only shareholders of that portfolio are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 2, 1996, Stephens Inc., Little Rock, Arkansas, for the exclusive benefit of their customers, owned 28.56% of the voting securities of the Fund, and, therefore, may for certain purposes be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than North Carolina. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. NORTH CAROLINA TAXES. Under existing North Carolina laws, distributions made by the Fund will not be subject to North Carolina income taxes to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest on obligations of the state of North Carolina or any of its political subdivisions; or (ii) interest on obligations of the United States or its possessions. Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to North Carolina income taxes. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the Fund after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. NORTH CAROLINA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (a) SHORT-TERM MUNICIPAL SECURITIES--101.3% - ------------------------------------------------------------------------------------------------- NORTH CAROLINA--89.4% ----------------------------------------------------------------------------------- $ 1,755,000 Alamance County, NC Industrial Facilities & PCFA, (Series B) Weekly VRDNs (Culp, Inc.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) $ 1,755,000 ----------------------------------------------------------------------------------- 1,200,000 Bladen County, NC Industrial Facilities & PCFA, (Series 1993) Weekly VRDNs (BCH Energy, Limited Partnership)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 1,200,000 ----------------------------------------------------------------------------------- 1,600,000 Buncombe County, NC Industrial Facilities & PCFA, (Series 1991) Weekly VRDNs (Rich Mount, Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 1,600,000 ----------------------------------------------------------------------------------- 1,695,000 Burke County, NC Industrial Facilities & PFCA, Weekly VRDNs (Norwalk Furniture Corp & Hickory Furniture)/(Branch Banking & Trust Co, Wilson LOC) 1,695,000 ----------------------------------------------------------------------------------- 820,000 Catawba County, NC Industrial Facilities & PCFA, (Series 1992) Weekly VRDNs (WSMP, Inc.)/(Nationsbank, N.A. LOC) 820,000 ----------------------------------------------------------------------------------- 4,000,000 Catawba County, NC Industrial Facilities & PCFA, (Series 1994) Weekly VRDNs (Ethan Allen Inc Project)/(Bankers Trust Co., New York LOC) 4,000,000 ----------------------------------------------------------------------------------- 4,500,000 Charlotte, NC Airport , Refunding Revenue Bonds (Series 1993A) Weekly VRDNs (MBIA INS)/(Commerzbank AG, Frankfurt LIQ) 4,500,000 ----------------------------------------------------------------------------------- 2,435,000 Charlotte, NC, UT GO, 5.50% Bonds, 5/1/1997 2,457,312 ----------------------------------------------------------------------------------- 3,615,000 Cleveland County, NC Industrial Facilities & PCFA, IDRB (Series 1990) Weekly VRDNs (MetalsAmerica, Inc. Project)/(Nationsbank, N.A. LOC) 3,615,000 ----------------------------------------------------------------------------------- 1,610,000 Cleveland County, NC Industrial Facilities & PCFA, Pollution Control Revenue Bonds (Series 1995) Weekly VRDNs (Grover Industries, Inc. Project)/(Bank of America Illinois LOC) 1,610,000 ----------------------------------------------------------------------------------- 965,000 Davidson County, NC Industrial Facilities & PCFA, IDRB (Series 1995) Weekly VRDNs (Lawrence Industries, Inc. Project)/(Branch Banking & Trust Co, Wilson LOC) 965,000 -----------------------------------------------------------------------------------
NORTH CAROLINA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (a) SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------------------------- NORTH CAROLINA--CONTINUED ----------------------------------------------------------------------------------- $ 2,688,000 Enfield, NC, 4.00% BANs, 3/19/1997 $ 2,691,481 ----------------------------------------------------------------------------------- 1,800,000 Guilford County, NC Industrial Facilities & PCFA, (Series 1989) Weekly VRDNs (Bonset America Corp.)/(Dai-Ichi Kangyo Bank Ltd., Tokyo and Industrial Bank of Japan Ltd., Tokyo LOCs) 1,800,000 ----------------------------------------------------------------------------------- 3,000,000 Guilford County, NC Industrial Facilities & PCFA, (Series 1989) Weekly VRDNs (Culp, Inc.)/(Wachovia Bank of NC, NA, Winston-Salem LOC) 3,000,000 ----------------------------------------------------------------------------------- 8,125,000 Halifax County, NC Industrial Facilities & PCFA Weekly VRDNs (Flambeau Airmold Project)/(Norwest Bank Minnesota, Minneapolis LOC) 8,125,000 ----------------------------------------------------------------------------------- 1,000,000 Iredell County, NC Industrial Facilities & PCFA, Industrial Revenue Bonds Weekly VRDNs (Jet Corr, Inc. Project)/(National Bank of Canada, Montreal LOC) 1,000,000 ----------------------------------------------------------------------------------- 1,000,000 Johnson County, NC Industrial Facilities & PCFA, (Series 1996) Weekly VRDNs (Inolex Chemical Company Project)/(PNC Bank, N.A. LOC) 1,000,000 ----------------------------------------------------------------------------------- 2,000,000 Lee County, NC Industrial Facility & PCFA, (Series 1989) Weekly VRDNs (Avondale Mills, Inc.)/(SunTrust Bank, Atlanta LOC) 2,000,000 ----------------------------------------------------------------------------------- 2,600,000 Lincoln County, NC Industrial Facility & PCFA, Industrial Revenue Bonds Weekly VRDNs (Leucadia, Inc Project)/(National Bank of Canada, Montreal LOC) 2,600,000 ----------------------------------------------------------------------------------- 11,000,000 Martin County, NC IFA, (Series 1993) Weekly VRDNs (Weyerhaeuser Co.) 11,000,000 ----------------------------------------------------------------------------------- 2,500,000 Mecklenberg County, NC Industrial Facilities and PCFA, (Series 1996) Weekly VRDNs (SteriGenics International Project)/(Comerica Bank, Detroit, MI LOC) 2,500,000 ----------------------------------------------------------------------------------- 2,000,000 Mecklenberg County, NC Industrial Facility & PCFA, Weekly VRDNs (Manhasset Bay Associates)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 2,000,000 ----------------------------------------------------------------------------------- 1,000,000 Mecklenburg County, NC, (Series 1996) Weekly VRDNs (YMCA of Greater Charlotte Project)/(Wachovia Bank of NC, NA, Winston-Salem LOC) 1,000,000 -----------------------------------------------------------------------------------
NORTH CAROLINA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (a) SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------------------------- NORTH CAROLINA--CONTINUED ----------------------------------------------------------------------------------- $ 2,000,000 New Hanover County, NC PCFA Weekly VRDNs (Efson, Inc.)/(Branch Banking & Trust Co, Wilson LOC) $ 2,000,000 ----------------------------------------------------------------------------------- 6,000,000 New Hanover County, NC PCFA, (Series 1984) Weekly VRDNs (American Hoist & Derrick Company Project)/(First Union National Bank, Charlotte, NC LOC) 6,000,000 ----------------------------------------------------------------------------------- 1,445,000 New Hanover County, NC PCFA, (Series 1990) Weekly VRDNs (Wilmington Machinery Inc. Project)/(Branch Banking & Trust Co, Wilson LOC) 1,445,000 ----------------------------------------------------------------------------------- 3,000,000 North Carolina Agricultural Finance Authority, (Series 1996) Weekly VRDNs (Coastal Carolina Gin L.L.C. Project)/(Branch Banking & Trust Co, Wilson LOC) 3,000,000 ----------------------------------------------------------------------------------- 2,000,000 North Carolina Eastern Municipal Power Agency, Refunding Revenue Bonds (Series A), 7.50% Bonds (United States Treasury PRF), 1/1/1997 (@102) 2,053,403 ----------------------------------------------------------------------------------- 500,000 North Carolina Medical Care Commission Hospital, Revenue Bonds (Series 1993) Weekly VRDNs (Moses H. Cone Memorial) 500,000 ----------------------------------------------------------------------------------- 4,000,000 North Carolina Municipal Power Agency No. 1, (Series A), 3.70% CP (Morgan Guaranty Trust Co., New York and Union Bank of Switzerland, Zurich LOCs), Mandatory Tender 12/11/1996 4,000,000 ----------------------------------------------------------------------------------- 4,000,000 Onslow County, NC Industrial Facilities & PCFA, Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd, Osaka LOC) 4,000,000 ----------------------------------------------------------------------------------- 3,280,000 Orange County, NC Industrial Facilities & PCFA, Weekly VRDNs (Mebane Packaging Corp)/(First Union National Bank, Charlotte, N.C. LOC) 3,280,000 ----------------------------------------------------------------------------------- 1,300,000 Piedmont, NC Airport Authority Weekly VRDNs (Triad International Maintenance Corp.)/(Mellon Bank NA, Pittsburgh LOC) 1,300,000 ----------------------------------------------------------------------------------- 1,900,000 Randolph County, NC IDA, (Series 1990) Weekly VRDNs (Wayne Steel, Inc.)/(Bank One, Akron, N.A. LOC) 1,900,000 ----------------------------------------------------------------------------------- 5,000,000 Richmond County, NC Industrial Facilities & Pollution Control, (Series 1991) Weekly VRDNs (Bibb Company)/(Citibank NA, New York LOC) 5,000,000 -----------------------------------------------------------------------------------
NORTH CAROLINA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (a) SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------------------------- NORTH CAROLINA--CONTINUED ----------------------------------------------------------------------------------- $ 2,000,000 Rutherford County, NC, Industrial Facilities & PCFA, Weekly VRDNs (Spring-Ford Knitting Co.)/(Branch Banking & Trust Co, Wilson LOC) $ 2,000,000 ----------------------------------------------------------------------------------- 5,000,000 University of North Carolina, (Series 1989) Weekly VRDNs (University of North Carolina at Chapel Hill General Alumni Association)/(Credit Suisse, Zurich LOC) 5,000,000 ----------------------------------------------------------------------------------- 3,000,000 Wake County, NC Industrial Facilities & PCFA, (Series 1990B), 3.75% CP (Carolina Power & Light Co.)/(Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender 12/17/1996 3,000,000 ----------------------------------------------------------------------------------- 5,700,000 Wake County, NC Industrial Facilities & PCFA, (Series 1990B), 3.80% CP (Carolina Power & Light Co.)/(Fuji Bank, Ltd., Tokyo LOC), Mandatory Tender 11/12/1996 5,700,000 ----------------------------------------------------------------------------------- 4,400,000 Wake County, NC, UT GO, 4.25% Bonds, 3/1/1997 4,417,098 ----------------------------------------------------------------------------------- 1,900,000 Washington County, NC Industrial Facilities and Pollution Control Financing Authority, IDRB (Series 1995) Weekly VRDNs (Mackeys Ferry Sawmill, Inc. Project)/(Wachovia Bank of NC, NA, Winston-Salem LOC) 1,900,000 ----------------------------------------------------------------------------------- 3,777,150 Wayne County, NC PCFA Weekly VRDNs (Cooper Industries, Inc.)/ (Sanwa Bank Ltd, Osaka LOC) 3,777,150 ----------------------------------------------------------------------------------- -------------- Total 123,206,444 ----------------------------------------------------------------------------------- -------------- PUERTO RICO--7.5% ----------------------------------------------------------------------------------- 3,000,000 Puerto Rico Electric Power Authority, (Series K), 9.375% Bonds (United States Treasury PRF), 7/1/1997 (@102) 3,168,881 ----------------------------------------------------------------------------------- 3,000,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 1983A), 3.80% TOBs (Reynolds Metals Co.)/(ABN AMRO Bank N.V., Amsterdam LOC), Optional Tender 9/1/1997 3,000,000 ----------------------------------------------------------------------------------- 4,200,000 Puerto Rico Industrial, Tourist, Education, Medical & Environmental Control Finance Authority, (Series 1994A), 3.80% CP (Inter American University of Puerto Rico)/(Banque Paribas, Paris LOC), Mandatory Tender 1/13/1997 4,200,000 ----------------------------------------------------------------------------------- -------------- Total 10,368,881 ----------------------------------------------------------------------------------- --------------
NORTH CAROLINA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ----------------------------------------------------------------------------------- -------------- (a) SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------------------------- VIRGIN ISLANDS--4.4% ----------------------------------------------------------------------------------- $ 6,000,000 Virgin Islands HFA, Single Family Mortgage Revenue Refunding Bonds (1995 Series B), 3.50% TOBs (Trinity Funding Company INV), Mandatory Tender 11/1/1996 $ 6,000,000 ----------------------------------------------------------------------------------- -------------- TOTAL INVESTMENTS AT AMORTIZED COST (B) $ 139,575,325 ----------------------------------------------------------------------------------- --------------
Securities that are subject to Alternative Minimum Tax represent 45% of the portfolio as calculated based upon total portfolio market value. (a) The Trust may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NSRO's") or unrated securities of comparable quality. A NRSO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities, rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1 or MIG-2 by Moody's Investors Service, Inc., or FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term ratings 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 NRSRO's in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER 100% 0%
(b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($137,748,525) at October 31, 1996. NORTH CAROLINA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following acronym(s) are used throughout this portfolio: AMT--Alternative Minimum Tax BANs--Bond Anticipation Notes CP--Commercial Paper GO--General Obligation HFA--Housing Finance Authority IDA--Industrial Development Authority IDRB--Industrial Development Revenue Bond IFA--Industrial Finance Authority INS--Insured INV--Investment Agreement LIQ--Liquidity Agreement LOCs--Letter(s) of Credit LOC--Letter of Credit MBIA--Municipal Bond Investors Assurance PCA--Pollution Control Authority PCFA--Pollution Control Finance Authority PRF--Prerefunded TOBs--Tender Option Bonds UT--Unlimited Tax VRDNs--Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) NORTH CAROLINA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $ 139,575,325 - ------------------------------------------------------------------------------------------------- Cash 346,865 - ------------------------------------------------------------------------------------------------- Income receivable 900,873 - ------------------------------------------------------------------------------------------------- Receivable for shares sold 44,000 - ------------------------------------------------------------------------------------------------- Deferred expenses 24,556 - ------------------------------------------------------------------------------------------------- -------------- Total assets 140,891,619 - ------------------------------------------------------------------------------------------------- LIABILITIES: - ----------------------------------------------------------------------------------- Payable for investments purchased $ 3,000,000 - ----------------------------------------------------------------------------------- Payable for shares redeemed 20,795 - ----------------------------------------------------------------------------------- Income distribution payable 54,001 - ----------------------------------------------------------------------------------- Accrued expenses 68,298 - ----------------------------------------------------------------------------------- ------------ Total liabilities 3,143,094 - ------------------------------------------------------------------------------------------------- -------------- NET ASSETS for 137,748,525 shares outstanding $ 137,748,525 - ------------------------------------------------------------------------------------------------- -------------- NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------------------------- $137,748,525 / 137,748,525 shares outstanding $1.00 - ------------------------------------------------------------------------------------------------- --------------
(See Notes which are an integral part of the Financial Statements) NORTH CAROLINA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------------------------- Interest $ 4,392,257 - ---------------------------------------------------------------------------------------------------- EXPENSES: - -------------------------------------------------------------------------------------- Investment advisory fee $ 582,818 - -------------------------------------------------------------------------------------- Administrative personnel and services fee 125,000 - -------------------------------------------------------------------------------------- Custodian fees 22,970 - -------------------------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 32,795 - -------------------------------------------------------------------------------------- Directors'/Trustees' fees 2,020 - -------------------------------------------------------------------------------------- Auditing fees 11,156 - -------------------------------------------------------------------------------------- Legal fees 4,398 - -------------------------------------------------------------------------------------- Portfolio accounting fees 41,569 - -------------------------------------------------------------------------------------- Shareholder services fee 291,409 - -------------------------------------------------------------------------------------- Share registration costs 36,805 - -------------------------------------------------------------------------------------- Printing and postage 12,355 - -------------------------------------------------------------------------------------- Insurance premiums 3,352 - -------------------------------------------------------------------------------------- Miscellaneous 13,895 - -------------------------------------------------------------------------------------- ------------ Total expenses 1,180,542 - -------------------------------------------------------------------------------------- Waivers-- - -------------------------------------------------------------------------------------- Waiver of investment advisory fee (487,687) - -------------------------------------------------------------------------------------- ------------ Net expenses 692,855 - ---------------------------------------------------------------------------------------------------- ------------ Net investment income $ 3,699,402 - ---------------------------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) NORTH CAROLINA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1996 1995 - ------------------------------------------------------------------------------- --------------- --------------- INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------------------------------------- OPERATIONS-- - ------------------------------------------------------------------------------- Net investment income $ 3,699,402 $ 3,716,494 - ------------------------------------------------------------------------------- --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ------------------------------------------------------------------------------- Distributions from net investment income (3,699,402) (3,716,494) - ------------------------------------------------------------------------------- --------------- --------------- SHARE TRANSACTIONS-- - ------------------------------------------------------------------------------- Proceeds from sale of shares 825,948,456 901,368,780 - ------------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,898,862 2,529,218 - ------------------------------------------------------------------------------- Cost of shares redeemed (788,700,740) (891,545,071) - ------------------------------------------------------------------------------- --------------- --------------- Change in net assets resulting from share transactions 40,146,578 12,352,927 - ------------------------------------------------------------------------------- --------------- --------------- Change in net assets 40,146,578 12,352,927 - ------------------------------------------------------------------------------- NET ASSETS: - ------------------------------------------------------------------------------- Beginning of period 97,601,947 85,249,020 - ------------------------------------------------------------------------------- --------------- --------------- End of period $ 137,748,525 $ 97,601,947 - ------------------------------------------------------------------------------- --------------- ---------------
(See Notes which are an integral part of the Financial Statements) NORTH CAROLINA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 - -------------------------------------------------------------------------------- 1. ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of North Carolina Municipal Cash Trust (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 current income exempt from federal regular income tax and the income tax imposed by the State of North Carolina consistent with stability of principal. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized over a period not to exceed five years from the Fund's commencement date. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that NORTH CAROLINA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER--Investment transactions are accounted for on the trade date. 3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, 1996 1995 - ---------------------------------------------------------------------------------- -------------- -------------- Shares sold 825,948,456 901,368,780 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 2,898,862 2,529,218 - ---------------------------------------------------------------------------------- Shares redeemed (788,700,740) (891,545,071) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from share transactions 40,146,578 12,352,927 - ---------------------------------------------------------------------------------- -------------- --------------
At October 31, 1996, capital paid-in aggregated $137,748,525. 4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.50% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing NORTH CAROLINA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- 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. ORGANIZATIONAL EXPENSES--Organizational expenses and start-up administrative service expenses of $53,386 were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser for the organizational and start-up administrative expenses during the five year period following effective date. For the period ended October 31, 1996, the Fund paid $10,380 pursuant to this agreement. INTERFUND TRANSACTIONS--During the period ended October 31, 1996, the Trust 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 $428,065,000 and $378,920,000, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 5. CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 81.2% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 7.9% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (North Carolina Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities, of North Carolina Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996 and the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see page 2 of the prospectus) for the periods presented. 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 October 31, 1996, by correspondence with the custodian and broker. 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 North Carolina Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania November 20, 1996 ADDRESSES - -------------------------------------------------------------------------------- North Carolina Municipal Cash Trust Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - -------------------------------------------------------------------------------- Custodian State Street Bank and Trust Company P.O. Box 8600 Boston, MA 02266-8600 - -------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Shareholder Services Company P.O. Box 8600 Boston, MA 02266-8600 - -------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - -------------------------------------------------------------------------------- NORTH CAROLINA MUNICIPAL CASH TRUST PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 [LOGO] FEDERATED SECURITIES CORP. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Cusip 314229782 [RECYCLED PAPER LOGO] 3090803A (12/96) NORTH CAROLINA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus of North Carolina Municipal Cash Trust (the ''Fund'), a portfolio of Federated Municipal Trust (the ''Trust') dated December 31, 1996. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-341-7400. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1996 [LOGO] Federated Securities Corp. is the distributor of the Fund and is a subsidiary of Federated Investors. Cusip 314229782 3090803B (12/96) INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1 Repurchase Agreements 2 Reverse Repurchase Agreements 2 Credit Enhancement 2 INVESTMENT LIMITATIONS 3 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 Share Ownership 9 Trustees Compensation 9 Trustee Liability 9 INVESTMENT ADVISORY SERVICES 10 Investment Adviser 10 Advisory Fees 10 BROKERAGE TRANSACTIONS 10 OTHER SERVICES 10 Fund Administration 10 Custodian and Portfolio Accountant 11 Transfer Agent 11 Independent Public Accountants 11 SHAREHOLDER SERVICES AGREEMENT 11 DETERMINING NET ASSET VALUE 11 REDEMPTION IN KIND 12 MASSACHUSETTS PARTNERSHIP LAW 12 THE FUND'S TAX STATUS 12 PERFORMANCE INFORMATION 12 Yield 12 Effective Yield 12 Tax-Equivalent Yield 12 Tax-Equivalency Table 13 Total Return 14 Performance Comparisons 14 Economic and Market Information 14 ABOUT FEDERATED INVESTORS 14 Mutual Fund Market 15 Institutional Clients 15 Trust Organizations 15 Broker/Dealers and Bank Broker/Dealer Subsidiaries 15 APPENDIX 16 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security; the issuer of any demand feature applicable to the security; or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an 'event of non-appropriation''); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations ('NRSROs'') or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group (`S&P''), MIG-1 or MIG-2 by Moody's Investors Service, Inc. (`Moody's''), or F-1+, F-1, or F-2 by Fitch Investors Service, Inc. ('Fitch'') are all considered rated in one of the two highest short-term rating categories. The Fund will follow applicable regulations in determining whether a security rated by more than one NRSRO can be treated as being in one of the two highest short-term rating categories; currently, such securities must be rated by two NRSROs in one of their two highest rating categories. See `Regulatory Compliance.'' WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund in a dollar amount sufficient to make payment for the securities to be purchased are: segregated on the Fund`s records at the trade date; marked to market daily; and maintained until the transaction is settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument in return for a percentage of the instrument's market value in cash and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but does not ensure this result. However, liquid assets of the Fund, in a dollar amount sufficient to make payment for the securities to be purchased, are: segregated on the Fund's records at the trade date; marked to market daily; and maintained until the transaction is settled. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the 'credit enhancer''), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. NORTH CAROLINA INVESTMENT RISKS The state of North Carolina's credit strength is derived from a diversified and growing economy, relatively low unemployment rates, strong financial management, and a low debt burden. In recent years, the state's economy has become less dependent on agriculture (primarily tobacco) and manufacturing (textiles and furniture) and has experienced increased activity in financial services, research, high-tech manufacturing, and tourism. Although by national standards North Carolina is not one of the wealthier states (89% of national average), it is among the top in the Southeast region and its growth in personal income continues to outstrip national figures. The employment picture in North Carolina remains healthy with unemployment rates significantly below national averages and employment growth rates among the highest in the country. North Carolina is a conservative debt issuer and has consistently maintained extremely low debt levels. Such conservative levels are inherent in the state's financial structure which contains constitutional debt limits. The state's administration continues to demonstrate its ability and willingness to adjust financial planning and budgeting to preserve financial balance. When finances became tight during the recession of the early 1990s, the state quickly responded to shortfalls by increasing its sales and corporate tax rates and implementing expenditure reductions. Since the recession, North Carolina has seen improving state finances and has implemented a series of tax cuts while maintaining to fund capital and budget reserve accounts. The finances of many of North Carolina's municipalities are also very strong. This strength can be partially attributed to the Local Government Commission of North Carolina which serves as a central oversight and consulting group which must approve all debt issued by state municipalities. It is interesting to note that over 25% of all Aaa-rated tax-exempt bonds issued nationwide are issued by local municipalities within the state. The Fund's concentration in securities issued by the state and its political subdivisions provide a greater level of risk than a fund which is diversified across a number of states and municipal entities. The ability of the state or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the state; and the underlying fiscal condition of the state, its counties, and its municipalities. INVESTMENT LIMITATIONS 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 may be necessary for clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money directly or through reverse repurchase agreements in amounts up to one-third of the value of its net assets, including the amounts borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of its total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets except that it may acquire publicly or nonpublicly issued North Carolina municipal securities or temporary investments or enter into repurchase agreements in accordance with its investment objective, policies, limitations, and its Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate or real estate limited partnerships, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities, if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry or in industrial development bonds or other securities, the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above limitations cannot be changed without shareholder approval. The following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities including certain restricted securities not determined to be liquid under criteria established by the Trustees and repurchase agreements providing for settlement in more than seven days after notice. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be 'cash items.'' Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments , as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director or Trustee of the Funds. Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee, University of Pittsburgh; Director or Trustee of the Funds. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest Florida; formerly, President, Naples Property Management, Inc. and Northgate Village Development Corporation; Director or Trustee of the Funds. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds. Edward L. Flaherty, Jr.@ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region; Director or Trustee of the Funds. Glen R. Johnson* Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. Peter E. Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16, 1942 Trustee Consultant; Former State Representative, Commonwealth of Massachusetts; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation; Director or Trustee of the Funds. Gregor F. Meyer Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director or Trustee of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics; Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., National Defense University, U.S. Space Foundation and Czech Management Center; President Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council for Environmental Policy and Technology, Federal Emergency Management Advisory Board and Czech Management Center; Director or Trustee of the Funds. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/Marketing/Conference Planning, Manchester Craftsmen's Guild; Restaurant Consultant, Frick Art & History Center; Conference Coordinator, University of Pittsburgh Art History Department; Director or Trustee of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated Shareholder Services; Director, Federated Services Company; President or Executive Vice President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Shareholder Services Company; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President , Secretary and Treasurer Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. *This Trustee is deemed to be an ``interested person'' as defined in the Investment Company Act of 1940. @Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board between meetings of the Board. As referred to in the list of Trustees and Officers, 'Funds'' includes the following investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated Investment Portfolios; Federated Investment Trust; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 2, 1996, the following shareholder of record owned 5% or more of the outstanding shares of the North Carolina Municipal Cash Trust: Stephens Inc., Little Rock, Arkansas, for the exclusive benefit of their customers, owned approximately 35,547,752 shares (28.56%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 54 other investment companies in the Fund Complex Thomas G. Bigley++ $3,611 $86,331 for the Trust and Trustee 54 other investment companies in the Fund Complex John T. Conroy, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex William J. Copeland $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Peter E. Madden $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Gregor F. Meyer $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex John E. Murray, Jr., $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Wesley W. Posvar $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Marjorie P. Smuts $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1996. #The aggregate compensation is provided for the Trust which is comprised of 16 portfolios. +The information is provided for the last calendar year. ++ Mr. Bigley served on 39 investment companies in the Federated Funds complex from January 1 through September 30, 1995. On October 1, 1995, he was appointed a Trustee on 15 additional Federated Funds. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1996 and 1995, and for the period November 29, 1993 (start of business) to October 31, 1994, the adviser earned $582,818, $537,013, and $296,066, respectively, of which $487,687, $433,120, and $261,597, respectively, were waived. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal years ended October 31, 1996 and 1995, and for the period December 31, 1993 (date of initial public investment) to October 31, 1994, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative Services served as the Fund's Administrator. Prior to March 1, 1994, Federated Administrative Services, Inc. served as the Fund's Administrator. Both former Administrators are subsidiaries of Federated Investors. For purposes of this Statement of Additional Information, Federated Services Company, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the `Administrators.'' For the fiscal years ended October 31, 1996 and 1995, and for the period November 29, 1993 (start of business) to October 31, 1994, the Administrators earned $125,000, $125,000, and $52,447, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. The fee paid for this service is based upon the level of the Fund's average net assets for the period plus out-of- pocket expenses. TRANSFER AGENT Federated Services Company, through its registered transfer agent, Federated Shareholder Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. SHAREHOLDER SERVICES This arrangement permits the payment of fees to Federated Shareholder Services to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Agreement, the Trustees expect that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal year ending October 31, 1996, the Fund paid Shareholder Services fees in the amount of $291,409. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the 'Rule'') promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the 'base period.'' This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. The Fund's yield for the seven-day period ended October 31, 1996, was 3.05%. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. The Fund's effective yield for the seven-day period ended October 31, 1996, was 3.09%. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming 47.35% tax rate (the maximum combined effective federal and state rate for individuals) and assuming that the income is 100% tax exempt. The Fund's tax-equivalent yield for the seven-day period ended October 31, 1996, was 5.79%. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a 'tax- free''investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1996 STATE OF NORTH CAROLINA COMBINED FEDERAL AND STATE:22.00% 35.00% 38.75% 43.75% 47.35% JOINT $1- $40,101- $96,901- $147,701- OVER RETURN 40,100 96,900 147,700 263,750 $263,750 SINGLE $1- $24,001- $58,151- $121,301- OVER RETURN 24,000 58,150 121,300 263,750 $263,750 Tax-Exempt Yield Taxable Yield Equivalent 3.50% 4.49% 5.38% 5.71% 6.22% 6.65% 4.00% 5.13% 6.15% 6.53% 7.11% 7.60% 4.50% 5.77% 6.92% 7.35% 8.00% 8.55% 5.00% 6.41% 7.69% 8.16% 8.89% 9.50% 5.50% 7.05% 8.46% 9.98% 9.78% 10.45% 6.00% 7.69% 9.23% 9.80% 10.67% 11.40% 6.50% 8.33% 10.00% 10.61% 11.56% 12.35% 7.00% 8.97% 10.77% 11.43% 12.44% 13.30% 7.50% 9.62% 11.54% 12.24% 13.33% 14.25% 8.00% 10.26% 12.31% 13.06% 14.22% 15.19% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. The Fund's average annual total returns for the one-year period ended October 31, 1996, and for the period from December 31, 1993 (date of initial public investment) through October 31, 1996, were 3.23% and 3.11%, respectively. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. oMONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. Advertising and other promotional literature may include charts, graphs and other illustrations using the Fund`s returns, or returns in general, that demonstrate basic investment concepts such as tax-deferred compounding, dollar-cost averaging and systematic investment. In addition, the Fund can compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, such as bank savings accounts, certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION Advertising and sales literature for the Fund may include discussions of economic, financial and political developments and their effect on the securities market. Such discussions may take the form of commentary on these developments by the Fund portfolio mangers and their views and analysis on how such developments could affect the Funds. In addition, advertising and sales literature may quote statistics and give general information about the mutual fund industry, including growth of the industry, from sources such as the Investment Company Institute. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. These traders handle trillions of dollars in annual trading volume. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1995, Federated Investors managed more than $40.2 billion in assets across approximately 47 money market funds, including 17 government, 10 prime and 20 municipal with assets approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $3 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. Federated's service to financial professionals and institutions has earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for service quality measurement. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (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 rate `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. MOODYS 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. <.R> 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 SERVICES, INC. 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. MARYLAND MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) PROSPECTUS The Shares of Maryland Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Maryland municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Maryland, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and the personal income taxes imposed by the State of Maryland and Maryland municipalities consistent with stability of principal and liquidity. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Maryland Municipal Securities 6 Investment Risks 6 Investment Limitations 7 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ Special Purchase Features 10 HOW TO REDEEM SHARES 10 - ------------------------------------------------------ Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 12 - ------------------------------------------------------ TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 State and Local Taxes 13 PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL STATEMENTS 15 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 25 - ------------------------------------------------------ ADDRESSES 26 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)............................. None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)..................................................................... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)............................................................ None Redemption Fee (as a percentage of amount redeemed, if applicable)........................................ None Exchange Fee.............................................................................................. None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)......................................................................... 0.00% 12b-1 Fee................................................................................................. None Total Other Expenses (after expense reimbursement)........................................................ 0.65% Shareholder Services Fee (after waiver) (2)............................................... 0.24% Total Fund Operating Expenses (3)............................................................... 0.65%
(1) The management fee has been reduced to reflect the voluntary waiver of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The shareholder services fee has been reduced to reflect the voluntary waiver of a portion of the shareholders services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (3) The Total Operating Expenses would have been 1.30% absent the voluntary waiver of the management fee and the voluntary waiver of a portion of the shareholder services fee and the voluntary reimbursement of certain other operating expenses. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "FUND INFORMATION". Wire-transferred redemptions of less than $5,000 may be subject to additional fees. EXAMPLE 1 year 3 years 5 years 10 years You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period................................................................ $7 $21 $36 $81
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. MARYLAND MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 25.
YEAR ENDED OCTOBER 31, 1996 1995 1994(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 - -------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------------------------------------------------- Net investment income 0.03 0.03 0.01 - -------------------------------------------------------------------------------- --------- --------- ----------- LESS DISTRIBUTIONS - -------------------------------------------------------------------------------- Distributions from net investment income (0.03) (0.03) (0.01) - -------------------------------------------------------------------------------- --------- --------- ----------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 - -------------------------------------------------------------------------------- --------- --------- ----------- TOTAL RETURN (b) 3.11% 3.36% 1.30% - -------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------------------------------------------------- Expenses 0.65% 0.65% 0.46%* - -------------------------------------------------------------------------------- Net investment income 3.09% 3.30% 2.68%* - -------------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.65% 0.50% 0.53%* - -------------------------------------------------------------------------------- SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $54,286 $51,400 $56,275 - --------------------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from May 9, 1994 (date of initial public investment) to October 31, 1994. For the period from April 25, 1994 (start of business) to May 9, 1994, the Fund had no investment activity. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The Fund is designed for financial institutions acting in an agency or fiduciary capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing primarily in short-term Maryland municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Maryland taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the State of Maryland and Maryland municipalities consistent with stability of principal and liquidity. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Maryland state and local income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Maryland and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Maryland state and local income tax, ("Maryland Municipal Securities"). Examples of Maryland Municipal Securities include, but are not limited to: tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; municipal commercial paper and other short-term notes; variable rate demand notes; municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Maryland Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Maryland Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other depository institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Maryland Municipal Securities is subject to the federal alternative minimum tax. MARYLAND MUNICIPAL SECURITIES Maryland Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Maryland Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Maryland Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Maryland Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Maryland Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Maryland Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Maryland Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Maryland Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Maryland Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations, the Fund's concentration in Maryland Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge more than 15% of the value of its total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of its shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of its shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting total liabilities from total assets and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more over a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 (Eastern time) that day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Maryland Municipal Cash Trust; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Maryland Municipal Cash Trust. 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. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Shareholder Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company, or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of each portfolio in the Trust have equal voting rights; except that in matters affecting only a particular portfolio, only shareholders of that portfolio are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Maryland. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. MARYLAND TAXES. Under existing Maryland laws, distributions made by the Fund will not be subject to Maryland state or local income taxes to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest on tax-exempt obligations of Maryland or its political subdivisions or authorities; (ii) interest on obligations of the United States or an authority, commission, instrumentality, possession or territory of the Unites States; or (iii) gain realized by the Fund from the sale or exchange of bonds issued by Maryland, a political subdivision of Maryland, or the United States government (excluding obligations issued by the District of Columbia, a territory or possession of the United States, or a department, agency, instrumentality, or political subdivision of the District, territory or possession). Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to Maryland income taxes. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the Fund after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. MARYLAND MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ------------------------------------------------------------------------------------ ------------- (a) SHORT-TERM MUNICIPALS--99.2% - -------------------------------------------------------------------------------------------------- MARYLAND--94.8% ------------------------------------------------------------------------------------ $ 1,000,000 Anne Arundel County, MD, EDRB (Series 1988), 3.60% CP (Baltimore Gas & Electric Co.), Mandatory Tender 12/18/1996 $ 1,000,000 ------------------------------------------------------------------------------------ 1,000,000 Anne Arundel County, MD, EDRB (Series 1988), 3.65% CP (Baltimore Gas & Electric Co.), Mandatory Tender 11/12/1996 1,000,000 ------------------------------------------------------------------------------------ 1,000,000 Anne Arundel County, MD, EDRB (Series 1988), 3.70% CP (Baltimore Gas & Electric Co.), Mandatory Tender 11/21/1996 1,000,000 ------------------------------------------------------------------------------------ 1,900,000 Anne Arundel County, MD, EDRB (Series 1996) Weekly VRDNs (Atlas Container Corporation Project)/(Mellon Bank NA, Pittsburgh LOC) 1,900,000 ------------------------------------------------------------------------------------ 1,375,000 Baltimore County, MD IDA, (Series 1994A) Weekly VRDNs (Pitts Realty Limited Partnership)/(PNC Bank, NA, Delaware LOC) 1,375,000 ------------------------------------------------------------------------------------ 1,700,000 Baltimore County, MD Port Facility Monthly VRDNs (Occidental Petroleum Corp.)/(Morgan Guaranty Trust Co., New York LOC) 1,700,000 ------------------------------------------------------------------------------------ 1,500,000 Baltimore County, MD, Revenue Bonds (1994 Issue) Weekly VRDNs (Direct Marketing Associates, Inc. Facility)/(First National Bank of Maryland, Baltimore LOC) 1,500,000 ------------------------------------------------------------------------------------ 800,000 Baltimore, MD, (Series 1988) Weekly VRDNs (Cherill Associated Facility)/(Nationsbank, N.A. LOC) 800,000 ------------------------------------------------------------------------------------ 1,500,000 Cecil County, MD, County Commissioners EDRB (Series 1988S) Weekly VRDNs (Williams Mobile Offices, Inc.)/(First National Bank of Maryland, Baltimore LOC) 1,500,000 ------------------------------------------------------------------------------------ 910,000 Elkton, MD, Revenue Refunding Bonds (Series 1992) Weekly VRDNs (Highway Service Ventures, Inc. Facility)/(First Union National Bank, Charlotte, NC LOC) 910,000 ------------------------------------------------------------------------------------ 3,141,000 Hartford County, MD, (Series 1989) Weekly VRDNs (Hartford Commons Associates Facility)/(Nationsbank, N.A. LOC) 3,141,000 ------------------------------------------------------------------------------------ 2,000,000 Maryland EDC, Pooled Financing Revenue Bonds, (Series 1995) Weekly VRDNs (Maryland Municipal Bond Fund)/(Nationsbank, N.A. LOC) 2,000,000 ------------------------------------------------------------------------------------
MARYLAND MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ------------------------------------------------------------------------------------ ------------- (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------------------------- MARYLAND--CONTINUED ------------------------------------------------------------------------------------ $ 2,546,000 Maryland Health & Higher Educational Facilities Authority, Pooled Loan Program Revenue Notes, 3.80% CP (John Hopkins University)/ (Sanwa Bank Ltd, Osaka LIQ), Mandatory Tender 1/16/1997 $ 2,546,000 ------------------------------------------------------------------------------------ 1,000,000 Maryland Health & Higher Educational Facilities Authority, Revenue Bonds (Series 1985A) Weekly VRDNs (First National Bank of Chicago LOC) 1,000,000 ------------------------------------------------------------------------------------ 900,000 Maryland Health & Higher Educational Facilities Authority, Revenue Bonds (Series 1992B) Weekly VRDNs (North Arundel Hospital)/ (Mellon Bank NA, Pittsburgh LOC) 900,000 ------------------------------------------------------------------------------------ 2,000,000 Maryland State Community Development Administration, (Series 1990A) Weekly VRDNs (College Estates)/(First National Bank of Maryland, Baltimore LOC) 2,000,000 ------------------------------------------------------------------------------------ 2,000,000 Maryland State Community Development Administration, Single Family Program Bonds (1996 Second Series), 4.00% TOBs, Mandatory Tender 9/1/1997 2,000,000 ------------------------------------------------------------------------------------ 2,000,000 Maryland State Department of Transportation, 3.75% Bonds, 12/15/1996 2,000,036 ------------------------------------------------------------------------------------ 2,000,000 Maryland State Energy Financing Administration, Annual Tender Solid Waste Disposal Revenue Refunding Bonds, 4.10% TOBs (Nevamar Corp.)/(International Paper Co. GTD), Optional Tender 9/1/1997 2,000,000 ------------------------------------------------------------------------------------ 3,000,000 Maryland State Energy Financing Administration, IDRB (Series 1988) Weekly VRDNs (Morningstar Foods, Inc.)/(Nationsbank of Texas, N.A. LOC) 3,000,000 ------------------------------------------------------------------------------------ 1,500,000 Maryland State Energy Financing Administration, Limited Obligation Variable Rate Demand Revenue Bonds (Series 1996) Weekly VRDNs (Keywell L.L.C.)/(Bank of America Illinois LOC) 1,500,000 ------------------------------------------------------------------------------------ 1,000,000 Maryland State IDFA, 4.75% Bonds (Holy Cross Health System Corp.), 12/1/1996 1,000,911 ------------------------------------------------------------------------------------ 3,300,000 Maryland State IDFA, Economic Development Revenue Refunding Bonds (Series 1994) Weekly VRDNs (Johnson Controls, Inc.) 3,300,000 ------------------------------------------------------------------------------------ 1,500,000 Montgomery County, MD Housing Opportunities Commission, (Series 1996 C), 3.70% TOBs, Mandatory Tender 3/17/1997 1,500,000 ------------------------------------------------------------------------------------
MARYLAND MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ------------------------------------------------------------------------------------ ------------- (a) SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------------------------- MARYLAND--CONTINUED ------------------------------------------------------------------------------------ $ 1,000,000 Montgomery County, MD Housing Opportunities Commission, Multifamily Housing Revenue Bonds (1995 Series B), 3.90% BANs, 11/14/1996 $ 1,000,000 ------------------------------------------------------------------------------------ 3,000,000 Montgomery County, MD, EDR Weekly VRDNs (U.S. Pharmacopeial Convention Facility)/(Chase Manhattan Bank N.A., New York LOC) 3,000,000 ------------------------------------------------------------------------------------ 1,100,000 Prince George's County, MD, IDRB (Series 1993), 4.10% TOBs (International Paper Co.)/(International Paper Co. GTD), Optional Tender 7/15/1997 1,100,000 ------------------------------------------------------------------------------------ 1,500,000 University of Maryland, Series A, 6.90% Bonds, 10/1/1997 1,541,999 ------------------------------------------------------------------------------------ 4,260,000 Wicomico County, MD, EDRB (Series 1994) Weekly VRDNs (Field Container Co. L.P.)/(Northern Trust Co., Chicago, IL LOC) 4,260,000 ------------------------------------------------------------------------------------ ------------- Total 51,474,946 ------------------------------------------------------------------------------------ ------------- PUERTO RICO--4.4% ------------------------------------------------------------------------------------ 1,400,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 1983A), 3.80% TOBs (Reynolds Metals Co.)/(ABN AMRO Bank N.V., Amsterdam LOC), Optional Tender 9/1/1997 1,400,000 ------------------------------------------------------------------------------------ 1,000,000 Puerto Rico Industrial, Tourist, Education, Medical & Environmental Control Finance Authority, (Series 1994A), 3.80% CP (Inter American University of Puerto Rico)/(Banque Paribas, Paris LOC), Mandatory Tender 1/13/1997 1,000,000 ------------------------------------------------------------------------------------ ------------- Total 2,400,000 ------------------------------------------------------------------------------------ ------------- TOTAL INVESTMENTS AT AMORTIZED COST (b) $ 53,874,946 ------------------------------------------------------------------------------------ -------------
Securities that are subject to Alternative Minimum Tax represent 54% of the portfolio as calculated based upon total portfolio market value. (a) The Trust may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. A NRSROs two highest rating categories are determined without regard for sub-categories and gradations. For example, securities, rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1 or MIG-2 by Moody's Investors Service, Inc., or MARYLAND MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term ratings 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 NRSRO's in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED) FIRST TIER SECOND TIER 94% 6%
(b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($54,285,803) at October 31, 1996. The following acronyms are used throughout this portfolio: BANs-- Bond Anticipation Notes CP-- Commercial Paper EDC-- Economic Development Commission EDR-- Economic Development Revenue EDRB-- Economic Development Revenue Bonds GTD--Guaranty IDA-- Industrial Development Authority IDRB-- Industrial Development Revenue Bond IDFA-- Industrial Development Finance Authority LIQ--Liquidity Agreement LOC--Letter of Credit PCA-- Pollution Control Authority TOBs-- Tender Option Bonds VRDNs-- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) MARYLAND MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 - -------------------------------------------------------------------------------- ASSETS: - --------------------------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $ 53,874,946 - --------------------------------------------------------------------------------------------------- Cash 139,168 - --------------------------------------------------------------------------------------------------- Income receivable 285,064 - --------------------------------------------------------------------------------------------------- Deferred expenses 21,246 - --------------------------------------------------------------------------------------------------- ------------- Total assets 54,320,424 - --------------------------------------------------------------------------------------------------- LIABILITIES: - ---------------------------------------------------------------------------------------- Income distribution payable $ 10,773 - ---------------------------------------------------------------------------------------- Payable for Shareholder Servicing Fee 11,255 - ---------------------------------------------------------------------------------------- Accrued expenses 12,593 - ---------------------------------------------------------------------------------------- --------- Total liabilities 34,621 - --------------------------------------------------------------------------------------------------- ------------- NET ASSETS for 54,285,803 shares outstanding $ 54,285,803 - --------------------------------------------------------------------------------------------------- ------------- NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: $54,285,803 / 54,285,803 shares outstanding $1.00 - --------------------------------------------------------------------------------------------------- -------------
(See Notes which are an integral part of the Financial Statements) MARYLAND MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------------------------- Interest $ 1,775,776 - ---------------------------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------------- Investment advisory fee $ 237,399 - --------------------------------------------------------------------------------------- Administrative personnel and services fee 125,000 - --------------------------------------------------------------------------------------- Custodian fees 16,439 - --------------------------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 19,218 - --------------------------------------------------------------------------------------- Directors'/Trustees' fees 1,494 - --------------------------------------------------------------------------------------- Auditing fees 11,428 - --------------------------------------------------------------------------------------- Legal fees 4,381 - --------------------------------------------------------------------------------------- Portfolio accounting fees 40,866 - --------------------------------------------------------------------------------------- Shareholder services fee 118,700 - --------------------------------------------------------------------------------------- Share registration costs 21,823 - --------------------------------------------------------------------------------------- Printing and postage 7,216 - --------------------------------------------------------------------------------------- Insurance premiums 2,994 - --------------------------------------------------------------------------------------- Taxes 336 - --------------------------------------------------------------------------------------- Miscellaneous 10,376 - --------------------------------------------------------------------------------------- ----------- Total expenses 617,670 - --------------------------------------------------------------------------------------- Waivers and reimbursements-- - -------------------------------------------------------------------------- Waiver of investment advisory fee $(237,399) - -------------------------------------------------------------------------- Waiver of shareholder services fee (4,748) - -------------------------------------------------------------------------- Reimbursement of other operating expenses (64,815) - -------------------------------------------------------------------------- ----------- Total waivers and reimbursements (306,962) - --------------------------------------------------------------------------------------- ----------- Net expenses 310,708 - ---------------------------------------------------------------------------------------------------- ------------ Net investment income $ 1,465,068 - ---------------------------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) MARYLAND MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1996 1995 - ------------------------------------------------------------------------------- --------------- --------------- INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------------------------------------- OPERATIONS-- - ------------------------------------------------------------------------------- Net investment income $ 1,465,068 $ 1,952,599 - ------------------------------------------------------------------------------- --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ------------------------------------------------------------------------------- Distributions from net investment income (1,465,068) (1,952,599) - ------------------------------------------------------------------------------- --------------- --------------- SHARE TRANSACTIONS-- - ------------------------------------------------------------------------------- Proceeds from sale of shares 135,836,347 180,327,160 - ------------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 1,324,055 1,800,625 - ------------------------------------------------------------------------------- Cost of shares redeemed (134,274,793) (187,002,830) - ------------------------------------------------------------------------------- --------------- --------------- Change in net assets resulting from share transactions 2,885,609 (4,875,045) - ------------------------------------------------------------------------------- --------------- --------------- Change in net assets 2,885,609 (4,875,045) - ------------------------------------------------------------------------------- NET ASSETS: - ------------------------------------------------------------------------------- Beginning of period 51,400,194 56,275,239 - ------------------------------------------------------------------------------- --------------- --------------- End of period $ 54,285,803 $ 51,400,194 - ------------------------------------------------------------------------------- --------------- ---------------
(See Notes which are an integral part of the Financial Statements) MARYLAND MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 - -------------------------------------------------------------------------------- 1. ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of Maryland Municipal Cash Trust (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 current income exempt from federal regular income tax and the income tax imposed by the state of Maryland consistent with stability of principal and liquidity. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized over a period not to exceed five years from the Fund's commencement date. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER--Investment transactions are accounted for on the trade date. 3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). At October 31, 1996, capital paid-in aggregated $54,285,803. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, 1996 1995 - ---------------------------------------------------------------------------------- -------------- -------------- Shares sold 135,836,347 180,327,160 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,324,055 1,800,625 - ---------------------------------------------------------------------------------- Shares redeemed (134,274,793) (187,002,830) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from share transactions 2,885,609 (4,875,045) - ---------------------------------------------------------------------------------- -------------- --------------
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.50% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement 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 for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services, the Fund will pay Federated Shareholder Services up to 0.25% of average daily net assets of the Fund for the period. The fee paid to Federated Shareholder Services is used to finance certain services for shareholders and to maintain shareholder accounts. Federated Shareholder Services may voluntarily choose to waive any portion of its fee. Federated Shareholder Services can modify or terminate this voluntary waiver at any time at its sole discretion. MARYLAND MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ"), through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational and start-up administrative service expenses of $45,952 were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser for the organizational and/or start-up administrative expenses during the five year period following the effective date. For the period ended October 31, 1996, the Fund paid $2,485 pursuant to this agreement. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 5. CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 53% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 17% of total investments. Report of Independent Public Accountants - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Maryland Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Maryland Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996 and the related statement of operations for the year then ended, the statement of changes in net assets and the financial highlights (see page 2 of the prospectus) for the periods presented. 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 October 31, 1996, 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 Maryland Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania November 20, 1996 ADDRESSES - -------------------------------------------------------------------------------- Maryland Municipal Cash Trust Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and Trust Company P.O. Box 8600 Boston, MA 02266-8600 - ----------------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Shareholder Services Company P.O. Box 8600 Boston, MA 02266-8600 - ----------------------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - -----------------------------------------------------------------------------------------------------------------------
MARYLAND MUNICIPAL CASH TRUST PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 [LOGO] Federated Investors Since 1955 Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. Cusip 314229774 G00105-01-A (12/96) MARYLAND MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus of Maryland Municipal Cash Trust (the ``Fund'), a portfolio of Federated Municipal Trust (the ``Trust') dated December 31, 1996. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-341-7400. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1996 [LOGO] Federated Securities Corp. is the distributor of the Fund and is a subsidiary of Federated Investors. Cusip 314229774 G00105-02-B(12/96) INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1 Repurchase Agreements 2 Reverse Repurchase Agreements 2 Credit Enhancement 2 INVESTMENT LIMITATIONS 3 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 Share Ownership 9 Trustees Compensation 10 Trustee Liability 10 INVESTMENT ADVISORY SERVICES 11 Investment Adviser 11 Advisory Fees 11 BROKERAGE TRANSACTIONS 11 OTHER SERVICES 11 Fund Administration 11 Custodian and Portfolio Accountant 12 Transfer Agent 12 Independent Public Accountants 12 SHAREHOLDER SERVICES 12 DETERMINING NET ASSET VALUE 12 REDEMPTION IN KIND 13 MASSACHUSETTS PARTNERSHIP LAW 13 THE FUND'S TAX STATUS 13 PERFORMANCE INFORMATION 13 Yield 13 Effective Yield 13 Tax-Equivalent Yield 14 Tax-Equivalency Table 14 Total Return 15 Performance Comparisons 15 Economic and Market Information 15 ABOUT FEDERATED INVESTORS 15 Mutual Fund Market 16 Institutional Clients 16 Trust Organizations 16 Broker/Dealers and Bank Broker/Dealer Subsidiaries 16 APPENDIX 17 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security; the issuer of any demand feature applicable to the security; or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an `event of non-appropriation''); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations (`NRSROs'') or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group (`S&P''), MIG-1 or MIG-2 by Moody's Investors Service, Inc. (`Moody's''), or F-1+, F-1, or F-2 by Fitch Investors Service, Inc. (`Fitch'') are all considered rated in one of the two highest short-term rating categories. The Fund will follow applicable regulations in determining whether a security rated by more than one NRSRO can be treated as being in one of the two highest short-term rating categories; currently, such securities must be rated by two NRSROs in one of their two highest rating categories. See `Regulatory Compliance.'' WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund in a dollar amount sufficient to make payment for the securities to be purchased are: segregated on the Fund`s records at the trade date; marked to market daily; and maintained until the transaction is settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument in return for a percentage of the instrument's market value in cash and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but does not ensure this result. However, liquid assets of the Fund, in a dollar amount sufficient to make payment for the securities to be purchased, are: segregated on the Fund's records at the trade date; marked to market daily; and maintained until the transaction is settled. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the `credit enhancer''), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. MARYLAND INVESTMENT RISKS The Fund invests in obligations of Maryland issuers which results in the Fund's performance being subject to risks associated with the overall conditions present within Maryland (the `State''). The following information is a brief summary of the recent prevailing economic conditions and a general summary of the State's financial status. This information is based on official statements related to securities that have been offered by Maryland issuers and from other sources believed to be reliable but should not be relied upon as a complete description of all relevant information. Maryland's economy differs from that of the nation, with a heavier dependence on government, services (particularly business, engineering, and management services) and trade than the typical state, and less reliance on manufacturing. The State's economic structure reflects its proximity to Washington, DC with one-tenth of civilian wages paid in the State coming from federal agencies located in Maryland and 10% of Maryland's personal income originating from jobs in the District of Columbia. Although this structure adds a degree of concentration risk, the wages earned by Maryland's federal workers also contributes to the State's above average income and below average unemployment. Maryland's per capita income is the fifth highest in the nation. Although the Maryland economy is rebounding from the recession in the early 1990's, the pace of job growth has trailed that of the nation and is expected to continue to due so into 1997. This dampened growth is largely attributable to cutbacks in federal spending, particularly in defense related programs. State finances are well-managed with strong administrative control exercised by the State Board of Public Works, which is comprised of the governor, treasurer, and controller. The revenue stream is well diversified, relying heavily on sales, income, and a variety of other taxes (including a state property tax). The finances of the State have largely improved since the early 1990's. The State went from a significant deficit position in 1992 to an operating surplus in 1993, 1994 and 1995. Although Maryland remains one of the nation's more indebted states (12th in the nation in tax-supported debt per capita), it has kept borrowing within constraints recommended by the State's Debt Affordability Committee. About 60% of the State's debt service is supported by a dedicated state property tax. The Fund's concentration in securities issued by the State and its political subdivisions provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. The ability of the State or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the State; and the underlying fiscal condition of the State and its municipalities. INVESTMENT LIMITATIONS 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 may be necessary for clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money directly or through reverse repurchase agreements in amounts up to one-third of the value of its net assets, including the amounts borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of the value of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of its total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may acquire publicly or nonpublicly issued Maryland municipal securities or temporary investments or enter into repurchase agreements in accordance with its investment objective, policies, and limitations, and its Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate or real estate limited partnerships, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities, if as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry or in industrial development bonds or other securities, the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above limitations cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities including certain restricted securities not determined to be liquid under criteria established by the Trustees and repurchase agreements providing for settlement in more than seven days notice. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be `cash items.'' Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments , as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director or Trustee of the Funds. Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee, University of Pittsburgh; Director or Trustee of the Funds. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest Florida; formerly, President, Naples Property Management, Inc. and Northgate Village Development Corporation; Director or Trustee of the Funds. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds. Edward L. Flaherty, Jr.@ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region; Director or Trustee of the Funds. Glen R. Johnson* Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. Peter E. Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16, 1942 Trustee Consultant; Former State Representative, Commonwealth of Massachusetts; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation; Director or Trustee of the Funds. Gregor F. Meyer Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director or Trustee of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics; Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., National Defense University, U.S. Space Foundation and Czech Management Center; President Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council for Environmental Policy and Technology, Federal Emergency Management Advisory Board and Czech Management Center; Director or Trustee of the Funds. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/Marketing/Conference Planning, Manchester Craftsmen's Guild; Restaurant Consultant, Frick Art & History Center; Conference Coordinator, University of Pittsburgh Art History Department; Director or Trustee of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated Shareholder Services; Director, Federated Services Company; President or Executive Vice President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Shareholder Services Company; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President , Secretary and Treasurer Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. *This Trustee is deemed to be an ``interested person'' as defined in the Investment Company Act of 1940. @Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board between meetings of the Board. As referred to in the list of Trustees and Officers, `Funds'' includes the following investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated Investment Portfolios; Federated Investment Trust; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 2, 1996, the following shareholders of record owned 5% or more of the outstanding shares of the Maryland Municipal Cash Trust: United Communications Group, Rockville, MD, owned approximately 8,856,844 shares (16.20%); Charles Bresler, Washington, D.C., owned approximately 5,598,843 shares (10.24%); and James G. Robinson, Baltimore, MD, owned approximately 9,967,307 shares (18.24%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 54 other investment companies in the Fund Complex Thomas G. Bigley++ $3,611 $86,331 for the Trust and Trustee 54 other investment companies in the Fund Complex John T. Conroy, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex William J. Copeland $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Peter E. Madden $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Gregor F. Meyer $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex John E. Murray, Jr., $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Wesley W. Posvar $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Marjorie P. Smuts $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1996. #The aggregate compensation is provided for the Trust which is comprised of 16 portfolios. +The information is provided for the last calendar year. ++ Mr. Bigley served on 39 investment companies in the Federated Funds complex from January 1 through September 30, 1995. On October 1, 1995, he was appointed a Trustee on 15 additional Federated Funds. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31,1996, 1995 and for the period from April 25, 1994 (start of business) to October 31, 1994, the adviser earned $237,399, $296,327 and $137,219, respectively, of which $237,399, $295,202 and $137,147 were waived. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal years ended October 31, 1996, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative Services served as the Fund's Administrator. Prior to March 1, 1994, Federated Administrative Services, Inc. served as the Fund's Administrator. Both former Administrators are subsidiaries of Federated Investors. For purposes of this Statement of Additional Information, Federated Services Company, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the `Administrators.'' For the fiscal years ended October 31, 1996, 1995 and for the period from April 25, 1994 (start of business), to October 31, 1994, the Administrators earned $125,000, $125,000, and $20,890, respectively CUSTODIAN AND PORTFOLIO ACCOUNTANT State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. The fee paid for this service is based upon the level of the Fund's average net assets for the period plus out-of- pocket expenses. TRANSFER AGENT Federated Services Company, through its registered transfer agent, Federated Shareholder Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. <.R> SHAREHOLDER SERVICES This arrangement permits the payment of fees to Federated Shareholder Services to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Agreement, the Trustees expect that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal period ended October 31, 1996, the Fund paid shareholder service fees in the amount of $118,700, of which $4,748 was waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the `Rule'') promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than .50% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the `base period.'' This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. The Fund's yield for the seven-day period ended October 31, 1996, was 3.09%. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. The Fund's effective yield for the seven-day period ended October 31, 1996, was 3.13%. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming 47.1% tax rate (the maximum combined effective federal and state rate for individuals) and assuming that the income is 100% tax exempt. The Fund's tax-equivalent yield for the seven-day period ended October 31, 1996, was 5.84%. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a `tax- free''investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1996 STATE OF MARYLAND INCLUDING LOCAL INCOME TAX COMBINED FEDERAL, STATE, AND COUNTY INCOME TAX BRACKET: 22.50% 35.50% 38.50% 43.50% 47.10% JOINT $1- $40,101- $96,901- $147,701- OVER RETURN: 40,100 96,900 147,700 263,750 $263,750 SINGLE $1- $24,001- $58,151- $121,301- OVER RETURN: 24,000 58,150 121,300 263,750 $263,750 TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT 2.00% 2.58% 3.10% 3.25% 3.54% 3.78% 2.50% 3.23% 3.88% 4.07% 4.42% 4.73% 3.00% 3.87% 4.65% 4.88% 5.31% 5.67% 3.50% 4.52% 5.43% 5.69% 6.19% 6.62% 4.00% 5.16% 6.20% 6.50% 7.08% 7.56% 4.50% 5.81% 6.98% 7.32% 7.96% 8.51% 5.00% 6.45% 7.75% 8.13% 8.85% 9.45% 5.50% 7.10% 8.53% 8.94% 9.73% 10.40% 6.00% 7.74% 9.30% 9.76% 10.62% 11.34% 6.50% 8.39% 10.08% 10.57% 11.50% 12.29% NOTE: THE MAXIMUM MARGINAL TAX RATE FOR EACH BRACKET WAS USED IN CALCULATING THE TAXABLE YIELD EQUIVALENT. FURTHERMORE, ADDITIONAL STATE AND LOCAL TAXES PAID ON COMPARABLE TAXABLE INVESTMENTS WERE NOT USED TO INCREASE FEDERAL DEDUCTIONS. THE LOCAL INCOME TAX RATE IS ASSUMED TO BE 50% OF THE STATE RATE FOR ALL COUNTIES EXCLUDING ALLEGANY, BALITMORE, MONTGOMERY, PRINCE GEORGE'S, QUEEN ANNE'S, ST. MARY'S, SOMERSET, TALBOT, WICOMICO, AND WORCESTER. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. The Fund's average annual total returns for the one-year period ended October 31, 1996, and for the period from May 9, 1994 (date of initial public investment), through October 31, 1995, were 3.11% and 3.16%, respectively. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. oMONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. Advertising and other promotional literature may include charts, graphs and other illustrations using the Fund`s returns, or returns in general, that demonstrate basic investment concepts such as tax-deferred compounding, dollar-cost averaging and systematic investment. In addition, the Fund can compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, such as bank savings accounts, certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION Advertising and sales literature for the Fund may include discussions of economic, financial and political developments and their effect on the securities market. Such discussions may take the form of commentary on these developments by the Fund portfolio mangers and their views and analysis on how such developments could affect the Funds. In addition, advertising and sales literature may quote statistics and give general information about the mutual fund industry, including growth of the industry, from sources such as the Investment Company Institute. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. These traders handle trillions of dollars in annual trading volume. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1996, Federated Investors managed more than $40.2 billion in assets across approximately 47 money market funds, including 17 government, 10 prime and 20 municipal with assets approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $3 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. Federated's service to financial professionals and institutions has earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for service quality measurement. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (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 rate `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. MOODYS 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 SERVICES, INC. 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. CALIFORNIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS The Institutional Shares of California Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term California municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of California, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and the personal income taxes imposed by the state of California consistent with stability of principal and liquidity. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 California Municipal Securities 6 Investment Risks 6 Investment Limitations 7 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Institutional Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ HOW TO REDEEM SHARES 10 - ------------------------------------------------------ ACCOUNT AND SHARE INFORMATION 11 - ------------------------------------------------------ TAX INFORMATION 11 - ------------------------------------------------------ Federal Income Tax 11 State and Local Taxes 12 OTHER CLASSES OF SHARES 12 - ------------------------------------------------------ PERFORMANCE INFORMATION 13 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES 14 - ------------------------------------------------------ FINANCIAL STATEMENTS 15 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 27 - ------------------------------------------------------ ADDRESSES 28 - ------------------------------------------------------ CALIFORNIA MUNICIPAL CASH TRUST SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)......... None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)................................................. None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)............................... None Redemption Fee (as a percentage of amount redeemed, if applicable).................... None Exchange Fee.......................................................................... None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)...................................................... 0.00% 12b-1 Fee............................................................................. None Total Other Expenses.................................................................. 0.20% Shareholder Services Fee (after waiver)(2)........................ 0.00% Total Operating Expenses(3)................................................. 0.20%
(1) The management fee has been reduced to reflect the voluntary waiver of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The shareholder services fee has been reduced to reflect the voluntary waiver of the shareholders services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (3) The total operating expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1997. The total operating expenses were 0.20% for the fiscal year ended October 31, 1996 and would have been 1.10% absent the voluntary waivers of the management fee and shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Shares of the Trust will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information". Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period............. $2 $ 6 $11 $ 26
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. CALIFORNIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Reference is made to the Report of Independent Public Accountants on page 27.
PERIOD ENDED OCTOBER 31, 1996(a) ------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 - ------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------------------------- Net investment income 0.02 - ------------------------------------------------------------------- LESS DISTRIBUTIONS - ------------------------------------------------------------------- Distributions from net investment income (0.02) - ------------------------------------------------------------------- ------------ NET ASSET VALUE, END OF PERIOD $ 1.00 - ------------------------------------------------------------------- ------------ TOTAL RETURN(b) 2.24% - ------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------- Expenses 0.20%* - ------------------------------------------------------------------- Net investment income 3.33%* - ------------------------------------------------------------------- Expense waiver/reimbursement(c) 0.90%* - ------------------------------------------------------------------- SUPPLEMENTAL DATA - ------------------------------------------------------------------- Net assets, end of period (000 omitted) $20,089 - -------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from March 4, 1996 (date of initial public investment) to October 31, 1996. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees has established two classes of shares known as Institutional Shares and Institutional Service Shares. This prospectus relates only to Institutional Shares of the Fund, which are designed primarily for banks and other institutions that hold assets for individuals, trusts, estates, or partnerships as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term California municipal securities. The Fund may not be a suitable investment for retirement plans or for non-California taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the state of California consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of California municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and California state income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of California and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and California state income tax imposed upon non-corporate taxpayers ("California Municipal Securities"). Examples of California Municipal Securities include, but are not limited to: - tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; - bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; - municipal commercial paper and other short-term notes; - variable rate demand notes; - municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and - participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in California Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying California Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain California Municipal Securities is subject to the federal alternative minimum tax. CALIFORNIA MUNICIPAL SECURITIES California Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. California Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of California Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on California Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of California Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of California Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in California Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these California Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of California Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. The Fund's concentration in California Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of its total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50% of the Fund's average daily net assets. Also, the adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SHARES Federated Securities Corp. is the principal distributor for Institutional Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of its shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund 's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS - ------------ ------------------------------------ .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Institutional Shares from the value of Fund assets attributable to Institutional Shares, and dividing the remainder by the number of Institutional Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 9:00 a.m. Pacific time (12:00 noon Eastern time), 10:00 a.m. Pacific time, (1:00 p.m. Eastern time), and as of the close of trading (normally 1:00 p.m., Pacific time or 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased either by wire or by check. The Fund reserves the right to reject any purchase request. To make a purchase, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken by telephone. The minimum initial investment is $25,000. However, an account may be opened with a smaller amount as long as the minimum is reached within 90 days. Minimum investments will be calculated by combining all accounts maintained with the Fund. Financial institutions may impose different minimum investment requirements on their customers. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 10:00 a.m. Pacific time (1:00 p.m. Eastern time), to place an order. The order is considered received immediately. Payment by federal funds must be received before 12:00 noon Pacific time (3:00 p.m. Eastern time), that day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: California Municipal Cash Trust--Institutional Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: California Municipal Cash Trust--Institutional Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 9:00 a.m. Pacific time (12:00 noon Eastern time), will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 12:00 noon Pacific time (3:00 p.m. Eastern time), begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than California. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. CALIFORNIA TAXES. Under existing California laws, distributions made by the Fund will not be subject to California individual income taxes to the extent that such distributions qualify as exempt-interest dividends under the California Revenue and Taxation Code, and provided further that at the close of each quarter, at least 50 percent of the value of the total assets of the Fund consists of obligations the interest on which is exempt from California taxation under either the Constitution or laws of California or the Constitution or laws of the United States. The Fund will furnish its shareholders with a written note designating exempt-interest dividends within 60 days after the close of its taxable year. Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to California individual income taxes. Dividends of the Fund are not exempt from the California taxes payable by corporations. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers another class of shares called Institutional Service Shares. Institutional Service Shares are sold at net asset value primarily to banks and other institutions and are subject to a minimum initial investment of $25,000 within a 90-day period. Both classes are subject to certain of the same expenses. Institutional Service Shares are distributed with no 12b-1 Plan, but are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. CALIFORNIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 27.
YEAR ENDED OCTOBER 31, PERIOD ENDED YEAR ENDED SEPTEMBER 30, ---------------- OCTOBER 31, --------------------------------------------------------- 1996 1995 1994(a) 1994 1993 1992 1991 1990 1989(B) ------ ------ ------------ ------ ------ ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------- INCOME FROM INVESTMENT OPERATIONS - ---------------------------- Net investment income 0.03 0.03 0.002 0.02 0.02 0.03 0.04 0.05 0.03 - ---------------------------- Net realized loss on investment -- (0.01) -- -- -- -- -- -- -- - ---------------------------- ----- ----- -------- ----- ----- ----- ----- ----- ------ Total from investment operations 0.03 0.02 0.002 0.02 0.02 0.03 0.04 0.05 0.03 - ------------------------ ----- ----- -------- ----- ----- ----- ----- ----- ------ CAPITAL CONTRIBUTION -- 0.01 -- -- -- -- -- -- -- - ------------------------ ----- ----- -------- ----- ----- ----- ----- ----- ------ LESS DISTRIBUTIONS - ---------------------------- Distributions from net investment income (0.03) (0.03) (0.002) (0.02) (0.02) (0.03) (0.04) (0.05) (0.03 ) - ------------------------ ----- ----- -------- ----- ----- ----- ----- ----- ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------ ----- ----- -------- ----- ----- ----- ----- ----- ------ TOTAL RETURN(c) 3.22% 3.37% 0.23% 2.07% 2.03% 2.83% 4.30% 5.38% 2.95% - ---------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------- Expenses 0.49% 0.59% 0.59%* 0.58% 0.54% 0.45% 0.35% 0.38% 0.40%* - ---------------------------- Net investment income 3.17% 3.33% 2.71%* 2.03% 2.00% 2.76% 4.19% 5.27% 5.86%* - ---------------------------- Expense waiver/ reimbursement (d) 0.62% 0.50% 0.44%* 0.40% 0.35% 0.58% 0.75% 0.86% 0.89%* - ---------------------------- SUPPLEMENTAL DATA - ---------------------------- Net assets, end of period (000 omitted) $132,159 $96,534 $81,563 $74,707 $104,322 $59,709 $56,754 $50,391 $36,628 - ----------------------------
* Computed on an annualized basis. (a) For the one month ended October 31, 1994. The Fund changed its fiscal year-end from September 30, to October 31, beginning September 30, 1994. (b) Reflects operations for the period from March 15, 1989 (date of initial public offering) to September 30, 1989. (c) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (d) 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) CALIFORNIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--99.6% - ---------------------------------------------------------------------------------- CALIFORNIA--92.9% ------------------------------------------------------------------ $2,775,000 California HFA, Home Mortgage (Series 1989F), 3.80% TOBs (Citibank NA, New York LIQ), Optional Tender 2/1/1997 $ 2,775,000 ------------------------------------------------------------------ 1,100,000 California Health Facilities Financing Authority Weekly VRDNs (FGIC INS)/(Morgan Guaranty Trust Co., New York LIQ) 1,100,000 ------------------------------------------------------------------ 6,000,000 California PCFA, (1996 Series C) Daily VRDNs (Pacific Gas & Electric Co.)/(Bank of America NT and SA, San Francisco LOC) 6,000,000 ------------------------------------------------------------------ 7,700,000 California PCFA, (1996 Series G) Daily VRDNs (Pacific Gas & Electric Co.) 7,700,000 ------------------------------------------------------------------ 10,000,000 California State, (Series B) 3.465%, VRNs, 6/30/1997 10,000,000 ------------------------------------------------------------------ 5,000,000 California Statewide Communities Development Authority Weekly VRDNs (Memorial Health Services)/(ABN AMRO Bank N.V., Amsterdam LIQ) 5,000,000 ------------------------------------------------------------------ 4,000,000 California Statewide Communities Development Authority, (1996 Series A), 4.75% TRANs (FSA INS), 6/30/1997 4,020,085 ------------------------------------------------------------------ 3,700,000 California Statewide Communities Development Authority, (Series A) Weekly VRDNs (Barton Memorial Hospital)/(Banque Nationale de Paris LOC) 3,700,000 ------------------------------------------------------------------ 2,000,000 California Statewide Communities Development Authority, Certificates of Participation, 4.00% Bonds (Queen of Angels-Hollywood Presbyterian Medical Center), 1/1/1997 2,000,000 ------------------------------------------------------------------ 6,000,000 Central Unified School District, CA, Certificates of Participation (1995 Financing Project) Weekly VRDNs (Union Bank of California LOC) 6,000,000 ------------------------------------------------------------------ 4,000,000 (b) Clipper CA Tax-Exempt Trust, (1996 Issue A) Weekly VRDNs (California Rural Home Mortgage Finance Authority)/(MBIA INS)/ (State Street Bank and Trust Co. LIQ) 4,000,000 ------------------------------------------------------------------ 2,395,000 Folsom Cordova Unified School District, CA, 4.50% TRANs, 10/16/1997 2,411,407 ------------------------------------------------------------------ 5,100,000 Glendale, CA, (Series 1984A) Monthly VRDNs, 3.40%, 9/15/96, (Reliance Development Company, Inc.)/(Barclays Bank PLC, London LOC) 5,100,000 ------------------------------------------------------------------
CALIFORNIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------------------- CALIFORNIA--CONTINUED ------------------------------------------------------------------ $4,000,000 Huntington Beach, CA, Multifamily Housing Revenue Refunding Bonds (1996 Series A) Weekly VRDNs (Huntington Breakers Apartments)/(Sumitomo Bank Ltd., Osaka LOC) $ 4,000,000 ------------------------------------------------------------------ 5,000,000 Long Beach, CA Housing Authority, (1995 Series A) Weekly VRDNs (Channel Point Apartments)/(Union Bank of California LOC) 5,000,000 ------------------------------------------------------------------ 5,000,000 Los Angeles County, CA Local Educational Agencies, (Series A), 4.75% TRANs (FSA INS), 6/30/1997 5,022,675 ------------------------------------------------------------------ 1,700,000 Los Angeles County, CA Metropolitan Transportation Authority, 3.45% CP (ABN AMRO Bank N.V., Amsterdam, Banque Nationale de Paris, Canadian Imperial Bank of Commerce, Toronto, National Westminster Bank, PLC, London and Union Bank of California LOCs), Mandatory Tender 12/11/1996 1,700,000 ------------------------------------------------------------------ 4,000,000 Los Angeles County, CA Metropolitan Transportation Authority, 3.55% CP (ABN AMRO Bank N.V., Amsterdam, Banque Nationale de Paris, Canadian Imperial Bank of Commerce, Toronto, National Westminster Bank, PLC, London and Union Bank of California LOCs), Mandatory Tender 11/19/1996 4,000,000 ------------------------------------------------------------------ 4,000,000 Los Angeles County, CA, (Series A), 4.50% TRANs (Bank of America NT and SA, San Francisco, Credit Suisse, Zurich, Morgan Guaranty Trust Co., New York, Union Bank of Switzerland, Zurich and Westdeutsche Landesbank Girozentrale LOCs), 6/30/1997 4,021,058 ------------------------------------------------------------------ 2,000,000 Monterey Peninsula, CA Water Management District Weekly VRDNs (Wastewater Reclaimation)/(Sumitomo Bank Ltd., Osaka LOC) 2,000,000 ------------------------------------------------------------------ 2,200,000 North County, CA Schools Financing Authority, 4.75% TRANs, 7/1/1997 2,208,396 ------------------------------------------------------------------ 5,200,000 Orange County, CA IDA, (Series 1985B-Niguel Summit II) Weekly VRDNs (Hon Development Corp.)/(Bank of America NT and SA, San Francisco LOC) 5,200,000 ------------------------------------------------------------------ 7,800,000 Orange County, CA IDA, (Series 1991A) Weekly VRDNs (The Lakes)/(Citibank NA, New York LOC) 7,800,000 ------------------------------------------------------------------ 4,000,000 Orange County, CA Local Transportation Authority, Sales Tax Revenue Notes, 3.70% CP (Industrial Bank of Japan Ltd., Tokyo LOC), Mandatory Tender 1/10/1997 4,000,000 ------------------------------------------------------------------
CALIFORNIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------------------- CALIFORNIA--CONTINUED ------------------------------------------------------------------ $5,000,000 Regents of University of California, (Series A), 3.55% CP (Bank of America NT and SA, San Francisco, Bank of Montreal, Caisse Nationale De Credit Agricole, Paris, Canadian Imperial Bank of Commerce, Toronto and Societe Generale, Paris LIQs), Mandatory Tender 1/17/1997 $ 5,000,000 ------------------------------------------------------------------ 3,000,000 Riverside County, CA School Financing Authority, 4.625% RANs, 7/17/1997 3,011,701 ------------------------------------------------------------------ 2,400,000 Riverside County, CA, (Series A) Weekly VRDNs (Riverside, CA Public Facility Finance)/(Commerzbank AG, Frankfurt and National Westminster Bank, PLC, London LOCs) 2,400,000 ------------------------------------------------------------------ 900,000 Roseville, CA, Hospital Facilities Authority, (Series 1989A) Weekly VRDNs (Toronto-Dominion Bank LOC) 900,000 ------------------------------------------------------------------ 1,700,000 San Bernardino County, CA, (Series 1985) Weekly VRDNs (Woodview Apartments)/(Swiss Bank Corp., Basle LOC) 1,700,000 ------------------------------------------------------------------ 3,400,000 San Dimas, CA Redevelopment Agency, (Series 1995) Weekly VRDNs (Diversified Shopping Center Project)/(Morgan Guaranty Trust Co., New York LOC) 3,400,000 ------------------------------------------------------------------ 5,800,000 San Francisco, CA Redevelopment Finance Agency, (Series B1) Weekly VRDNs (Fillmore Center)/(Bank of Nova Scotia, Toronto LOC) 5,800,000 ------------------------------------------------------------------ 1,400,000 Santa Clara County-El Comino Hospital District, CA, (Series 1985G) Weekly VRDNs (Valley Medical Center)/(National Westminster Bank, PLC, London LOC) 1,400,000 ------------------------------------------------------------------ 400,000 Santa Clara, CA, (Series 1985C) Weekly VRDNs (Santa Clara, CA Electric System)/(National Westminster Bank, PLC, London LOC) 400,000 ------------------------------------------------------------------ 1,500,000 Selma, CA, 4.50% TRANs, 6/30/1997 1,502,882 ------------------------------------------------------------------ 2,000,000 South Coast, CA Local Education Agencies, (Series 1996A), 4.75% TRANs, 6/30/1997 2,008,617 ------------------------------------------------------------------ 4,000,000 Southern California Metropolitan Water District, CA, Commercial Paper Notes (Series B), 3.70% CP (Westdeutsche Landesbank Girozentrale LIQ), Mandatory Tender 1/15/1997 4,000,000 ------------------------------------------------------------------
CALIFORNIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------------------- CALIFORNIA--CONTINUED ------------------------------------------------------------------ $3,000,000 Southern California Metropolitan Water District, CA, Commercial Paper Notes (Series B), 3.70% CP (Westdeutsche Landesbank Girozentrale LIQ), Mandatory Tender 1/23/1997 $ 3,000,000 ------------------------------------------------------------------ 610,000 Stockton, CA, (Series 1993) Weekly VRDNs (La Quinta Inns, Inc.)/ (Nationsbank of Texas, N.A. LOC) 610,000 ------------------------------------------------------------------ 1,500,000 Victor Valley Community College District, CA, 4.00% TRANs (Union. Bank of California LOC), 1/17/1997 1,501,218 ------------------------------------------------------------------ ------------ Total 141,393,039 ------------------------------------------------------------------ ------------ PUERTO RICO--6.7% ------------------------------------------------------------------ 3,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory Tender 2/14/1997 3,000,000 ------------------------------------------------------------------ 4,000,000 Puerto Rico Government Development Bank, 3.70% CP, Mandatory Tender 11/7/1996 4,000,000 ------------------------------------------------------------------ 3,200,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 1988), 3.40% CP (Inter American University of Puerto Rico)/(Bank of Tokyo-Mitsubishi Ltd. LOC), Mandatory Tender 11/20/1996 3,200,000 ------------------------------------------------------------------ ------------ Total 10,200,000 ------------------------------------------------------------------ ------------ TOTAL INVESTMENTS (AT AMORTIZED COST)(c) $151,593,039 ------------------------------------------------------------------ ------------
(a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. NRSRO's two highest rating categories are determined without regard for sub- categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term rating categories. Securities rated in the highest short-term rating category (and unrated securities of comparable quality) are identified as First Tier securities. Securities rated in the second highest short-term rating category (and unrated securities of comparable quality) are identified as Second Tier securities. The Fund follows applicable regulations in determining whether a security rated by multiple NRSROs in different rating categories should be identified as a First or Second Tier security. CALIFORNIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- (b) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. At October 31, 1996, this security amounted to $4,000,000 which represents 2.63% of net assets. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENT BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER ------------- ------------- 100% 0.0%
(c) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($152,247,434) at October 31, 1996. The following acronyms are used throughout this portfolio: CP -- Commercial Paper FGIC -- Financial Guaranty Insurance Company FSA -- Financial Security Assurance HFA -- Housing Finance Authority IDA -- Industrial Development Authority INS -- Insured LIQ -- Liquidity Agreement LOCs -- Letter(s) of Credit LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance PCA -- Pollution Control Authority PCFA -- Pollution Control Finance Authority PLC -- Public Limited Company RANs -- Revenue Anticipation Notes SA -- Support Agreement TOBs -- Tender Option Bonds TRANs -- Tax and Revenue Anticipation Notes VRDNs -- Variable Rate Demand Notes VRNs -- Variable Rate Notes
(See Notes which are an integral part of the Financial Statements) CALIFORNIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------ Total investments in securities, at amortized cost and value $151,593,039 - ------------------------------------------------------------------------------ Cash 173,744 - ------------------------------------------------------------------------------ Income receivable 828,187 - ------------------------------------------------------------------------------ Receivable for shares sold 2,752 - ------------------------------------------------------------------------------ ------------ Total assets 152,597,722 - ------------------------------------------------------------------------------ LIABILITIES: - ------------------------------------------------------------------------------ Payable for shares redeemed $ 45,949 - ------------------------------------------------------------------- Income distribution payable 222,410 - ------------------------------------------------------------------- Payable to Shareholder Servicing Agent 29,745 - ------------------------------------------------------------------- Accrued expenses 52,184 - ------------------------------------------------------------------- -------- Total liabilities 350,288 - ------------------------------------------------------------------------------ ------------ NET ASSETS for 152,247,434 shares outstanding $152,247,434 - ------------------------------------------------------------------------------ ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------ INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------ $132,158,836 / 132,158,836 shares outstanding $1.00 - ------------------------------------------------------------------------------ ------------ INSTITUTIONAL SHARES: - ------------------------------------------------------------------------------ $20,088,598 / 20,088,598 shares outstanding $1.00 - ------------------------------------------------------------------------------ ------------
(See Notes which are an integral part of the Financial Statements) CALIFORNIA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ------------------------------------------------------------------------------------ Interest $3,669,145 - ------------------------------------------------------------------------------------ EXPENSES: - ------------------------------------------------------------------------------------ Investment advisory fee $ 501,955 - ---------------------------------------------------------------------- Administrative personnel and services fee 145,082 - ---------------------------------------------------------------------- Custodian fees 20,237 - ---------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 52,814 - ---------------------------------------------------------------------- Directors'/Trustees' fees 3,241 - ---------------------------------------------------------------------- Auditing fees 12,561 - ---------------------------------------------------------------------- Legal fees 5,311 - ---------------------------------------------------------------------- Portfolio accounting fees 49,379 - ---------------------------------------------------------------------- Shareholder services fee--Institutional Service Shares 229,181 - ---------------------------------------------------------------------- Shareholder services fee--Institutional Shares 21,796 - ---------------------------------------------------------------------- Share registration costs 55,176 - ---------------------------------------------------------------------- Printing and postage 15,702 - ---------------------------------------------------------------------- Insurance premiums 3,885 - ---------------------------------------------------------------------- Miscellaneous 1,556 - ---------------------------------------------------------------------- ---------- Total expenses 1,117,876 - ---------------------------------------------------------------------- Waivers and reimbursements-- - ---------------------------------------------------------------------- Waiver of investment advisory fee $(501,955) - ---------------------------------------------------------- Waiver of shareholder services fee--Institutional Service Shares (19,427) - ---------------------------------------------------------- Waiver of shareholder services fee--Institutional Shares (21,796) - ---------------------------------------------------------- Reimbursement of other operating expenses (103,747) - ---------------------------------------------------------- --------- Total waivers and reimbursements (646,925) - ---------------------------------------------------------------------- ---------- Net expenses 470,951 - ------------------------------------------------------------------------------------ ---------- Net investment income $3,198,194 - ------------------------------------------------------------------------------------ ----------
(See Notes which are an integral part of the Financial Statements) CALIFORNIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ------------------------------------ 1996 1995 ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS: - -------------------------------------------------------------- OPERATIONS-- - -------------------------------------------------------------- Net investment income $ 3,198,194 $ 3,099,882 - -------------------------------------------------------------- Net realized (loss) on investments -- (750,875) - -------------------------------------------------------------- ---------------- ---------------- Change in net assets resulting from operations 3,198,194 2,349,007 - -------------------------------------------------------------- ---------------- ---------------- CAPITAL CONTRIBUTION -- 750,875 - -------------------------------------------------------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS-- - -------------------------------------------------------------- Distributions from net investment income - -------------------------------------------------------------- Institutional Service Shares (2,906,707) (3,099,882) - -------------------------------------------------------------- Institutional Shares (291,487) -- - -------------------------------------------------------------- ---------------- ---------------- Change in net assets resulting from distributions to shareholders (3,198,194) (3,099,882) - -------------------------------------------------------------- ---------------- ---------------- SHARE TRANSACTIONS-- - -------------------------------------------------------------- Proceeds from sale of shares 477,899,575 361,842,642 - -------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 907,904 471,326 - -------------------------------------------------------------- Cost of shares redeemed (423,093,903) (347,342,783) - -------------------------------------------------------------- ---------------- ---------------- Change in net assets resulting from share transactions 55,713,576 14,971,185 - -------------------------------------------------------------- ---------------- ---------------- Change in net assets 55,713,576 14,971,185 - -------------------------------------------------------------- NET ASSETS: - -------------------------------------------------------------- Beginning of period 96,533,858 81,562,673 - -------------------------------------------------------------- ---------------- ---------------- End of period $ 152,247,434 $ 96,533,858 - -------------------------------------------------------------- ---------------- ----------------
(See Notes which are an integral part of the Financial Statements) CALIFORNIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Fund consists of sixteen portfolios. The financial statements included herein are only those of California Municipal Cash Trust (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 Fund offers two classes of shares: Institutional Shares and Institutional Service Shares. Effective March 4, 1996, the Fund added Institutional Shares. The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the State of California consistent with stability of principal. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. 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. CALIFORNIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- 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 Investment Company Act of 1940. Additional information on the restricted security held at October 31, 1996 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST -------- ---------------- ---------------- Clipper CA Tax-Exempt Trust (1996 Issue A) 6/28/1996 $4,040,753
(3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. Transactions in shares were as follows:
YEAR ENDED YEAR ENDED OCTOBER 31, SEPTEMBER 30, INSTITUTIONAL SERVICE SHARES 1996 1995 - ---------------------------- ------------ -------------- Shares sold 422,168,406 361,842,642 - ---------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 907,892 471,326 - ---------------------------------------------------------- Shares redeemed (387,451,320) (347,342,783) - ---------------------------------------------------------- ------------ ------------- Net change resulting from Institutional Service Share transactions 35,624,978 14,971,185 - ---------------------------------------------------------- ----------- -------------
CALIFORNIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PERIOD ENDED OCTOBER 31, INSTITUTIONAL SHARES 1996(a) - -------------------- ------------ Shares sold 55,731,169 - ---------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 12 - ---------------------------------------------------------- Shares redeemed (35,642,583) - ---------------------------------------------------------- ----------- Net change resulting from Institutional Share transactions 20,088,598 - ---------------------------------------------------------- ----------- Net change resulting from Fund Share transactions 55,713,576 - ---------------------------------------------------------- -----------
(a) For the period from March 4, 1996 (date of initial public investment) to October 31, 1996. At October 31, 1996, capital paid-in aggregated $152,247,434. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.50% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement 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 for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. CALIFORNIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- 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. CAPITAL CONTRIBUTION--Federated Management made a capital contribution in the amount of $750,875 to California Municipal Cash Trust during the year ended October 31, 1995. The contribution represents the excess over fair market value ($720,000) paid by Federated Management to acquire $4,000,000 par, Orange County , CA Series B Bonds from the Fund on July 10, 1995. The contribution also consist of the LOC ($30,875) obtained by Federated Management on December 7, 1994 to support the value of the Orange County Bonds. The LOC guaranteed the principal amount of the securities in the event the issuer did not timely pay the principal at maturity. These transactions for the fiscal year ended October 31, 1995 resulted in a permanent book and tax difference. As such, the paid-in-capital and accumulated net realized gain/loss accounts have been adjusted accordingly. This adjustment did not affect net investment income, net realized gains/losses, or net assets. INTERFUND TRANSACTIONS--During the period ended October 31, 1996, 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 $240,495,500 and $211,800,000, respectively. GENERAL--Certain of the Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies. (5) CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 61% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 8.2% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (California Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of California Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1996, the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see pages 2 and 14 of the prospectus) for the periods presented. 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 October 31, 1996, 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 California Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 13, 1996 ADDRESSES - -------------------------------------------------------------------------------- California Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------ Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------ Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ------------------------------------------------------------------------------------------------ Custodian State Street Bank & Trust Co. 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 Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - ------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CALIFORNIA MUNICIPAL CASH TRUST INSTITUTIONAL SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 LOGO FEDERATED INVESTORS Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. Cusip 314229675 G00300-01-IS (12/96) LOGO CALIFORNIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS The Institutional Service Shares of California Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term California municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of California, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and the personal income taxes imposed by the state of California consistent with stability of principal and liquidity. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SERVICE SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 California Municipal Securities 6 Investment Risks 6 Investment Limitations 7 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Institutional Service Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ Special Purchases Features 10 HOW TO REDEEM SHARES 10 - ------------------------------------------------------ Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 12 - ------------------------------------------------------ TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 State and Local Taxes 13 OTHER CLASS OF SHARES 14 - ------------------------------------------------------ PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SHARES 15 - ------------------------------------------------------ FINANCIAL STATEMENTS 16 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 28 - ------------------------------------------------------ ADDRESSES 29 - ------------------------------------------------------ CALIFORNIA MUNICIPAL CASH TRUST SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)......... None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)................................................. None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable).............................................. None Redemption Fee (as a percentage of amount redeemed, if applicable).................... None Exchange Fee.......................................................................... None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)...................................................... 0.00% 12b-1 Fee............................................................................. None Total Other Expenses.................................................................. 0.49% Shareholder Services Fee................................................ 0.25% Total Operating Expenses(2)................................................. 0.49%
(1) The estimated management fee has been reduced to reflect the anticipated voluntary waiver of the management fee. The adviser can terminate this anticipated voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The total operating expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1997. The total operating expenses were 0.49% for fiscal year ended October 31, 1996 and would have been 1.11% absent the voluntary waivers of the management fee, a portion of the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Service Shares of the Trust will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information". Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period......... $5 $16 $27 $ 62
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. CALIFORNIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 28.
YEAR ENDED PERIOD ENDED OCTOBER 31, OCTOBER 31, YEAR ENDED SEPTEMBER 30, ------------------- ------------ --------------------------------------------------------- 1996 1995 1994(a) 1994 1993 1992 1991 1990 1989(B) ---------- ------ --------- ------ ------ ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------- Net investment income 0.03 0.03 0.002 0.02 0.02 0.03 0.04 0.05 0.03 - --------------------------- Net realized loss on investment -- (0.01) -- -- -- -- -- -- -- - --------------------------- ------- ----- -------- ----- ----- ----- ----- ----- ------ Total from investment operations 0.03 0.02 0.002 0.02 0.02 0.03 0.04 0.05 0.03 - --------------------------- ------- ----- -------- ----- ----- ----- ----- ----- ------ CAPITAL CONTRIBUTIONS -- 0.01 -- -- -- -- -- -- -- - --------------------------- ------- ----- -------- ----- ----- ----- ----- ----- ------ LESS DISTRIBUTIONS - --------------------------- Distributions from net investment income (0.03) (0.03) (0.002) (0.02) (0.02) (0.03) (0.04) (0.05) (0.03) - --------------------------- ------- ----- -------- ----- ----- ----- ----- ----- ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------------------- ------- ----- -------- ----- ----- ----- ----- ----- ------ TOTAL RETURN(b) 3.22% 3.37% 0.23% 2.07% 2.03% 2.83% 4.30% 5.38% 2.95% - --------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------- Expenses 0.49% 0.59% 0.59%* 0.58% 0.54% 0.45% 0.35% 0.38% 0.40%* - --------------------------- Net investment income 3.17% 3.33% 2.71%*2.03% 2.00% 2.76% 4.19% 5.27% 5.86%* - --------------------------- Expense waiver/ reimbursement (d) 0.62% 0.50% 0.44%* 0.40% 0.35% 0.58% 0.75% 0.86% 0.89%* - --------------------------- SUPPLEMENTAL DATA - --------------------------- Net assets, end of period (000 omitted) $132,159 $96,534 $81,563 $74,707 $104,322 $59,709 $56,754 $50,391 $36,628 - ---------------------------
* Computed on an annualized basis. (a) For the one month ended October 31, 1994. The Fund changed its fiscal year-end from September 30, to October 31, beginning September 30, 1994. (b) Reflects operations for the period from March 15, 1989 (date of initial public offering) to September 30, 1989. (c) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (d) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees has established two classes of shares known as Institutional Service Shares and Institutional Shares. This prospectus relates only to Institutional Service Shares of the Fund, which are designed primarily for banks and other institutions that hold assets for individuals, trusts, estates, or partnerships as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term California municipal securities. The Fund may not be a suitable investment for retirement plans or for non-California taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the state of California consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of California municipal securities (as defined below) maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and California state income tax (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of California and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and California state income tax imposed upon non-corporate taxpayers ("California Municipal Securities"). Examples of California Municipal Securities include, but are not limited to: - tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; - bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; - municipal commercial paper and other short-term notes; - variable rate demand notes; - municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and - participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in California Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying California Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain California Municipal Securities is subject to the federal alternative minimum tax. CALIFORNIA MUNICIPAL SECURITIES California Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. California Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of California Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on California Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of California Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of California Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in California Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these California Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of California Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations, the Fund's concentration in California Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of those assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50% of the Fund's average daily net assets. Also, the adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES Federated Securities Corp. is the principal distributor for Institutional Service Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of its shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE FEE DAILY NET ASSETS - -------- ------------------------------------ .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Institutional Service Shares from the value of Fund assets attributable to Institutional Service Shares, and dividing the remainder by the number of Institutional Service Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 9:00 a.m. Pacific time, (12:00 noon Eastern time), 10:00 a.m. Pacific time, (1:00 p.m. Eastern time), and as of the close of trading (normally 1:00 p.m. Pacific time or 4:00 p.m., Eastern time), on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $25,000 or more within a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 10:00 a.m. Pacific time (1:00 p.m. Eastern time), to place an order. The order is considered received immediately. Payment by federal funds must be received before 12:00 noon Pacific time (3:00 p.m. Eastern time), that day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: California Municipal Cash Trust--Institutional Service Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: California Municipal Cash Trust--Institutional Service Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Shareholder Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 9:00 am. Pacific time (12:00 noon Eastern time), will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend for redemption requests received before 11:00 a.m. Pacific time (2:00 p.m. Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $25,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 10:00 a.m. Pacific time (1:00 p.m. Eastern time), begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than California. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. CALIFORNIA TAXES. Under existing California laws, distributions made by the Fund will not be subject to California individual income taxes to the extent that such distributions qualify as exempt-interest dividends under the California Revenue and Taxation Code, so long as at the close of each quarter, at least 50 percent of the value of the total assets of the Fund consists of obligations the interest on which is exempt from California taxation under either the Constitution or laws of California or the Constitution or laws of the United States. The Fund will furnish its shareholders with a written note designating exempt-interest dividends within 60 days after the close of its taxable year. Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to California individual income taxes. Dividends of the Fund are not exempt from the California taxes payable by corporations. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers another class of shares called Institutional Shares. Institutional Shares are sold at net asset value primarily to banks and other financial institutions and are subject to a minimum initial investment of $25,000 within a 90-day period. Both classes are subject to certain of the same expenses. Institutional Shares are distributed with no 12b-1 Plan, but are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. CALIFORNIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Reference is made to the Report of Independent Public Accountants on page 28.
PERIOD ENDED OCTOBER 31, 1996(a) ------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 - ------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------------------------- Net investment income 0.02 - ------------------------------------------------------------------- LESS DISTRIBUTIONS - ------------------------------------------------------------------- Distributions from net investment income (0.02) - ------------------------------------------------------------------- ------- NET ASSET VALUE, END OF PERIOD $ 1.00 - ------------------------------------------------------------------- ------- TOTAL RETURN(b) 2.24% - ------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------- Expenses 0.20%* - ------------------------------------------------------------------- Net investment income 3.33%* - ------------------------------------------------------------------- Expense waiver/reimbursement(c) 0.90%* - ------------------------------------------------------------------- SUPPLEMENTAL DATA - ------------------------------------------------------------------- Net assets, end of period (000 omitted) $20,089 - -------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from March 4, 1996 (date of initial public investment) to October 31, 1996. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) CALIFORNIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ---------- ------------------------------------------------------------------ ------------ (a) SHORT-TERM MUNICIPALS--99.6% - ---------------------------------------------------------------------------------- CALIFORNIA--92.9% ------------------------------------------------------------------ $2,775,000 California HFA, Home Mortgage (Series 1989F), 3.80% TOBs (Citibank NA, New York LIQ), Optional Tender 2/1/1997 $ 2,775,000 ------------------------------------------------------------------ 1,100,000 California Health Facilities Financing Authority Weekly VRDNs (FGIC INS)/(Morgan Guaranty Trust Co., New York LIQ) 1,100,000 ------------------------------------------------------------------ 6,000,000 California PCFA, (1996 Series C) Daily VRDNs (Pacific Gas & Electric Co.)/(Bank of America NT and SA, San Francisco LOC) 6,000,000 ------------------------------------------------------------------ 7,700,000 California PCFA, (1996 Series G) Daily VRDNs (Pacific Gas & Electric Co.) 7,700,000 ------------------------------------------------------------------ 10,000,000 California State, 3.465%, (Series B) VRNs, 6/30/1997 10,000,000 ------------------------------------------------------------------ 5,000,000 California Statewide Communities Development Authority Weekly VRDNs (Memorial Health Services)/(ABN AMRO Bank N.V., Amsterdam LIQ) 5,000,000 ------------------------------------------------------------------ 4,000,000 California Statewide Communities Development Authority, (1996 Series A), 4.75% TRANs (FSA INS), 6/30/1997 4,020,085 ------------------------------------------------------------------ 3,700,000 California Statewide Communities Development Authority, (Series A) Weekly VRDNs (Barton Memorial Hospital)/(Banque Nationale de Paris LOC) 3,700,000 ------------------------------------------------------------------ 2,000,000 California Statewide Communities Development Authority, Certificates of Participation, 4.00% Bonds (Queen of Angels-Hollywood Presbyterian Medical Center), 1/1/1997 2,000,000 ------------------------------------------------------------------ 6,000,000 Central Unified School District, CA, Certificates of Participation (1995 Financing Project) Weekly VRDNs (Union Bank of California LOC) 6,000,000 ------------------------------------------------------------------ 4,000,000 (b) Clipper CA Tax-Exempt Trust, (1996 Issue A) Weekly VRDNs (California Rural Home Mortgage Finance Authority)/(MBIA INS)/ (State Street Bank and Trust Co. LIQ) 4,000,000 ------------------------------------------------------------------ 2,395,000 Folsom Cordova Unified School District, CA, 4.50% TRANs, 10/16/1997 2,411,407 ------------------------------------------------------------------ 5,100,000 Glendale, CA, (Series 1984A) Monthly VRDNs, 3.40%, 9/15/1996 (Reliance Development Company, Inc.)/(Barclays Bank PLC, London LOC) 5,100,000 ------------------------------------------------------------------
CALIFORNIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------------------- CALIFORNIA--CONTINUED ------------------------------------------------------------------ $4,000,000 Huntington Beach, CA, Multifamily Housing Revenue Refunding Bonds (1996 Series A) Weekly VRDNs (Huntington Breakers Apartments)/(Sumitomo Bank Ltd., Osaka LOC) $ 4,000,000 ------------------------------------------------------------------ 5,000,000 Long Beach, CA Housing Authority, (1995 Series A) Weekly VRDNs (Channel Point Apartments)/(Union Bank of California LOC) 5,000,000 ------------------------------------------------------------------ 5,000,000 Los Angeles County, CA Local Educational Agencies, (Series A), 4.75% TRANs (FSA INS), 6/30/1997 5,022,675 ------------------------------------------------------------------ 1,700,000 Los Angeles County, CA Metropolitan Transportation Authority, 3.45% CP (ABN AMRO Bank N.V., Amsterdam, Banque Nationale de Paris, Canadian Imperial Bank of Commerce, Toronto, National Westminster Bank, PLC, London and Union Bank of California LOCs), Mandatory Tender 12/11/1996 1,700,000 ------------------------------------------------------------------ 4,000,000 Los Angeles County, CA Metropolitan Transportation Authority, 3.55% CP (ABN AMRO Bank N.V., Amsterdam, Banque Nationale de Paris, Canadian Imperial Bank of Commerce, Toronto, National Westminster Bank, PLC, London and Union Bank of California LOCs), Mandatory Tender 11/19/1996 4,000,000 ------------------------------------------------------------------ 4,000,000 Los Angeles County, CA, (Series A), 4.50% TRANs (Bank of America NT and SA, San Francisco, Credit Suisse, Zurich, Morgan Guaranty Trust Co., New York, Union Bank of Switzerland, Zurich and Westdeutsche Landesbank Girozentrale LOCs), 6/30/1997 4,021,058 ------------------------------------------------------------------ 2,000,000 Monterey Peninsula, CA Water Management District Weekly VRDNs (Wastewater Reclaimation)/(Sumitomo Bank Ltd., Osaka LOC) 2,000,000 ------------------------------------------------------------------ 2,200,000 North County, CA Schools Financing Authority, 4.75% TRANs, 7/1/1997 2,208,396 ------------------------------------------------------------------ 5,200,000 Orange County, CA IDA, (Series 1985B-Niguel Summit II) Weekly VRDNs (Hon Development Corp.)/(Bank of America NT and SA, San Francisco LOC) 5,200,000 ------------------------------------------------------------------ 7,800,000 Orange County, CA IDA, (Series 1991A) Weekly VRDNs (The Lakes)/(Citibank NA, New York LOC) 7,800,000 ------------------------------------------------------------------ 4,000,000 Orange County, CA Local Transportation Authority, Sales Tax Revenue Notes, 3.70% CP (Industrial Bank of Japan Ltd., Tokyo LOC), Mandatory Tender 1/10/1997 4,000,000 ------------------------------------------------------------------
CALIFORNIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------------------- CALIFORNIA--CONTINUED ------------------------------------------------------------------ $5,000,000 Regents of University of California, (Series A), 3.55% CP (Bank of America NT and SA, San Francisco, Bank of Montreal, Caisse Nationale De Credit Agricole, Paris, Canadian Imperial Bank of Commerce, Toronto and Societe Generale, Paris LIQs), Mandatory Tender 1/17/1997 $ 5,000,000 ------------------------------------------------------------------ 3,000,000 Riverside County, CA School Financing Authority, 4.625% RANs, 7/17/1997 3,011,701 ------------------------------------------------------------------ 2,400,000 Riverside County, CA, (Series A) Weekly VRDNs (Riverside, CA Public Facility Finance)/(Commerzbank AG, Frankfurt and National Westminster Bank, PLC, London LOCs) 2,400,000 ------------------------------------------------------------------ 900,000 Roseville, CA, Hospital Facilities Authority, (Series 1989A) Weekly VRDNs (Toronto-Dominion Bank LOC) 900,000 ------------------------------------------------------------------ 1,700,000 San Bernardino County, CA, (Series 1985) Weekly VRDNs (Woodview Apartments)/(Swiss Bank Corp., Basle LOC) 1,700,000 ------------------------------------------------------------------ 3,400,000 San Dimas, CA Redevelopment Agency, (Series 1995) Weekly VRDNs (Diversified Shopping Center Project)/(Morgan Guaranty Trust Co., New York LOC) 3,400,000 ------------------------------------------------------------------ 5,800,000 San Francisco, CA Redevelopment Finance Agency, (Series B1) Weekly VRDNs (Fillmore Center)/(Bank of Nova Scotia, Toronto LOC) 5,800,000 ------------------------------------------------------------------ 1,400,000 Santa Clara County-El Comino Hospital District, CA, (Series 1985G) Weekly VRDNs (Valley Medical Center)/(National Westminster Bank, PLC, London LOC) 1,400,000 ------------------------------------------------------------------ 400,000 Santa Clara, CA, (Series 1985C) Weekly VRDNs (Santa Clara, CA Electric System)/(National Westminster Bank, PLC, London LOC) 400,000 ------------------------------------------------------------------ 1,500,000 Selma, CA, 4.50% TRANs, 6/30/1997 1,502,882 ------------------------------------------------------------------ 2,000,000 South Coast, CA Local Education Agencies, (Series 1996A), 4.75% TRANs, 6/30/1997 2,008,617 ------------------------------------------------------------------ 4,000,000 Southern California Metropolitan Water District, CA, Commercial Paper Notes (Series B), 3.70% CP (Westdeutsche Landesbank Girozentrale LIQ), Mandatory Tender 1/15/1997 4,000,000 ------------------------------------------------------------------
CALIFORNIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ (a) SHORT-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------------------- CALIFORNIA--CONTINUED ------------------------------------------------------------------ $3,000,000 Southern California Metropolitan Water District, CA, Commercial Paper Notes (Series B), 3.70% CP (Westdeutsche Landesbank Girozentrale LIQ), Mandatory Tender 1/23/1997 $ 3,000,000 ------------------------------------------------------------------ 610,000 Stockton, CA, (Series 1993) Weekly VRDNs (La Quinta Inns, Inc.)/ (Nationsbank of Texas, N.A. LOC) 610,000 ------------------------------------------------------------------ 1,500,000 Victor Valley Community College District, CA, 4.00% TRANs (Union. Bank of California LOC), 1/17/1997 1,501,218 ------------------------------------------------------------------ ------------ Total 141,393,039 ------------------------------------------------------------------ ------------ PUERTO RICO--6.7% ------------------------------------------------------------------ 3,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory Tender 2/14/1997 3,000,000 ------------------------------------------------------------------ 4,000,000 Puerto Rico Government Development Bank, 3.70% CP, Mandatory Tender 11/7/1996 4,000,000 ------------------------------------------------------------------ 3,200,000 Puerto Rico Industrial, Medical & Environmental PCA, (Series 1988), 3.40% CP (Inter American University of Puerto Rico)/(Bank of Tokyo-Mitsubishi Ltd. LOC), Mandatory Tender 11/20/1996 3,200,000 ------------------------------------------------------------------ ------------ Total 10,200,000 ------------------------------------------------------------------ ------------ TOTAL INVESTMENTS (AT AMORTIZED COST)(c) $151,593,039 ------------------------------------------------------------------ ------------
(a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. NRSRO's two highest rating categories are determined without regard for sub- categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term rating categories. Securities rated in the highest short-term rating category (and unrated securities of comparable quality) are identified as First Tier securities. Securities rated in the second highest short-term rating category (and unrated securities of comparable quality) are identified as Second Tier securities. The Fund follows applicable regulations in determining whether a security rated by multiple NRSROs in different rating categories should be identified as a First or Second Tier security. CALIFORNIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- (b) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. At October 31, 1996, this security amounted to $4,000,000 which represents 2.63% of net assets. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENT BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER ----------- ------------ 100% 0.0%
(c) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($152,247,434) at October 31, 1996. The following acronyms are used throughout this portfolio: CP -- Commercial Paper FGIC -- Financial Guaranty Insurance Company FSA -- Financial Security Assurance HFA -- Housing Finance Authority IDA -- Industrial Development Authority INS -- Insured LIQ -- Liquidity Agreement LOCs -- Letter(s) of Credit LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance PCA -- Pollution Control Authority PCFA -- Pollution Control Finance Authority PLC -- Public Limited Company RANs -- Revenue Anticipation Notes SA -- Support Agreement TOBs -- Tender Option Bonds TRANs -- Tax and Revenue Anticipation Notes VRDNs -- Variable Rate Demand Notes VRNs -- Variable Rate Notes
(See Notes which are an integral part of the Financial Statements) CALIFORNIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------ Total investments in securities, at amortized cost and value $151,593,039 - ------------------------------------------------------------------------------ Cash 173,744 - ------------------------------------------------------------------------------ Income receivable 828,187 - ------------------------------------------------------------------------------ Receivable for shares sold 2,752 - ------------------------------------------------------------------------------ ------------ Total assets 152,597,722 - ------------------------------------------------------------------------------ LIABILITIES: - ------------------------------------------------------------------------------ Payable for shares redeemed $ 45,949 - ------------------------------------------------------------------- Income distribution payable 222,410 - ------------------------------------------------------------------- Payable to Shareholder Servicing Agent 29,745 - ------------------------------------------------------------------- Accrued expenses 52,184 - ------------------------------------------------------------------- -------- Total liabilities 350,288 - ------------------------------------------------------------------------------ ------------ NET ASSETS for 152,247,434 shares outstanding $152,247,434 - ------------------------------------------------------------------------------ ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------ INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------ $132,158,836 / 132,158,836 shares outstanding $1.00 - ------------------------------------------------------------------------------ ------------ INSTITUTIONAL SHARES: - ------------------------------------------------------------------------------ $20,088,598 / 20,088,598 shares outstanding $1.00 - ------------------------------------------------------------------------------ ------------
(See Notes which are an integral part of the Financial Statements) CALIFORNIA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ------------------------------------------------------------------------------------ Interest $3,669,145 - ------------------------------------------------------------------------------------ EXPENSES: - ------------------------------------------------------------------------------------ Investment advisory fee $ 501,955 - ---------------------------------------------------------------------- Administrative personnel and services fee 145,082 - ---------------------------------------------------------------------- Custodian fees 20,237 - ---------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 52,814 - ---------------------------------------------------------------------- Directors'/Trustees' fees 3,241 - ---------------------------------------------------------------------- Auditing fees 12,561 - ---------------------------------------------------------------------- Legal fees 5,311 - ---------------------------------------------------------------------- Portfolio accounting fees 49,379 - ---------------------------------------------------------------------- Shareholder services fee--Institutional Service Shares 229,181 - ---------------------------------------------------------------------- Shareholder services fee--Institutional Shares 21,796 - ---------------------------------------------------------------------- Share registration costs 55,176 - ---------------------------------------------------------------------- Printing and postage 15,702 - ---------------------------------------------------------------------- Insurance premiums 3,885 - ---------------------------------------------------------------------- Miscellaneous 1,556 - ---------------------------------------------------------------------- ---------- Total expenses 1,117,876 - ---------------------------------------------------------------------- Waivers and reimbursements-- - ---------------------------------------------------------------------- Waiver of investment advisory fee $(501,955) - ---------------------------------------------------------- Waiver of shareholder services fee--Institutional Service Shares (19,427) - ---------------------------------------------------------- Waiver of shareholder services fee--Institutional Shares (21,796) - ---------------------------------------------------------- Reimbursement of other operating expenses (103,747) - ---------------------------------------------------------- --------- Total waivers and reimbursements (646,925) - ---------------------------------------------------------------------- ---------- Net expenses 470,951 - ------------------------------------------------------------------------------------ ---------- Net investment income $3,198,194 - ------------------------------------------------------------------------------------ ----------
(See Notes which are an integral part of the Financial Statements) CALIFORNIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, ------------------------------------ 1996 1995 ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS: - -------------------------------------------------------------- OPERATIONS-- - -------------------------------------------------------------- Net investment income $ 3,198,194 $ 3,099,882 - -------------------------------------------------------------- ---------------- ---------------- Net realized (loss) on investments -- (750,875) - -------------------------------------------------------------- ---------------- ---------------- Change in net assets resulting from operations 3,198,194 2,349,007 - -------------------------------------------------------------- ---------------- ---------------- CAPITAL CONTRIBUTION -- 750,875 - -------------------------------------------------------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS-- - -------------------------------------------------------------- Distributions from net investment income - -------------------------------------------------------------- Institutional Service Shares (2,906,707) (3,099,882) - -------------------------------------------------------------- Institutional Shares (291,487) -- - -------------------------------------------------------------- ---------------- ---------------- Change in net assets resulting from distributions to shareholders (3,198,194) (3,099,882) - -------------------------------------------------------------- ---------------- ---------------- SHARE TRANSACTIONS-- - -------------------------------------------------------------- Proceeds from sale of shares 477,899,575 361,842,642 - -------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 907,904 471,326 - -------------------------------------------------------------- Cost of shares redeemed (423,093,903) (347,342,783) - -------------------------------------------------------------- ---------------- ---------------- Change in net assets resulting from share transactions 55,713,576 14,971,185 - -------------------------------------------------------------- ---------------- ---------------- Change in net assets 55,713,576 14,971,185 - -------------------------------------------------------------- NET ASSETS: - -------------------------------------------------------------- Beginning of period 96,533,858 81,562,673 - -------------------------------------------------------------- ---------------- ---------------- End of period $ 152,247,434 $ 96,533,858 - -------------------------------------------------------------- ---------------- ----------------
(See Notes which are an integral part of the Financial Statements) CALIFORNIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Fund consists of sixteen portfolios. The financial statements included herein are only those of California Municipal Cash Trust (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 Fund offers two classes of shares: Institutional Shares and Institutional Service Shares. Effective March 4, 1996 the Fund added Institutional Shares. The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the State of California consistent with stability of principal. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. 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. CALIFORNIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- 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 Investment Company Act of 1940. Additional information on the restricted security held at October 31, 1996 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST -------- ---------------- ---------------- Clipper CA Tax-Exempt Trust (1996 Issue A) 6/28/1996 $4,040,753
(3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. Transactions in shares were as follows:
YEAR ENDED YEAR ENDED OCTOBER 31, SEPTEMBER 30, INSTITUTIONAL SERVICE SHARES 1996 1995 - ---------------------------- ----------- ------------- Shares sold 422,168,406 361,842,642 - ---------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 907,892 471,326 - ---------------------------------------------------------- Shares redeemed (387,451,320) (347,342,783) - ---------------------------------------------------------- ----------- -------------- Net change resulting from Institutional Service Share transactions 35,624,978 14,971,185 - ---------------------------------------------------------- ----------- --------------
CALIFORNIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PERIOD ENDED OCTOBER 31, INSTITUTIONAL SHARES 1996(a) - -------------------- ------------ Shares sold 55,731,169 - ---------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 12 - ---------------------------------------------------------- Shares redeemed (35,642,583) - ---------------------------------------------------------- ----------- Net change resulting from Institutional Share transactions 20,088,598 - ---------------------------------------------------------- ----------- Net change resulting from Fund share transactions 55,713,576 - ---------------------------------------------------------- -----------
(a) For the period from March 4, 1996 (date of initial public investment) to October 31, 1996. At October 31, 1996, capital paid in aggregated $152,247,434. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.50% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement 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 for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. CALIFORNIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- 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. CAPITAL CONTRIBUTION--Federated Management made a capital contribution in the amount of $750,875 to California Municipal Cash Trust during the year ended October 31, 1995. The contribution represents the excess over fair market value ($720,000) paid by Federated Management to acquire $4,000,000 par, Orange County , CA Series B Bonds from the Fund on July 10, 1995. The contribution also consist of the LOC ($30,875) obtained by Federated Management on December 7, 1994 to support the value of the Orange County Bonds. The LOC guaranteed the principal amount of the securities in the event the issuer did not timely pay the principal at maturity. These transactions for the fiscal year ended October 31, 1995, resulted in a permanent book and tax difference. As such, the paid-in-capital and accumulated net realized gain/loss accounts have been adjusted accordingly. This adjustment did not affect net investment income, net realized gains/losses, or net assets. INTERFUND TRANSACTIONS--During the period ended October 31, 1996, 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 $240,495,500 and $211,800,000, respectively. GENERAL--Certain of the Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies. (5) CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 61% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 8.2% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (California Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of California Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1996, the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see pages 2 and 15 of the prospectus) for the periods presented. 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 October 31, 1996, 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 California Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 13, 1996 ADDRESSES - -------------------------------------------------------------------------------- California Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - ---------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ---------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ---------------------------------------------------------------------------------------------- Custodian State Street Bank & Trust Co. 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 Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - ----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CALIFORNIA MUNICIPAL CASH TRUST INSTITUTIONAL SERVICE SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 LOGO FEDERATED INVESTORS Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. LOGO Cusip 314229766 G00329-01-SS (12/96) CALIFORNIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES INSTITUTIONAL SERVICE SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectuses of California Municipal Cash Trust (the ``Fund'), a portfolio of Federated Municipal Trust (the ``Trust') dated December 31, 1996. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-341-7400. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1996 [logo] Federated Securities Corp. is the distributor of the Funds and is a subsidiary of Federated Investors. Cusip 314229675 Cusip 314229766 G0329-02 (12/96) INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1 Repurchase Agreements 1 Credit Enhancement 2 CALIFORNIA INVESTMENT RISKS 2 INVESTMENT LIMITATIONS 3 FEDERATED MUNICIPAL TRUST MANAGEMENT 6 Share Ownership 9 Trustees Compensation 10 Trustee Liability 10 INVESTMENT ADVISORY SERVICES 11 Investment Adviser 11 Advisory Fees 11 BROKERAGE TRANSACTIONS 11 OTHER SERVICES 11 Fund Administration 11 Custodian and Portfolio Accountant 12 Transfer Agent 12 Independent Public Accountants 12 SHAREHOLDER SERVICES 12 DETERMINING NET ASSET VALUE 12 REDEMPTION IN KIND 13 MASSACHUSETTS PARTNERSHIP LAW 13 THE FUND'S TAX STATUS 13 PERFORMANCE INFORMATION 13 Yield 13 Effective Yield 13 Tax-Equivalent Yield 14 Tax-Equivalency Table 14 Total Return 15 Performance Comparisons 16 Economic and Market Information 16 ABOUT FEDERATED INVESTORS 16 Mutual Fund Market 16 Institutional Clients 17 Trust Organizations 17 Broker/Dealers and Bank Broker/Dealer Subsidiaries 17 APPENDIX 18 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security; the issuer of any demand feature applicable to the security; or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an `event of non-appropriation''); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations (`NRSROs'') or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group (`S&P''), MIG-1 or MIG-2 by Moody's Investors Service, Inc. (`Moody's''), or F-1+, F-1, or F-2 by Fitch Investors Service, Inc. (`Fitch'') are all considered rated in one of the two highest short-term rating categories. The Fund will follow applicable regulations in determining whether a security rated by more than one NRSRO can be treated as being in one of the two highest short-term rating categories; currently, such securities must be rated by two NRSROs in one of their two highest rating categories. See `Regulatory Compliance.'' WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund in a dollar amount sufficient to make payment for the securities to be purchased are: segregated on the Fund`s records at the trade date; marked to market daily; and maintained until the transaction is settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the `credit enhancer''), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. CALIFORNIA INVESTMENT RISKS LIMITS ON TAXING AND SPENDING AUTHORITY Developments in California ( the `State'' or ``California'') which constrain the taxing and spending authority of California governmental entities could adversely affect the ability of such entities to meet their interest and/or principal payment obligations on securities they have issued or will issue. The following information constitutes only a brief summary and is not intended as a complete description. In 1978, a statewide referendum approved Proposition 13, an amendment to the California Constitution limiting both the valuation of real property for property tax purposes and the power of local taxing authorities to increase real property tax revenues. To provide revenue to local governments, legislation was enacted shortly thereafter providing for the redistribution to local governments of the State's then existing surplus in its General Fund, reallocation of revenues to local governments, and assumption by the State of certain local government obligations. More recent California legislation has, however, reduced State assistance payments to local governments and reallocated a portion of such payments to the State's General Fund. In 1979, California voters amended the California Constitution again by passing Article XIII B, which imposes an appropriations limit on the spending authority of certain State and local government entities. The State's appropriations limit is based on its 1978-1979 fiscal year authorizations to expend proceeds of taxes and is adjusted annually to reflect changes in cost of living and population and transfer of financial responsibility from one governmental unit to another. If a California governmental entity raises revenues beyond its appropriations limit, the excess must be returned to the entity's taxpayers within the two subsequent fiscal years, generally by a tax credit, refund, or temporary suspension of tax rates or fee schedules. These spending limitations do not, however, apply to the debt service on obligations existing or legally authorized as of January 1, 1979, or on bonded indebtedness thereafter approved by the voters. In November 1988, California voters approved Proposition 98. This initiative requires that revenues in excess of amounts permitted to be spent, and which would otherwise be returned by revision of tax rates or fee schedules, be transferred and allocated (up to a maximum of 4%) to the State School Fund and be expended solely for purposes of instructional improvement and accountability. Any funds allocated to the State school fund shall cause the appropriation limits to be annually increased for any such allocation made in the prior year. Prop. 98 also requires the State to provide a minimum level of funding for public schools and community colleges. The initiative permits the enactment of legislation, by a two- thirds vote, to suspend the minimum funding requirement for one year. On September 28, 1995, the California Supreme Court upheld the constitutionality of Proposition 62. This referendum was approved by the State's voters in 1986, but not enforced due to previous judicial decisions. Prop. 62 requires a two-thirds voter approval for special taxes and a new simple majority approval for general municipal purposes for general law cities and counties . The future effect of Proposition 62 on the financial performance of California local governments and on note and debt security in unclear. It is possible that court challenges, based on Prop. 62, to taxes raised or imposed after 1986, may reduce general municipal revenues available for financing municipal operations and services, including repayment of tax anticipation notes and other forms of debt such as certificates of participation. In November of 1996, the California voters approved Proposition 218, which further limits the ability of local governments to raise certain taxes without direct voter approval. For general taxes the locality must seek a majority and for special taxes a two-thirds majority. The long term effects on municipalities with respect to Prop. 218 are yet to be determined. Prop. 218 extends the voter approval to the 90 plus charter cities in California. The effects of these various constitutional and statutory changes upon the ability of California municipal securities issuers to pay interest and principal on their obligations remain unclear. Furthermore, other measures affecting the taxing or spending authority of California or its political subdivisions may be approved or enacted in the future. ECONOMIC DEVELOPMENTS The California economy is in recovery. Statewide unemployment in 1995 was nearly one full percentage point lower than in 1994, and the employment gains are continuing into 1996. Major sectors of employment growth have been high tech industries and motion picture production. Gains in these and other sectors have more than offset continued job losses in the aerospace and financial services industries. Other positive economic developments include greatly increased exports and retail sales. However, there are soft spots in the recovery. The aforementioned aerospace and defense as well as financial sectors continue to experience restructuring. Additionally , the housing sector remains weak . As a result of the improvement in the overall economy, tax revenues have been higher than budgeted. For fiscal 1995, the State's general (operating) fund revenues were 6.7% greater than fiscal 1994. Revenues for fiscal year 1996 were $800 million more than budgeted, but operations were slim due to higher than budgeted expenditures. Financial challenges clearly remain, as the budget for fiscal year 1997 again reflects optimism about certain revenue sources, most notably federal government aid for illegal immigrants. INVESTMENT LIMITATIONS 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. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous.The Fund will not purchase any securities while borrowings in excess of 5% of the value of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may acquire publicly or non-publicly issued California municipal securities or temporary investments or enter into repurchase agreements, in accordance with its investment objective, policies, limitations and the Trust's Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry, or in industrial development bonds or other securities, the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash, or certain money market instruments, securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. INVESTMENTS IN ANY ONE ISSUER With respect to securities comprising 75% of its assets, the Fund will not invest more than 10% of its total assets in the securities of any one issuer (except cash and cash items, repurchase agreements collateralized by U.S. government securities, and U.S. government obligations.) Under this limitation, each governmental subdivision, including states, territories, possessions of the United States, or their political subdivisions, agencies, authorities, instrumentalities, or similar entities, will be considered a separate issuer if its assets and revenues are separate from those of the government body creating it and the security is backed only by its own assets and revenues. Industrial development bonds backed only by the assets and revenues of a non-governmental user are considered to be issued solely by that user. If in the case of an industrial development bond or government-issued security, a governmental or other entity guarantees the security, such guarantee would be considered a separate security issued by the guarantor, as well as the other issuer, subject to limited exclusions allowed by the Investment Company Act of 1940. The above limitations cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities including certain restricted securities not determined to be liquid under criteria established by the Trustees and repurchase agreements providing for settlement in more than seven days after notice. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be `cash items.'' Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments , as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director or Trustee of the Funds. Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee, University of Pittsburgh; Director or Trustee of the Funds. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest Florida; formerly, President, Naples Property Management, Inc. and Northgate Village Development Corporation; Director or Trustee of the Funds. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds. Edward L. Flaherty, Jr.@ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region; Director or Trustee of the Funds. Glen R. Johnson* Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. Peter E. Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16, 1942 Trustee Consultant; Former State Representative, Commonwealth of Massachusetts; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation; Director or Trustee of the Funds. Gregor F. Meyer Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director or Trustee of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics; Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., National Defense University, U.S. Space Foundation and Czech Management Center; President Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council for Environmental Policy and Technology, Federal Emergency Management Advisory Board and Czech Management Center; Director or Trustee of the Funds. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/Marketing/Conference Planning, Manchester Craftsmen's Guild; Restaurant Consultant, Frick Art & History Center; Conference Coordinator, University of Pittsburgh Art History Department; Director or Trustee of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated Shareholder Services; Director, Federated Services Company; President or Executive Vice President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Shareholder Services Company; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President , Secretary and Treasurer Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. *This Trustee is deemed to be an ``interested person'' as defined in the Investment Company Act of 1940. @Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board between meetings of the Board. As referred to in the list of Trustees and Officers, `Funds'' includes the following investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated Investment Portfolios; Federated Investment Trust; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding Shares. As of December 2, 1996, the following shareholder(s) of record owned 5% or more of the outstanding shares of the California Municipal Cash Trust - Institutional Shares: Repub & Co., Los Angeles, CA, (39.47%); Bank of Stockton, Stockton, CA, (6.55%); SBT & Co., La Jolla, CA, (42.73%); and Santa Monica Bank, Santa Monica, CA, (9.42%). As of November 26, 1996, the following shareholder(s) of record owned 5% or more of the outstanding shares of the California Municipal Cash Trust - Institutional Service Shares: Piper Jaffray Inc., Minneapolis, MN, (19.83%); Pacific Bank N.A., San Francisco, CA, (11.86%);First Interstate Bank, Calabasas, CA, (9.63%); Citibank N.A., Long Island City, NY, (7.11%); Borel Bank & Trust, San Mateo, CA, (6.09%); and Charles W. Davidson, San Jose, CA, (5.02%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 54 other investment companies in the Fund Complex Thomas G. Bigley++ $3,611 $86,331 for the Trust and Trustee 54 other investment companies in the Fund Complex John T. Conroy, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex William J. Copeland $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Peter E. Madden $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Gregor F. Meyer $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex John E. Murray, Jr., $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Wesley W. Posvar $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Marjorie P. Smuts $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1996. #The aggregate compensation is provided for the Trust which is comprised of 16 portfolios. +The information is provided for the last calendar year. ++ Mr. Bigley served on 39 investment companies in the Federated Funds complex from January 1 through September 30, 1995. On October 1, 1995, he was appointed a Trustee on 15 additional Federated Funds. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the California Municipal Cash Trust, the Fund,or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the California Municipal Cash Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1996, 1995, and for the period from October 1,1994 to October 31, 1994, the adviser earned $501,955, $465,758, and $34,909, respectively, of which $501,955, $402,906, and $30,860, respectively, were waived. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal year ended October 31, 1996, Institutional Service Shares of the Fund paid no brokerage commissions. During the period from March 4, 1996 (date of initial public investment) to October 31, 1996, Institutional Shares of the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative Services served as the Fund's Administrator. Prior to March 1, 1994, Federated Administrative Services, Inc. served as the Fund's Administrator. Both former Administrators are subsidiaries of Federated Investors. For purposes of this Statement of Additional Information, Federated Services Company, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the `Administrators.'' For the fiscal years ended October 31, 1996, 1995, and for the period from October 1,1994 to October 31, 1994, the Administrators earned $145,082, $125,000, and $10,617, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. The fee paid for this service is based upon the level of the Fund's average net assets for the period plus out-of- pocket expenses. TRANSFER AGENT Federated Services Company, through its registered transfer agent, Federated Shareholder Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on the size, type and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. SHAREHOLDER SERVICES This arrangement permits the payment of fees to Federated Shareholder Services to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Agreement, the Trustees expect that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal year ended October 31, 1996, the Fund paid shareholder service fees for Institutional Shares and Institutional Service Shares in the amounts of $21,796 and $229,181, respectively, all of which were waived for Institutional Shares and of which $19,247 were waived for Institutional Service Shares and the remaining balance was paid to financial institutions. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the `Rule'') promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the `base period.'' This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. For the seven-day period ended October 31,1996, the yield for Institutional Shares and Institutional Service Shares was 3.41% and 3.16%, respectively. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. For the seven-day period ended October 31,1996, the effective yield for Institutional Shares and Institutional Service Shares was 3.47% and 3.21%, respectively. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming 48.9% tax rate (the maximum combined effective federal and state rate for individuals) and assuming that the income is 100% tax exempt. For the seven-day period ended October 31,1996, the tax-equivalent yield for Institutional Shares and Institutional Service Shares was 6.79% and 6.28%, respectively. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a `tax- free''investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1996 STATE OF CALIFORNIA COMBINED FEDERAL AND STATE INCOME TAX BRACKET: 23.00% 37.30% 40.30% 45.30% 48.90% SINGLE $1 - $24,001 - $58,151 - $121,301 - OVER RETURN 24,000 58,150 121,300 263,750 $263,750 TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT ---------------------------- 1.50% 1.95% 2.39% 2.51% 2.74% 2.94% 2.00% 2.60% 3.19% 3.35% 3.66% 3.91% 2.50% 3.25% 3.99% 4.19% 4.57% 4.89% 3.00% 3.90% 4.78% 5.03% 5.48% 5.87% 3.50% 4.55% 5.58% 5.86% 6.40% 6.85% 4.00% 5.19% 6.38% 6.70% 7.31% 7.83% 4.50% 5.84% 7.18% 7.54% 8.23% 8.81% 5.00% 6.49% 7.97% 8.38% 9.14% 9.78% 5.50% 7.14% 8.77% 9.21% 10.05% 10.76% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. TAXABLE YIELD EQUIVALENT FOR 1996 STATE OF CALIFORNIA COMBINED FEDERAL AND STATE INCOME TAX BRACKET: 21.00% 37.30% 40.30% 45.30% 48.90% 48.90% JOINT $1 - $40,101 - $96,901 - $147,701 - $263,751 OVER RETURN 40,100 96,900 147,700 263,750 439,744 $439,744 TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT ---------------------------- 1.50% 1.90% 2.39% 2.51% 2.74% 2.94% 2.94% 2.00% 2.53% 3.19% 3.35% 3.66% 3.91% 3.91% 2.50% 3.16% 3.99% 4.19% 4.57% 4.89% 4.89% 3.00% 3.80% 4.78% 5.03% 5.48% 5.87% 5.87% 3.50% 4.43% 5.58% 5.86% 6.40% 6.85% 6.85% 4.00% 5.06% 6.38% 6.70% 7.31% 7.83% 7.83% 4.50% 5.70% 7.18% 7.54% 8.23% 8.81% 8.81% 5.00% 6.33% 7.97% 8.38% 9.14% 9.78% 9.78% 5.50% 6.96% 8.77% 9.21% 10.05% 10.76% 10.76% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. Cumulative total return reflects the total performance over a specific period of time. For the period from March 4, 1996 (date of initial public investment) through October 31, 1996, the cumulative total return for Institutional Shares was 2.24%. This total return is representative of only eights months of activity since the date of initial public investment. For the one-year and five-year periods endedOctober 31, 1996 and for the period from March 15, 1989 (date of initial public offering) through October 31, 1996, the average annual total returns were 3.22%, 2.69% and 3.48%, respectively, for Institutional Service Shares. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. oMONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. Advertising and other promotional literature may include charts, graphs and other illustrations using the Fund`s returns, or returns in general, that demonstrate basic investment concepts such as tax-deferred compounding, dollar-cost averaging and systematic investment. In addition, the Fund can compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, such as bank savings accounts, certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION Advertising and sales literature for the Fund may include discussions of economic, financial and political developments and their effect on the securities market. Such discussions may take the form of commentary on these developments by the Fund portfolio mangers and their views and analysis on how such developments could affect the Funds. In addition, advertising and sales literature may quote statistics and give general information about the mutual fund industry, including growth of the industry, from sources such as the Investment Company Institute. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. These traders handle trillions of dollars in annual trading volume. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1995, Federated Investors managed more than $40.2 billion in assets across approximately 47 money market funds, including 17 government, 10 prime and 20 municipal with assets approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $3 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. Federated's service to financial professionals and institutions has earned it high ratings in several surveys performed by DALBAR , Inc. DALBAR is recognized as the industry benchmark for service quality measurement. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (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 rate `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. MOODYS 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 SERVICES, INC. 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. NEW YORK MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH II SHARES PROSPECTUS The Cash II Shares of New York Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term New York municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of New York, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and personal income taxes imposed by New York State and New York municipalities consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS SUMMARY OF FUND EXPENSES 1 FINANCIAL HIGHLIGHTS -- CASH II SHARES 2 GENERAL INFORMATION 3 INVESTMENT INFORMATION 3 Investment Objective 3 Investment Policies 3 New York Municipal Securities 5 Investment Risks 6 Investment Limitations 6 FUND INFORMATION 7 Management of the Fund 7 Distribution of Cash II Series 8 Administration of the Fund 9 NET ASSET VALUE 9 HOW TO PURCHASE SHARES 9 Special Purchase Features 10 HOW TO REDEEM SHARES 10 Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 12 TAX INFORMATION 12 Federal Income Tax 12 State and Local Tax 13 OTHER CLASSES OF SHARES 13 PERFORMANCE INFORMATION 14 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES 15 FINANCIAL STATEMENTS 16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 30 ADDRESSES 31
SUMMARY OF FUND EXPENSES CASH II SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable) None Redemption Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None
ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1) 0.29% 12b-1 Fee (after waiver)(2) 0.00% Total Other Expenses 0.42% Shareholder Services Fee 0.25% Total Operating Expenses(3) 0.71%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The 12b-1 fee has been reduced to reflect the voluntary waiver of the 12b-1 fee. The distributor can terminate this voluntary waiver at any time at its sole discretion. The maximum 12b-1 fee is 0.25%. (3) The Total Operating Expenses would have been 1.07% absent the voluntary waiver of a portion of the management fee and the voluntary waiver of the 12b-1 fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Cash II Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period $7 $23 $40 $88
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. NEW YORK MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- CASH II SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 30.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993** 1992 1991(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.03 0.02 0.02 0.03 0.02 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.02) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 TOTAL RETURN(B) 3.05% 3.37% 2.15% 1.98% 2.86% 2.20% RATIOS TO AVERAGE NET ASSETS Expenses 0.71% 0.71% 0.71% 0.71% 0.73% 0.46%* Net investment income 3.02% 3.20% 2.19% 1.96% 2.46% 4.08%* Expense waiver/reimbursement(c) 0.36% 0.36% 0.21% 0.17% -- -- SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $25,571 $14,439 $134,051 $58,884 $4,641 $56
* Computed on an annualized basis. ** Prior to November 9, 1992, the Fund provided three classes of shares. (a) Reflects operations for the period from April 25, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees has established two classes of shares known as Cash II Shares and Institutional Service Shares. This prospectus relates only to Cash II Shares of the Fund, which are designed to provide a cash management vehicle for certain customers of financial institutions which would include corporations and municipalities, as well as larger individual accounts, seeking a high level of cash management services from the participating institution. The Fund may not be a suitable investment for retirement plans or for non-New York taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by New York State and New York municipalities consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and the personal income taxes imposed by New York State and New York municipalities. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of New York and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and New York and the personal income taxes imposed by New York State and New York municipalities ("New York Municipal Securities"). Examples of New York Municipal Securities include, but are not limited to: * tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; * bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; * municipal commercial paper and other short-term notes; * variable rate demand notes; * municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and * participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in New York Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying New York Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other depository institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain New York Municipal Securities is subject to the federal alternative minimum tax. NEW YORK MUNICIPAL SECURITIES New York Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. New York Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of New York Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on New York Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of New York Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of New York Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in New York Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these New York Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of New York Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations, the Fund's concentration in New York Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 10% of the value of total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF CASH II SHARES Federated Securities Corp. is the principal distributor for Cash II Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in accordance with Rule 12b-1 under the Investment Company Act of 1940 (the "Plan"), the distributor may be paid a fee by the Fund in an amount computed at an annual rate of up to .30% of the average daily net asset value of the Fund. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide sales services or distribution-related support services as agents for their clients or customers. The Plan is a compensation-type Plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Plan. In addition, the Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of its shares to obtain certain personal services for shareholders and to maintain shareholder accounts. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions may receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate as which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE FEE DAILY NET ASSETS .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Cash II Shares from the value of Fund assets attributable to Cash II Shares, and dividing the remainder by the number of Cash II Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 3:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $25,000 or more over a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 3:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: New York Municipal Cash Trust --Cash II Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: New York Municipal Cash Trust -- Cash II Shares. Please include an account number on the check. 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. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $25,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than New York. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. NEW YORK TAXES. Under existing New York laws, distributions made by the Fund will not be subject to New York State or New York City personal income taxes to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent interest income attributable to obligations issued by the State of New York and its political subdivisions as well as certain other obligations, the interest on which is exempt from New York State and New York City personal income taxes, such as, for example, certain obligations of the Commonwealth of Puerto Rico. Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to New York State and New York City personal income taxes. The Fund cannot predict in advance the exact portion of its dividends that will be exempt from New York State and New York City personal income taxes. However, the Fund will report to shareholders at least annually what percentage of the dividends it actually paid is exempt from such taxes. Dividends paid by the Fund are exempt from the New York City unincorporated business taxes to the same extent that they are exempt from the New York City personal income taxes. Dividends paid by the Fund are not excluded from net income in determining New York State or New York City franchise taxes on corporations or financial institutions. OTHER CLASSES OF SHARES The Fund also offers another class of shares called Institutional Service Shares that are sold primarily to banks and other institutions that hold assets for individuals, trusts, estates, or partnerships. Institutional Service Shares are sold at net asset value and are subject to a Rule 12b-1 Plan and a Shareholder Services Agreement. Investments in Institutional Service Shares are subject to a minimum initial investment of $25,000 within a 90-day period. Cash II Shares and Institutional Service Shares are subject to certain of the same expenses. Expense differences, however, between Cash II Shares and Institutional Service Shares may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. NEW YORK MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 30.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993* 1992 1991 1990 1989 1988 1987 NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.04 0.02 0.02 0.03 0.04 0.05 0.06 0.05 0.04 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.04) (0.02) (0.02) (0.03) (0.04) (0.05) (0.06) (0.05) (0.04) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 TOTAL RETURN(A) 3.24% 3.56% 2.35% 2.16% 3.01% 4.59% 5.51% 5.70% 4.66% 3.90% RATIOS TO AVERAGE NET ASSETS Expenses 0.53% 0.54% 0.52% 0.54% 0.57% 0.52% 0.54% 0.55% 0.51% 0.47% Net investment income 3.18% 3.49% 2.31% 2.14% 2.99% 4.48% 5.36% 5.56% 4.57% 3.81% Expense waiver/ reimbursement(b) 0.54% 0.53% 0.13% 0.17% -- -- -- -- -- -- SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $305,533 $276,149 $236,580 $274,357 $164,492 $191,616 $197,213 $245,542 $212,786 $141,040
* Prior to November 9, 1992, the Fund provided three classes of shares. (a) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (b) 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) NEW YORK MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- 101.4% NEW YORK -- 101.4% $ 2,500,000 Albany, NY IDA, (Series 1995) Weekly VRDNs (Davies Office Refurbishing, Inc. Project)/(Marine Midland Bank N.A., Buffalo, NY LOC) $ 2,500,000 2,480,000 Alden Central School District, NY, UT GO, 4.25% BANs, 6/24/1997 2,485,444 900,000 Babylon, NY IDA, (1994 Series) Weekly VRDNs (J. D'Addario & Company, Inc. Project)/(National Westminster Bank, PLC, London LOC) 900,000 3,800,000 Brookhaven-Comsewogue Union Free School District, NY, 4.00% TANs, 6/30/1997 3,804,788 10,000,000 Buffalo, NY, Custodial Receipts (2nd Series 1996-H), 5.00% BANs (State Street Bank and Trust Co. LOC), 3/6/1997 10,037,016 3,800,000 Canisteo Central School District, NY, 4.125% BANs, 4/30/1997 3,805,322 1,555,000 Cattaraugus County, NY IDA, (Series 1996A) Weekly VRDNs (Gier's Farm Service, Inc. Project)/(Key Bank of New York LOC) 1,555,000 2,550,000 Chautauqua County, NY IDA Weekly VRDNs (Cliffstar Corp.)/ (KeyBank, N.A. LOC) 2,550,000 3,900,000 Chautauqua County, NY IDA Weekly VRDNs (Mogen David Wine Corp.)/(Wells Fargo Bank, N.A. LOC) 3,900,000 5,000,000 Chautauqua County, NY, 3.60% TANs, 12/20/1996 5,001,303 3,400,000 Clyde-Savannah Central School District, NY, 4.375% BANs, 6/27/1997 3,405,847 1,060,000 Colonie, NY IDA Weekly VRDNs (Herbert S. Ellis)/(Marine Midland Bank N.A., Buffalo, NY LOC) 1,060,000 765,000 Colonie, NY IDA, (Series 1988) Weekly VRDNs (13 Green M-1 Drive Project)/(Marine Midland Bank N.A., Buffalo, NY LOC) 765,000 2,220,000 Colonie, NY, (Series 1996B), 4.00% BANs, 4/18/1997 2,222,459 7,500,000 Deer Park Union Free School District, NY, 4.50% BANs, 10/3/1997 7,538,525 5,000,000 Erie County, NY IDA, IDRB (Series 1994) Weekly VRDNs (Servotronics, Inc. Project)/(Fleet Bank of New York LOC) 5,000,000
NEW YORK MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED NEW YORK -- CONTINUED $ 4,500,000 Florida Union Free School District, NY, 4.125% BANs, 12/5/1996 $ 4,501,509 1,800,000 Franklin County, NY IDA, (Series 1991A) Weekly VRDNs (KES Chateaugay)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 1,800,000 3,263,366 Gloversville, NY, 4.25% BANs, 12/27/1996 3,265,769 1,500,000 Guilderland, NY IDA, (Series 1993A) Weekly VRDNs (Northeastern Industrial Park, Inc.)/(Fleet Bank of New York LOC) 1,500,000 4,420,000 Herkimer County, NY IDA, 1994 IDRB Weekly VRDNs (Granny's Kitchen)/(Bank of New York, New York LOC) 4,420,000 2,005,000 Madison County, NY IDA, (Series 1989A) Weekly VRDNs (Madison, NY Upstate Metals)/(Fleet Bank of New York LOC) 2,005,000 15,000,000 Marine Midland, NY, Premium Tax-Exempt Bond & Loan Trust Weekly VRDNs (Marine Midland New York Trust)/(Marine Midland Bank N.A., Buffalo, NY LOC) 15,000,000 4,900,000 (b)New York City Housing Development Corp., Municipal Securities Trust Receipts (Series 1996-CMC1A) Weekly VRDNs (Chase Manhattan Corp. LIQ) 4,900,000 4,900,000 (b)New York City Housing Development Corp., Municipal Securities Trust Receipts (Series 1996-CMC1B) Weekly VRDNs (Chase Manhattan Corp. LIQ) 4,900,000 1,500,000 New York City Municipal Water Finance Authority, Water and Sewer System Revenue Bonds (Series 1995 A) Daily VRDNs (FGIC INS)/ (FGIC Securities Purchase, Inc. LIQ) 1,500,000 1,500,000 New York City, NY IDA Daily VRDNs (Japan Airlines Co.)/(Morgan Guaranty Trust Co., New York LOC) 1,500,000 216,667 New York City, NY IDA Weekly VRDNs (David Rosen Bakers Supply)/(Ford Motor Credit Corp. LIQ)/(Chase Manhattan Bank N.A., New York LOC) 216,667 31,562,850 New York City, NY IDA, (Series 1995A) Weekly VRDNs (Brooklyn Navy Yard Cogeneration Partners, L.P. Project)/(Bank of America NT and SA, San Francisco LOC) 31,562,850 5,000,000 New York City, NY, (Series A), 4.50% TANs, 2/12/1997 5,009,877
NEW YORK MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED NEW YORK -- CONTINUED $ 5,000,000 New York City, NY, (Series B), 4.50% RANs (Bank of Nova Scotia, Toronto, Canadian Imperial Bank of Commerce, Toronto and Commerzbank AG, Frankfurt LOCs), 6/30/1997 $ 5,022,496 4,600,000 New York City, NY, 3.75% TOBs (FSA INS)/(Citibank NA, New York LIQ), Optional Tender 2/15/1997 4,600,000 10,900,000 New York City, NY, UT GO Fiscal 1994 (Series H-3), 3.65% CP (FSA INS)/(State Street Bank and Trust Co. LIQ), Mandatory Tender 11/12/1996 10,900,000 5,475,000 (b)New York State Dormitory Authority, PA-60 (Series 1993) Weekly VRDNs (Rochester General Hospital)/(FHA INS)/(Merrill Lynch Capital Services, Inc. LIQ) 5,475,000 3,000,000 New York State Energy Research & Development Authority, (Series 1993A) Weekly VRDNs (Long Island Lighting Co.)/ (Toronto-Dominion Bank LOC) 3,000,000 8,000,000 New York State Energy Research & Development Authority, PCR Bonds (Series B) Daily VRDNs (Niagara Mohawk Power Corp.)/ (Morgan Guaranty Trust Co., New York LOC) 8,000,000 6,020,000 New York State HFA Weekly VRDNs (Special Surgery Hospital)/ (Chase Manhattan Bank N.A., New York LOC) 6,020,000 4,000,000 New York State HFA, Housing Revenue Bonds (1985 Series A) Weekly VRDNs (Liberty View Apartments)/(Chase Manhattan Bank N.A., New York LOC) 4,000,000 1,210,000 New York State Job Development Authority Weekly VRDNs (Sumitomo Bank Ltd., Osaka LOC) 1,210,000 1,500,000 New York State Job Development Authority Weekly VRDNs (Sumitomo Bank Ltd., Osaka LOC) 1,500,000 4,580,000 (b)New York State Medical Care Facilities Finance Agency, Hospital & Nursing Home Mortgage Revenue Bonds (1994 Series C) Weekly VRDNs (FHA INS)/(Merrill Lynch Capital Services, Inc. LIQ) 4,580,000 3,700,000 (b)New York State Mortgage Agency, (Series PA-29) Weekly VRDNs (Merrill Lynch Capital Services, Inc. LIQ) 3,700,000
NEW YORK MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED NEW YORK -- CONTINUED $ 4,720,000 (b)New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds (PA-87) Weekly VRDNs (Merrill Lynch Capital Services, Inc. LIQ) $ 4,720,000 7,270,000 (b)New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds (Series PT-15B) Weekly VRDNs (Commerzbank AG, Frankfurt LIQ) 7,270,000 3,660,000 New York State, (Series A), 4.50% Bonds, 7/15/1997 3,675,636 6,500,000 Niagara County, NY IDA Weekly VRDNs (Allegheny Ludlum Corp.)/ (PNC Bank, N.A. LOC) 6,500,000 1,400,000 Norwich, NY, 4.375% BANs, 9/19/1997 1,403,257 3,000,000 Oneida County, NY, Custodial Receipts (2nd Series 1996-D), 4.25% BANs (State Street Bank and Trust Co. LOC), 5/9/1997 3,006,653 610,000 Onondaga County, NY IDA Weekly VRDNs (Beverage Corp.)/ (Marine Midland Bank N.A., Buffalo, NY LOC) 610,000 910,000 Onondaga County, NY IDA, (Series 1987) Weekly VRDNs (Southern Container Corp.)/(Chase Manhattan Bank N.A., New York LOC) 910,000 1,725,000 Onondaga County, NY Weekly VRDNs (Grainger (W.W.), Inc.) 1,725,000 1,450,000 Ontario, NY IDA Weekly VRDNs (Hillcrest Enterprises/Buckeye Corrugated)/(National City Bank, Cleveland, OH LOC) 1,450,000 5,700,000 Oswego County, NY IDA Weekly VRDNs (Copperweld Corp.)/ (Credit Lyonnais, Paris LOC) 5,700,000 15,000,000 Port Authority of New York and New Jersey Weekly VRDNs 15,000,000 15,000,000 Port Authority of New York and New Jersey Weekly VRDNs 15,000,000 1,000,000 Rotterdam, NY IDA, (Series 1993A) Weekly VRDNs (Rotterdam Industrial Park)/(Fleet Bank of New York LOC) 1,000,000 497,529 Schenectady, NY IDA Weekly VRDNs (McClellan Street Associates)/ (Ford Motor Credit Corp. LIQ)/(Chase Manhattan Bank N.A., New York LOC) 497,529 1,700,000 Schenectady, NY IDA, IDRB (Series 1995A) Weekly VRDNs (Fortitech Holding Corporation Project)/(Fleet Bank of New York LOC) 1,700,000 3,000,000 South Country Central School District, NY, 4.50% TANs, 6/25/1997 3,008,380
NEW YORK MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED NEW YORK -- CONTINUED $ 3,200,000 Southeast, NY IDA, IDRB (Series 1995) Weekly VRDNs (Dairy Conveyor Corporation Project)/(Chase Manhattan Bank N.A., New York LOC) $ 3,200,000 2,400,000 Suffolk County, NY IDA Weekly VRDNs (C & J Realty Corp.)/ (Ford Motor Credit Corp. LIQ)/(Chase Manhattan Bank N.A., New York LOC) 2,400,000 900,000 Suffolk County, NY IDA Weekly VRDNs (Poly Research Corp.)/ (Marine Midland Bank N.A., Buffalo, NY LOC) 900,000 1,800,000 Suffolk County, NY IDA, 5.363% TOBs (Grainger (W.W.), Inc.), Optional Tender 12/1/1996 1,800,000 11,299,000 Syracuse, NY, (Series 1995), 4.00% BANs, 12/20/1996 11,304,248 2,200,000 Tompkins County, NY, (Series A), 4.00% BANs, 4/11/1997 2,202,804 9,000,000 Ulster County, NY, Custodial Receipt (1996 Series A), 4.25% TANs (State Street Bank and Trust Co. LOC), 3/26/1997 9,017,091 5,000,000 (b)VRDC/IVRC Trust, (Series 1992A) Weekly VRDNs (New York City Municipal Water Finance Authority)/(MBIA INS)/(Hong Kong & Shanghai Banking Corp. LIQ) 5,000,000 9,900,000 (b)VRDC/IVRC Trust, (Series 1993G) Weekly VRDNs (St. Lukes Roosevelt Hospital Center)/(FHA INS)/(Hong Kong & Shanghai Banking Corp. LIQ) 9,900,000 7,500,000 Walden Village, NY IDA, IDRB (Series 1994) Weekly VRDNs (Spence Engineering Co.)/(First Union National Bank, Charlotte, N.C. LOC) 7,500,000 5,280,000 Warren & Washington Counties, NY IDA Weekly VRDNs (Sandy Hill Corp.)/(First Union National Bank, Charlotte, N.C. LOC) 5,280,000 4,000,000 Westhampton Beach Union Free School District, NY, 4.00% TANs, 6/27/1997 4,006,240 1,290,000 Yates County, NY IDA, (Series 1992A) Weekly VRDNs (Clearplass Container)/(Fleet Bank of New York LOC) 1,290,000 2,200,000 Yonkers, NY IDA, (Series 1992A) Weekly VRDNs (Consumers Union Facility)/(Industrial Bank of Japan Ltd., Tokyo LOC) 2,200,000 TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $335,796,710
At October 31, 1996, 41.4% of the total investments at market value were subject to alternative minimum tax. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSRO's") 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 Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are 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 application regulations in determining whether a security is rated and whether a security rated by multiple NRSRO's in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER 97.34% 2.66%
(b) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. At October 31, 1996, these securities amounted to $50,455,000 which represents 15.2% of net assets. (c) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($331,104,268) at October 31, 1996. The following acronyms are used throughout this portfolio: BANs -- Bond Anticipation Notes CP -- Commercial Paper FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Administration FSA -- Financial Security Assurance GO -- General Obligation HFA -- Housing Finance Authority IDA -- Industrial Development Authority IDRB -- Industrial Development Revenue Bond INS -- Insured LIQ -- Liquidity Agreement LOCs -- Letter(s) of Credit LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance PCR -- Pollution Control Revenue PLC -- Public Limited Company RANs -- Revenue Anticipation Notes SA -- Support Agreement TANs -- Tax Anticipation Notes TOBs -- Tender Option Bonds UT -- Unlimited Tax VRDNs -- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 ASSETS: Total investments in securities, at amortized cost and value $ 335,796,710 Cash 286,594 Income receivable 2,698,212 Receivable for shares sold 887,032 Total assets 339,668,548 LIABILITIES: Payable for investments purchased $ 7,811,028 Income distribution payable 673,724 Accrued expenses 79,528 Total liabilities 8,564,280 NET ASSETS for 331,104,268 shares outstanding $331,104,268 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: INSTITUTIONAL SERVICE SHARES: $305,533,428 / 305,533,428 shares outstanding $1.00 CASH II SHARES: $25,570,840 / 25,570,840 shares outstanding $1.00
(See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 INVESTMENT INCOME: Interest $ 12,055,066 EXPENSES: Investment advisory fee $1,298,934 Administrative personnel and services fee 245,547 Custodian fees 54,459 Transfer and dividend disbursing agent fees and expenses 58,757 Directors'/Trustees' fees 4,397 Auditing fees 13,561 Legal fees 5,282 Portfolio accounting fees 88,338 Distribution services fee -- Institutional Service Shares 750,832 Distribution services fee -- Cash II Shares 61,083 Shareholder services fee -- Institutional Service Shares 751,279 Shareholder services fee -- Cash II Shares 61,083 Share registration costs 32,037 Printing and postage 27,219 Insurance premiums 5,255 Taxes 266 Miscellaneous 2,848 Total expenses 3,461,177 Waivers -- Waiver of investment advisory fee $ (343,123) Waiver of distribution services fee -- Institutional Service Shares (750,832) Waiver of distribution services fee -- Cash II Shares (61,082) Waiver of shareholder services fee -- Institutional Service Shares (540,243) Total waivers (1,695,280) Net expenses 1,765,897 Net investment income 10,289,169 Net realized gain on investments 5,609 Change in net assets resulting from operations $10,294,778
(See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS -- Net investment income $ 10,289,169 $ 11,498,874 Net realized gain (loss) on investments 5,609 12,000 Change in net assets resulting from operations 10,294,778 11,510,874 DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income: Institutional Service Shares (9,551,350) (9,657,797) Cash II Shares (737,819) (1,841,077) Change in net assets resulting from distributions to shareholders (10,289,169) (11,498,874) SHARE TRANSACTIONS -- Proceeds from sale of shares 1,133,036,436 1,236,075,244 Net asset value of shares issued to shareholders in payment of distributions declared 2,199,491 3,314,165 Cost of shares redeemed (1,094,725,252) (1,319,444,545) Change in net assets resulting from share transactions 40,510,675 (80,055,136) Change in net assets 40,516,284 (80,043,136) NET ASSETS: Beginning of period 290,587,984 370,631,120 End of period $ 331,104,268 $ 290,587,984
(See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 1. ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of New York Municipal Cash Trust (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 current income exempt from federal regular income tax, the personal income taxes imposed by the New York State and New York municipalities consistent with stability of principal. The Fund offers two classes of shares: Institutional Service Shares and Cash II Shares. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. RESTRICTED SECURITIES -- Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees ("Trustees"). The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1996 is as follows:
FUND SECURITY ACQUISITION DATE ACQUISITION COST New York City Housing Development Corp (Series 1996-CMC1A) September 11, 1996 $ 4,900,000 New York City Housing Development Corp. (Series 1996-CMC1B) September 11, 1996 4,900,000 New York State Dormitory Authority, PA-60 March 13, 1995 5,475,000 New York State Medical Care Facilities Finance Agency August 22, 1996 4,580,000 New York State Mortgage Agency (Series PA-29) April 3, 1995 3,700,000 New York State Mortgage Agency (PA-87) July 5, 1995 4,720,000 New York State Mortgage Agency (Series PT-15B) December 29, 1995- May 30, 1996 7,270,000 VRDC/IVRC Trust (Series 1992A) July 5, 1995 5,000,000 VRDC/IVRC Trust (Series 1993G) August 14, 1996- October 25, 1996 9,900,000
USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER -- Investment transactions are accounted for on the trade date. 3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1996, capital paid-in aggregated $331,104,268. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, 1996 1995 INSTITUTIONAL SERVICE SHARES SHARES SHARES Shares sold 990,741,683 1,002,966,036 Shares issued to shareholders in payment of distributions declared 1,624,496 1,484,402 Shares redeemed (962,988,268) (964,892,684) Net change resulting from Institutional Service Share transactions 29,377,911 39,557,754 YEAR ENDED OCTOBER 31, 1996 1995 CASH II SHARES SHARES SHARES Shares sold 142,294,754 233,109,208 Shares issued to shareholders in payment of distributions declared 574,995 1,829,763 Shares redeemed (131,736,985) (354,551,861) Net change resulting from Cash II Share transactions 11,132,764 (119,612,890) Net change resulting from share transactions 40,510,675 (80,055,136)
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will reimburse Federated Securities Corp., ("FSC") the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Institutional Service Shares and Cash II Shares. The Plan provides that the Fund may incur distribution expenses up to 0.25% of the average daily net assets of the Institutional Service Shares and Cash II Shares, annually, to reimburse FSC. The distributor may voluntarily choose to waive any portion of its fee. The distributor can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund shares for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, 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 $479,312,850 and $413,930,000, respectively. GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. CONCENTRATION OF CREDIT RISK -- Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 60% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 9% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (New York Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of New York Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996, the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see pages 2 and 15 of the prospectus) for the periods presented. 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 October 31, 1996, by correspondence with the custodian and broker. 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 New York Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 13, 1996 ADDRESSES New York Municipal Cash Trust Cash II Shares Federated Investors Tower Pittsburgh, PA 15222-3779 Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 Transfer Agent and Dividend Disbursing Agent Federated Shareholder P.O. Box 8600 Services Company Boston, MA 02266-8600 Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 NEW YORK MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH II SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 Federated Investors [Graphic] Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. [Graphic] Cusip 314229733 G00208-02 (12/96) NEW YORK MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS The Institutional Service Shares of New York Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term New York municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of New York, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and personal income taxes imposed by New York State and New York municipalities consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS SUMMARY OF FUND EXPENSES 1 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES 2 GENERAL INFORMATION 3 INVESTMENT INFORMATION 3 Investment Objective 3 Investment Policies 3 New York Municipal Securities 6 Investment Risks 6 Investment Limitations 6 FUND INFORMATION 7 Management of the Fund 7 Distribution of Institutional Service Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 HOW TO PURCHASE SHARES 9 Special Purchase Features 10 HOW TO REDEEM SHARES 10 Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 12 TAX INFORMATION 12 Federal Income Tax 12 State and Local Tax 13 OTHER CLASSES OF SHARES 14 PERFORMANCE INFORMATION 14 FINANCIAL HIGHLIGHTS -- CASH II SHARES 15 FINANCIAL STATEMENTS 16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 30 ADDRESSES 31
SUMMARY OF FUND EXPENSES INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable) None Redemption Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None
ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1) 0.29% 12b-1 Fee (after waiver)(2) 0.00% Total Other Expenses 0.24% Shareholder Services Fee (after waiver)(3) 0.07% Total Operating Expenses(4) 0.53%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The 12b-1 fee has been reduced to reflect the voluntary waiver of the 12b-1 fee. The distributor can terminate this voluntary waiver at any time at its sole discretion. The maximum 12b-1 fee is 0.25%. (3) The shareholder services fee has been reduced to reflect the voluntary waiver of a portion of the shareholder services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (4) The Total Operating Expenses would have been 1.07% absent the voluntary waivers of portions of the management fee and shareholder services fee and the voluntary waiver of the 12b-1 fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Institutional Service Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period $5 $17 $30 $66
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. NEW YORK MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 30.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993* 1992 1991 1990 1989 1988 1987 NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.04 0.02 0.02 0.03 0.04 0.05 0.06 0.05 0.04 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.04) (0.02) (0.02) (0.03) (0.04) (0.05) (0.06) (0.05) (0.04) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 TOTAL RETURN(A) 3.24% 3.56% 2.35% 2.16% 3.01% 4.59% 5.51% 5.70% 4.66% 3.90% RATIOS TO AVERAGE NET ASSETS Expenses 0.53% 0.54% 0.52% 0.54% 0.57% 0.52% 0.54% 0.55% 0.51% 0.47% Net investment income 3.18% 3.49% 2.31% 2.14% 2.99% 4.48% 5.36% 5.56% 4.57% 3.81% Expense waiver/ reimbursement(b) 0.54% 0.53% 0.13% 0.17% -- -- -- -- -- -- SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $305,533 $276,149 $236,580 $274,357 $164,492 $191,616 $197,213 $245,542 $212,786 $141,040
* Prior to November 9, 1992, the Fund provided three classes of shares. (a) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (b) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees has established two classes of shares known as Institutional Service Shares and Cash II Shares. This prospectus relates only to Institutional Service Shares of the Fund, which are designed primarily for banks and other institutions that hold assets for individuals, trust, estates, or partnerships, as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term municipal securities. The Fund may not be a suitable investment for retirement plans or for non-New York taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and personal income taxes imposed by New York State and New York municipalities consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and personal income taxes imposed by New York State and New York municipalities. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of New York and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and New and personal income taxes imposed by New York State and New York municipalities ("New York Municipal Securities"). Examples of New York Municipal Securities include, but are not limited to: * tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; * bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; * municipal commercial paper and other short-term notes; * variable rate demand notes; * municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and * participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in New York Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying New York Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other depository institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain New York Municipal Securities is subject to the federal alternative minimum tax. NEW YORK MUNICIPAL SECURITIES New York Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. New York Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of New York Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on New York Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of New York Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of New York Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in New York Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these New York Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of New York Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations, the Fund's concentration in New York Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 10% of the value of total assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES Federated Securities Corp. is the principal distributor for Institutional Service Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in accordance with Rule 12b-1 under the Investment Company Act of 1940 (the "Plan"), the distributor may be paid a fee by the Fund in an amount computed at an annual rate of up to .30% of the average daily net asset value of the Fund. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide sales services or distribution-related support services as agents for their clients or customers. The Plan is a compensation-type Plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Plan. In addition, the Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of its shares to obtain certain personal services for shareholders and to maintain shareholder accounts. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions may receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund 's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate as which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE FEE DAILY NET ASSETS .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Institutional Service Shares from the value of Fund assets attributable to Institutional Service Shares, and dividing the remainder by the number of Institutional Service Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 3:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $25,000 or more over a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 3:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: New York Municipal Cash Trust - --Institutional Service Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: New York Municipal Cash Trust -- Institutional Service Shares. Please include an account number on the check. 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. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $25,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than New York. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. NEW YORK TAXES. Under existing New York laws, distributions made by the Fund will not be subject to New York State or New York City personal income taxes to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent interest income attributable to obligations issued by the State of New York and its political subdivisions as well as certain other obligations, the interest on which is exempt from New York State and New York City personal income taxes, such as, for example, certain obligations of the Commonwealth of Puerto Rico. Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will be subject to New York State and New York City personal income taxes. The Fund cannot predict in advance the exact portion of its dividends that will be exempt from New York State and New York City personal income taxes. However, the Fund will report to shareholders at least annually what percentage of the dividends it actually paid is exempt from such taxes. Dividends paid by the Fund are exempt from the New York City unincorporated business taxes to the same extent that they are exempt from the New York City personal income taxes. Dividends paid by the Fund are not excluded from net income in determining New York State or New York City franchise taxes on corporations or financial institutions. OTHER CLASSES OF SHARES The Fund also offers another class of shares called Cash II Shares which are designed to provide a cash management vehicle for certain customers of financial institutions which would include corporations and municipalities, as well as larger individual accounts, seeking a high level of cash management services from the participating institution. Cash II Shares are sold at net asset value and are subject to a Rule 12b-1 Plan and a Shareholder Services Agreement. Investments in Cash II Shares are subject to a minimum initial investment of $25,000 within a 90-day period. Cash II Shares and Institutional Service Shares are subject to certain of the same expenses. Expense differences, however, between Cash II Shares and Institutional Service Shares may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. NEW YORK MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- CASH II SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 30.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993** 1992 1991(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.03 0.02 0.02 0.03 0.02 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.02) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 TOTAL RETURN(B) 3.05% 3.37% 2.15% 1.98% 2.86% 2.20% RATIOS TO AVERAGE NET ASSETS Expenses 0.71% 0.71% 0.71% 0.71% 0.73% 0.46%* Net investment income 3.02% 3.20% 2.19% 1.96% 2.46% 4.08%* Expense waiver/reimbursement(c) 0.36% 0.36% 0.21% 0.17% -- -- SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $25,571 $14,439 $134,051 $58,884 $4,641 $56
* Computed on an annualized basis. ** Prior to November 9, 1992, the Fund provided three classes of shares. (a) Reflects operations for the period from April 25, 1991 (date of initial public investment) to October 31, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- 101.4% NEW YORK -- 101.4% $ 2,500,000 Albany, NY IDA, (Series 1995) Weekly VRDNs (Davies Office Refurbishing, Inc. Project)/(Marine Midland Bank N.A., Buffalo, NY LOC) $ 2,500,000 2,480,000 Alden Central School District, NY, UT GO, 4.25% BANs, 6/24/1997 2,485,444 900,000 Babylon, NY IDA, (1994 Series) Weekly VRDNs (J. D'Addario & Company, Inc. Project)/(National Westminster Bank, PLC, London LOC) 900,000 3,800,000 Brookhaven-Comsewogue Union Free School District, NY, 4.00% TANs, 6/30/1997 3,804,788 10,000,000 Buffalo, NY, Custodial Receipts (2nd Series 1996-H), 5.00% BANs (State Street Bank and Trust Co. LOC), 3/6/1997 10,037,016 3,800,000 Canisteo Central School District, NY, 4.125% BANs, 4/30/1997 3,805,322 1,555,000 Cattaraugus County, NY IDA, (Series 1996A) Weekly VRDNs (Gier's Farm Service, Inc. Project)/(Key Bank of New York LOC) 1,555,000 2,550,000 Chautauqua County, NY IDA Weekly VRDNs (Cliffstar Corp.)/ (KeyBank, N.A. LOC) 2,550,000 3,900,000 Chautauqua County, NY IDA Weekly VRDNs (Mogen David Wine Corp.)/(Wells Fargo Bank, N.A. LOC) 3,900,000 5,000,000 Chautauqua County, NY, 3.60% TANs, 12/20/1996 5,001,303 3,400,000 Clyde-Savannah Central School District, NY, 4.375% BANs, 6/27/1997 3,405,847 1,060,000 Colonie, NY IDA Weekly VRDNs (Herbert S. Ellis)/(Marine Midland Bank N.A., Buffalo, NY LOC) 1,060,000 765,000 Colonie, NY IDA, (Series 1988) Weekly VRDNs (13 Green M-1 Drive Project)/(Marine Midland Bank N.A., Buffalo, NY LOC) 765,000 2,220,000 Colonie, NY, (Series 1996B), 4.00% BANs, 4/18/1997 2,222,459 7,500,000 Deer Park Union Free School District, NY, 4.50% BANs, 10/3/1997 7,538,525 5,000,000 Erie County, NY IDA, IDRB (Series 1994) Weekly VRDNs (Servotronics, Inc. Project)/(Fleet Bank of New York LOC) 5,000,000
NEW YORK MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED NEW YORK -- CONTINUED $ 4,500,000 Florida Union Free School District, NY, 4.125% BANs, 12/5/1996 $ 4,501,509 1,800,000 Franklin County, NY IDA, (Series 1991A) Weekly VRDNs (KES Chateaugay)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 1,800,000 3,263,366 Gloversville, NY, 4.25% BANs, 12/27/1996 3,265,769 1,500,000 Guilderland, NY IDA, (Series 1993A) Weekly VRDNs (Northeastern Industrial Park, Inc.)/(Fleet Bank of New York LOC) 1,500,000 4,420,000 Herkimer County, NY IDA, 1994 IDRB Weekly VRDNs (Granny's Kitchen)/(Bank of New York, New York LOC) 4,420,000 2,005,000 Madison County, NY IDA, (Series 1989A) Weekly VRDNs (Madison, NY Upstate Metals)/(Fleet Bank of New York LOC) 2,005,000 15,000,000 Marine Midland, NY, Premium Tax-Exempt Bond & Loan Trust Weekly VRDNs (Marine Midland New York Trust)/(Marine Midland Bank N.A., Buffalo, NY LOC) 15,000,000 4,900,000 (b)New York City Housing Development Corp., Municipal Securities Trust Receipts (Series 1996-CMC1A) Weekly VRDNs (Chase Manhattan Corp. LIQ) 4,900,000 4,900,000 (b)New York City Housing Development Corp., Municipal Securities Trust Receipts (Series 1996-CMC1B) Weekly VRDNs (Chase Manhattan Corp. LIQ) 4,900,000 1,500,000 New York City Municipal Water Finance Authority, Water and Sewer System Revenue Bonds (Series 1995 A) Daily VRDNs (FGIC INS)/ (FGIC Securities Purchase, Inc. LIQ) 1,500,000 1,500,000 New York City, NY IDA Daily VRDNs (Japan Airlines Co.)/(Morgan Guaranty Trust Co., New York LOC) 1,500,000 216,667 New York City, NY IDA Weekly VRDNs (David Rosen Bakers Supply)/(Ford Motor Credit Corp. LIQ)/(Chase Manhattan Bank N.A., New York LOC) 216,667 31,562,850 New York City, NY IDA, (Series 1995A) Weekly VRDNs (Brooklyn Navy Yard Cogeneration Partners, L.P. Project)/(Bank of America NT and SA, San Francisco LOC) 31,562,850 5,000,000 New York City, NY, (Series A), 4.50% TANs, 2/12/1997 5,009,877
NEW YORK MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED NEW YORK -- CONTINUED $ 5,000,000 New York City, NY, (Series B), 4.50% RANs (Bank of Nova Scotia, Toronto, Canadian Imperial Bank of Commerce, Toronto and Commerzbank AG, Frankfurt LOCs), 6/30/1997 $ 5,022,496 4,600,000 New York City, NY, 3.75% TOBs (FSA INS)/(Citibank NA, New York LIQ), Optional Tender 2/15/1997 4,600,000 10,900,000 New York City, NY, UT GO Fiscal 1994 (Series H-3), 3.65% CP (FSA INS)/(State Street Bank and Trust Co. LIQ), Mandatory Tender 11/12/1996 10,900,000 5,475,000 (b)New York State Dormitory Authority, PA-60 (Series 1993) Weekly VRDNs (Rochester General Hospital)/(FHA INS)/(Merrill Lynch Capital Services, Inc. LIQ) 5,475,000 3,000,000 New York State Energy Research & Development Authority, (Series 1993A) Weekly VRDNs (Long Island Lighting Co.)/ (Toronto-Dominion Bank LOC) 3,000,000 8,000,000 New York State Energy Research & Development Authority, PCR Bonds (Series B) Daily VRDNs (Niagara Mohawk Power Corp.)/ (Morgan Guaranty Trust Co., New York LOC) 8,000,000 6,020,000 New York State HFA Weekly VRDNs (Special Surgery Hospital)/ (Chase Manhattan Bank N.A., New York LOC) 6,020,000 4,000,000 New York State HFA, Housing Revenue Bonds (1985 Series A) Weekly VRDNs (Liberty View Apartments)/(Chase Manhattan Bank N.A., New York LOC) 4,000,000 1,210,000 New York State Job Development Authority Weekly VRDNs (Sumitomo Bank Ltd., Osaka LOC) 1,210,000 1,500,000 New York State Job Development Authority Weekly VRDNs (Sumitomo Bank Ltd., Osaka LOC) 1,500,000 4,580,000 (b)New York State Medical Care Facilities Finance Agency, Hospital & Nursing Home Mortgage Revenue Bonds (1994 Series C) Weekly VRDNs (FHA INS)/(Merrill Lynch Capital Services, Inc. LIQ) 4,580,000 3,700,000 (b)New York State Mortgage Agency, (Series PA-29) Weekly VRDNs (Merrill Lynch Capital Services, Inc. LIQ) 3,700,000
NEW YORK MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED NEW YORK -- CONTINUED $ 4,720,000 (b)New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds (PA-87) Weekly VRDNs (Merrill Lynch Capital Services, Inc. LIQ) $ 4,720,000 7,270,000 (b)New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds (Series PT-15B) Weekly VRDNs (Commerzbank AG, Frankfurt LIQ) 7,270,000 3,660,000 New York State, (Series A), 4.50% Bonds, 7/15/1997 3,675,636 6,500,000 Niagara County, NY IDA Weekly VRDNs (Allegheny Ludlum Corp.)/ (PNC Bank, N.A. LOC) 6,500,000 1,400,000 Norwich, NY, 4.375% BANs, 9/19/1997 1,403,257 3,000,000 Oneida County, NY, Custodial Receipts (2nd Series 1996-D), 4.25% BANs (State Street Bank and Trust Co. LOC), 5/9/1997 3,006,653 610,000 Onondaga County, NY IDA Weekly VRDNs (Beverage Corp.)/ (Marine Midland Bank N.A., Buffalo, NY LOC) 610,000 910,000 Onondaga County, NY IDA, (Series 1987) Weekly VRDNs (Southern Container Corp.)/(Chase Manhattan Bank N.A., New York LOC) 910,000 1,725,000 Onondaga County, NY Weekly VRDNs (Grainger (W.W.), Inc.) 1,725,000 1,450,000 Ontario, NY IDA Weekly VRDNs (Hillcrest Enterprises/Buckeye Corrugated)/(National City Bank, Cleveland, OH LOC) 1,450,000 5,700,000 Oswego County, NY IDA Weekly VRDNs (Copperweld Corp.)/ (Credit Lyonnais, Paris LOC) 5,700,000 15,000,000 Port Authority of New York and New Jersey Weekly VRDNs 15,000,000 15,000,000 Port Authority of New York and New Jersey Weekly VRDNs 15,000,000 1,000,000 Rotterdam, NY IDA, (Series 1993A) Weekly VRDNs (Rotterdam Industrial Park)/(Fleet Bank of New York LOC) 1,000,000 497,529 Schenectady, NY IDA Weekly VRDNs (McClellan Street Associates)/ (Ford Motor Credit Corp. LIQ)/(Chase Manhattan Bank N.A., New York LOC) 497,529 1,700,000 Schenectady, NY IDA, IDRB (Series 1995A) Weekly VRDNs (Fortitech Holding Corporation Project)/(Fleet Bank of New York LOC) 1,700,000 3,000,000 South Country Central School District, NY, 4.50% TANs, 6/25/1997 3,008,380
NEW YORK MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS -- CONTINUED NEW YORK -- CONTINUED $ 3,200,000 Southeast, NY IDA, IDRB (Series 1995) Weekly VRDNs (Dairy Conveyor Corporation Project)/(Chase Manhattan Bank N.A., New York LOC) $ 3,200,000 2,400,000 Suffolk County, NY IDA Weekly VRDNs (C & J Realty Corp.)/ (Ford Motor Credit Corp. LIQ)/(Chase Manhattan Bank N.A., New York LOC) 2,400,000 900,000 Suffolk County, NY IDA Weekly VRDNs (Poly Research Corp.)/ (Marine Midland Bank N.A., Buffalo, NY LOC) 900,000 1,800,000 Suffolk County, NY IDA, 5.363% TOBs (Grainger (W.W.), Inc.), Optional Tender 12/1/1996 1,800,000 11,299,000 Syracuse, NY, (Series 1995), 4.00% BANs, 12/20/1996 11,304,248 2,200,000 Tompkins County, NY, (Series A), 4.00% BANs, 4/11/1997 2,202,804 9,000,000 Ulster County, NY, Custodial Receipt (1996 Series A), 4.25% TANs (State Street Bank and Trust Co. LOC), 3/26/1997 9,017,091 5,000,000 (b)VRDC/IVRC Trust, (Series 1992A) Weekly VRDNs (New York City Municipal Water Finance Authority)/(MBIA INS)/(Hong Kong & Shanghai Banking Corp. LIQ) 5,000,000 9,900,000 (b)VRDC/IVRC Trust, (Series 1993G) Weekly VRDNs (St. Lukes Roosevelt Hospital Center)/(FHA INS)/(Hong Kong & Shanghai Banking Corp. LIQ) 9,900,000 7,500,000 Walden Village, NY IDA, IDRB (Series 1994) Weekly VRDNs (Spence Engineering Co.)/(First Union National Bank, Charlotte, N.C. LOC) 7,500,000 5,280,000 Warren & Washington Counties, NY IDA Weekly VRDNs (Sandy Hill Corp.)/(First Union National Bank, Charlotte, N.C. LOC) 5,280,000 4,000,000 Westhampton Beach Union Free School District, NY, 4.00% TANs, 6/27/1997 4,006,240 1,290,000 Yates County, NY IDA, (Series 1992A) Weekly VRDNs (Clearplass Container)/(Fleet Bank of New York LOC) 1,290,000 2,200,000 Yonkers, NY IDA, (Series 1992A) Weekly VRDNs (Consumers Union Facility)/(Industrial Bank of Japan Ltd., Tokyo LOC) 2,200,000 TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $335,796,710
At October 31, 1996, 41.4% of the total investments at market value were subject to alternative minimum tax. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSRO's") 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 Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are 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 application regulations in determining whether a security is rated and whether a security rated by multiple NRSRO's in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER 97.34% 2.66%
(b) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. At October 31, 1996, these securities amounted to $50,455,000 which represents 15.2% of net assets. (c) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($331,104,268) at October 31, 1996. The following acronyms are used throughout this portfolio: BANs -- Bond Anticipation Notes CP -- Commercial Paper FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Administration FSA -- Financial Security Assurance GO -- General Obligation HFA -- Housing Finance Authority IDA -- Industrial Development Authority IDRB -- Industrial Development Revenue Bond INS -- Insured LIQ -- Liquidity Agreement LOCs -- Letter(s) of Credit LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance PCR -- Pollution Control Revenue PLC -- Public Limited Company RANs -- Revenue Anticipation Notes SA -- Support Agreement TANs -- Tax Anticipation Notes TOBs -- Tender Option Bonds UT -- Unlimited Tax VRDNs -- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 ASSETS: Total investments in securities, at amortized cost and value $ 335,796,710 Cash 286,594 Income receivable 2,698,212 Receivable for shares sold 887,032 Total assets 339,668,548 LIABILITIES: Payable for investments purchased $ 7,811,028 Income distribution payable 673,724 Accrued expenses 79,528 Total liabilities 8,564,280 NET ASSETS for 331,104,268 shares outstanding $331,104,268 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: INSTITUTIONAL SERVICE SHARES: $305,533,428 / 305,533,428 shares outstanding $1.00 CASH II SHARES: $25,570,840 / 25,570,840 shares outstanding $1.00
(See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 INVESTMENT INCOME: Interest $ 12,055,066 EXPENSES: Investment advisory fee $1,298,934 Administrative personnel and services fee 245,547 Custodian fees 54,459 Transfer and dividend disbursing agent fees and expenses 58,757 Directors'/Trustees' fees 4,397 Auditing fees 13,561 Legal fees 5,282 Portfolio accounting fees 88,338 Distribution services fee -- Institutional Service Shares 750,832 Distribution services fee -- Cash II Shares 61,083 Shareholder services fee -- Institutional Service Shares 751,279 Shareholder services fee -- Cash II Shares 61,083 Share registration costs 32,037 Printing and postage 27,219 Insurance premiums 5,255 Taxes 266 Miscellaneous 2,848 Total expenses 3,461,177 Waivers -- Waiver of investment advisory fee $ (343,123) Waiver of distribution services fee -- Institutional Service Shares (750,832) Waiver of distribution services fee -- Cash II Shares (61,082) Waiver of shareholder services fee -- Institutional Service Shares (540,243) Total waivers (1,695,280) Net expenses 1,765,897 Net investment income 10,289,169 Net realized gain on investments 5,609 Change in net assets resulting from operations $10,294,778
(See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS -- Net investment income $ 10,289,169 $ 11,498,874 Net realized gain (loss) on investments 5,609 12,000 Change in net assets resulting from operations 10,294,778 11,510,874 DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income: Institutional Service Shares (9,551,350) (9,657,797) Cash II Shares (737,819) (1,841,077) Change in net assets resulting from distributions to shareholders (10,289,169) (11,498,874) SHARE TRANSACTIONS -- Proceeds from sale of shares 1,133,036,436 1,236,075,244 Net asset value of shares issued to shareholders in payment of distributions declared 2,199,491 3,314,165 Cost of shares redeemed (1,094,725,252) (1,319,444,545) Change in net assets resulting from share transactions 40,510,675 (80,055,136) Change in net assets 40,516,284 (80,043,136) NET ASSETS: Beginning of period 290,587,984 370,631,120 End of period $ 331,104,268 $ 290,587,984
(See Notes which are an integral part of the Financial Statements) NEW YORK MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 1. ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of New York Municipal Cash Trust (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 current income exempt from federal regular income tax, the personal income taxes imposed by the New York State and New York municipalities consistent with stability of principal. The Fund offers two classes of shares: Institutional Service Shares and Cash II Shares. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. RESTRICTED SECURITIES -- Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees ("Trustees"). The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at October 31, 1996 is as follows:
FUND SECURITY ACQUISITION DATE ACQUISITION COST New York City Housing Development Corp (Series 1996-CMC1A) September 11, 1996 $ 4,900,000 New York City Housing Development Corp. (Series 1996-CMC1B) September 11, 1996 4,900,000 New York State Dormitory Authority, PA-60 March 13, 1995 5,475,000 New York State Medical Care Facilities Finance Agency August 22, 1996 4,580,000 New York State Mortgage Agency (Series PA-29) April 3, 1995 3,700,000 New York State Mortgage Agency (PA-87) July 5, 1995 4,720,000 New York State Mortgage Agency (Series PT-15B) December 29, 1995- May 30, 1996 7,270,000 VRDC/IVRC Trust (Series 1992A) July 5, 1995 5,000,000 VRDC/IVRC Trust (Series 1993G) August 14, 1996- October 25, 1996 9,900,000
USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER -- Investment transactions are accounted for on the trade date. NEW YORK MUNICIPAL CASH TRUST 3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1996, capital paid-in aggregated $331,104,268. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, 1996 1995 INSTITUTIONAL SERVICE SHARES SHARES SHARES Shares sold 990,741,683 1,002,966,036 Shares issued to shareholders in payment of distributions declared 1,624,496 1,484,402 Shares redeemed (962,988,268) (964,892,684) Net change resulting from Institutional Service Share transactions 29,377,911 39,557,754 YEAR ENDED OCTOBER 31, 1996 1995 CASH II SHARES SHARES SHARES Shares sold 142,294,754 233,109,208 Shares issued to shareholders in payment of distributions declared 574,995 1,829,763 Shares redeemed (131,736,985) (354,551,861) Net change resulting from Cash II Share transactions 11,132,764 75,166,605 Net change resulting from share transactions 40,510,675 (80,055,137)
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors 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. NEW YORK MUNICIPAL CASH TRUST DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will reimburse Federated Securities Corp., ("FSC") the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Institutional Service Shares and Cash II Shares. The Plan provides that the Fund may incur distribution expenses up to 0.25% of the average daily net assets of the Institutional Service Shares and Cash II Shares, annually, to reimburse FSC. The distributor may voluntarily choose to waive any portion of its fee. The distributor can modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund shares for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, 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 $479,312,850 and $413,930,000, respectively. GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. CONCENTRATION OF CREDIT RISK -- Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 60% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 9% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (New York Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of New York Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996, the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see pages 2 and 15 of the prospectus) for the periods presented. 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 October 31, 1996, by correspondence with the custodian and broker. 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 New York Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 13, 1996 ADDRESSES New York Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, PA 15222-3779 Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 Transfer Agent and Dividend Disbursing Agent Federated Shareholder P.O. Box 8600 Services Company Boston, MA 02266-8600 Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 NEW YORK MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 Federated Investors [graphic] Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. [graphic] Cusip 314229741 G00208-01 (12/96) NEW YORK MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH II SHARES INSTITUTIONAL SERVICE SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectuses of New York Municipal Cash Trust (the ``Fund'), a portfolio of Federated Municipal Trust (the ``Trust') dated December 31, 1996. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-341-7400. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1996 [logo] Federated Securities Corp. is the distributor of the Funds and is a subsidiary of Federated Investors. Cusip 314229741 8120103B (12/96) INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1 Repurchase Agreements 2 Credit Enhancement 2 NEW YORK INVESTMENT RISKS 2 INVESTMENT LIMITATIONS 3 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 Share Ownership 8 Trustees Compensation 8 Trustee Liability 9 INVESTMENT ADVISORY SERVICES 9 Investment Adviser 9 Advisory Fees 10 BROKERAGE TRANSACTIONS 10 OTHER SERVICES 10 Fund Administration 10 Custodian and Portfolio Accountant 10 Transfer Agent 10 Independent Public Accountants 11 DISTRIBUTION PLAN AND SHAREHOLDER SERVICES 11 DETERMINING NET ASSET VALUE 11 REDEMPTION IN KIND 11 MASSACHUSETTS PARTNERSHIP LAW 12 THE FUND'S TAX STATUS 12 PERFORMANCE INFORMATION 12 Yield 12 Effective Yield 12 Tax-Equivalent Yield 12 Tax-Equivalency Table 12 Total Return 13 Performance Comparisons 14 Economic and Market Information 14 ABOUT FEDERATED INVESTORS 14 Mutual Fund Market 15 Institutional Clients 15 Trust Organizations 15 Broker/Dealers and Bank Broker/Dealer Subsidiaries 15 APPENDIX 16 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security; the issuer of any demand feature applicable to the security; or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an `event of non-appropriation''); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations (`NRSROs'') or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group (`S&P''), MIG-1 or MIG-2 by Moody's Investors Service, Inc. (`Moody's''), or F-1+, F-1, or F-2 by Fitch Investors Service, Inc. (`Fitch'') are all considered rated in one of the two highest short-term rating categories. The Fund will follow applicable regulations in determining whether a security rated by more than one NRSRO can be treated as being in one of the two highest short-term rating categories; currently, such securities must be rated by two NRSROs in one of their two highest rating categories. See `Regulatory Compliance.'' WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund in a dollar amount sufficient to make payment for the securities to be purchased are: segregated on the Fund`s records at the trade date; marked to market daily; and maintained until the transaction is settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the `credit enhancer''), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. NEW YORK INVESTMENT RISKS The Fund invests in obligations of New York (the `State'') issuers which result in the Fund's performance being subject to risks associated with the overall conditions present within the State. The following information is a general summary of the State's financial condition and a brief summary of the prevailing economic conditions. This information is based on official statements relating to securities that are believed to be reliable but should not be considered as a complete description of all relevant information. The State has achieved fiscal balance for the last few years after large deficits in the middle and late 1980's. Growing social service needs, education and Medicare expenditures have been the areas of largest growth while prudent program cuts and increases in revenues through service fees has enabled the state's budget to remain within balance for the last few years. While the state still has a large accumulated deficit as a percentage of its overall budget, the fiscal performance in recent years has demonstrated a changed political environment that has resulted in realistic revenue and expenditure projections to achieve financially favorable results. The state also benefits from a high level of per capita income that is well above the national average and from significant amounts of international trade. New York's economy is large and diverse. While several upstate counties benefit from agriculture, manufacturing and high technology industries, New York City nonetheless still dominates the State's economy through its international importance in economic sectors such as advertising, finance, and banking. New York's recession ended during the first quarter of 1993, but recovery has been at a slower pace than national or regional levels. New York's employment growth is projected to average 1%-1.5% annually through 2000. New York state income levels continue to be almost 20% above the national average; however, real income growth is expected to lage the nation for the remainder of the decade. New York's budget process has been historically characterized by contentious and protracted budget debates. New York State's fiscal 1997 budget increases expenditures by a mere 1.4% over the 1996 levels. Additionally, the fiscal 1996 and 1997 budgets include a $2 billion multi- year income tax reduction plan. Balancing the budget in the wake of tax cuts makes the spending reduction plan even more critical. Moreover, New York has yet to fully address Federal welfare reform. The way in which the state resolves these issues will be a good indicator of sustained fiscal stability. The overall credit quality of the State is further demonstrated by its debt ratings. New York State maintains an A rating Moody's Investors Service, Inc. and Standard & Poor's Ratings Group rates the State A-. The Fund's concentration in municipal securities issued by the state and its political subdivisions provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. The ability of the state or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the state; and the underlying fiscal condition of the state, its counties, and its municipalities. INVESTMENT LIMITATIONS 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 may be necessary for clearance of transactions. BORROWING MONEY The Fund will not borrow money except as a temporary measure for extraordinary or emergency purposes and then only in amounts not in excess of 5% of its total assets or in an amount up to one-third of the value of its total assets, including the amount borrowed, in order to meet redemption requests without immediately selling portfolio instruments. This borrowing provision is not for investment leverage but solely to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio instruments would be inconvenient or disadvantageous. Interest paid on borrowed funds will serve to reduce the Fund's income. The Fund will liquidate any such borrowings as soon as possible and may not purchase any portfolio instruments while any borrowings are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding 10% of the value of its total assets at the time of the pledge. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, although it may invest in New York municipal securities secured by real estate or interests in real estate. INVESTING IN COMMODITIES AND MINERALS The Fund will not purchase or sell commodities, commodity contracts, or oil, gas, or other mineral exploration or development programs. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. MAKING LOANS The Fund will not make loans except that it may acquire publicly or non-publicly issued New York municipal securities, in accordance with its investment objective, policies, and limitations, and the Trust's Declaration of Trust. ACQUIRING SECURITIES The Fund will not acquire the voting securities of any issuer, except as part of a merger, consolidation, reorganization, or acquisition of assets. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not invest in securities issued by any other investment company or investment trust. INVESTMENTS IN ANY ONE ISSUER With respect to securities comprising 75% of its assets, the Fund will not invest more than 10% of its total assets in the securities of any one issuer. Under this limitation, each governmental subdivision, including states, territories, possessions of the United States, or their political subdivisions, agencies, authorities, instrumentalitites, or similar entities, will be considered a separate issuer if its assets and revenues are separate from those of the government body creating it and the security is backed only by its own assets and revenues. Industrial development bonds backed only by the assets and revenues of a nongovernmental user are considered to be issued solely by that user. If in the case of an industrial development bond or government issued security, a governmental or other entity guarantees the security, such guarantee would be considered a separate security issued by the guarantor, as well as the other issuer, subject to limited exclusions allowed by the Investment Company Act of 1940. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers (or in the alternative, guarantors, where applicable) which have records of less than three years of continuous operations, including the operation of any predecessor. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF THE TRUST The Fund will not purchase or retain the securities of any issuer if the Officers and Trustees of the Trust or its investment adviser, owning individually more than .50% of the issuer's securities, together own more than 5% of the issuer's securities. INVESTING IN OPTIONS The Fund will not purchase puts, calls, straddles, spreads, or any combination of them, except that the Fund may purchase municipal securities accompanied by agreements of sellers to repurchase them at the Fund's option. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its total assets in illiquid securities, including repurchase agreements maturing in more than seven days. ISSUING SENIOR SECURITIES The Fund will not issue senior securities, except as permitted by the investment objective and policies and limitations of the Fund. The above limitations cannot be changed without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be `cash items.'' Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments , as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director or Trustee of the Funds. Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee, University of Pittsburgh; Director or Trustee of the Funds. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest Florida; formerly, President, Naples Property Management, Inc. and Northgate Village Development Corporation; Director or Trustee of the Funds. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds. Edward L. Flaherty, Jr.@ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region; Director or Trustee of the Funds. Glen R. Johnson* Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. Peter E. Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16, 1942 Trustee Consultant; Former State Representative, Commonwealth of Massachusetts; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation; Director or Trustee of the Funds. Gregor F. Meyer Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director or Trustee of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics; Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., National Defense University, U.S. Space Foundation and Czech Management Center; President Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council for Environmental Policy and Technology, Federal Emergency Management Advisory Board and Czech Management Center; Director or Trustee of the Funds. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/Marketing/Conference Planning, Manchester Craftsmen's Guild; Restaurant Consultant, Frick Art & History Center; Conference Coordinator, University of Pittsburgh Art History Department; Director or Trustee of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated Shareholder Services; Director, Federated Services Company; President or Executive Vice President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Shareholder Services Company; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President , Secretary and Treasurer Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. *This Trustee is deemed to be an ``interested person'' as defined in the Investment Company Act of 1940. @Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board between meetings of the Board. As referred to in the list of Trustees and Officers, `Funds'' includes the following investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated Investment Portfolios; Federated Investment Trust; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of November 26, 1996, the following shareholders of record owned 5% or more of the outstanding Cash II Shares of the New York Municipal Cash Trust: Saul R. and Marion Klein Kramer, Garden City, NY, owned approximately 4,032,819 shares (16.82%); North Fork Bank & Trust Company, Mattituck, NY, owned approximately 3,303,795 shares (13.78%); North Fork Bank & Trust Company, Mineola, NY, owned approximately 1,709,594 shares (7.13%); Misty Associates, Inc. Hauppauge, NY, owned approximately 1,697,173 shares(7.07%); Barrons Educational Series, Inc., Hauppa, NY, owned approximately 1,649,386 shares (6.88%); Wayne D. Thornbrough, New York, NY, owned approximately 1,551,415 shares (6.47%); North Atlantic Components, Inc. Islandia, NY, owned approximately 1,467,846 shares (6.12%); First National Bank of Long Island, Woodbury NY, owned approximately 1,265,270 shares (5.27%); and Mrs. Margery A. Bartlett, Glen Head, NY, owned approximately 1,250,056 shares (5.21%). As of November 26, 1996, the following shareholders of record owned 5% or more of the outstanding Institutional Service Shares of the New York Municipal Cash Trust: Fiduciary Trust Company International, New York, NY, owned approximately 48,289,300 shares (14.71%); Nadir & Company, Woodbridge, NJ, owned approximately 20,784,600 shares (6.33%); Fleet Securities Corporation, Rochester, NY, owned approximately 43,229,312 shares (13.17%); and WESCO, Schenectady, NY, owned approximately 18,161,116 shares (5.53%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 54 other investment companies in the Fund Complex Thomas G. Bigley++ $3,611 $86,331 for the Trust and Trustee 54 other investment companies in the Fund Complex John T. Conroy, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex William J. Copeland $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Peter E. Madden $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Gregor F. Meyer $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex John E. Murray, Jr., $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Wesley W. Posvar $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Marjorie P. Smuts $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1996. #The aggregate compensation is provided for the Trust which is comprised of 16 portfolios. +The information is provided for the last calendar year. ++ Mr. Bigley served on 39 investment companies in the Federated Funds complex from January 1 through September 30, 1995. On October 1, 1995, he was appointed a Trustee on 15 additional Federated Funds. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the New York Municipal Cash Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the New York Municipal Cash Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1996, 1995, and 1994, the adviser earned $1,298,934, $1,335,835, and $1,383,576, respectively, of which $343,123, $351,948, and $364,783, respectively, were voluntarily waived. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal years ended October 31, 1996, 1995, and 1994, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative Services served as the Fund's Administrator. Prior to March 1, 1994, Federated Administrative Services, Inc. served as the Fund's Administrator. Both former Administrators are subsidiaries of Federated Investors. For purposes of this Statement of Additional Information, Federated Services Company, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the `Administrators.'' For the fiscal years ended October 31, 1996, 1995, and 1994, the Administrators earned $245,547, $252,807, and $292,612, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. The fee paid for this service is based upon the level of the Fund's average net assets for the period plus out-of- pocket expenses. TRANSFER AGENT Federated Services Company, through its registered transfer agent, Federated Shareholder Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on the size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES These arrangements permit the payment of fees to financial institutions, the distributor, and Federated Shareholder Services, to stimulate distribution activities and to cause services to be provided to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities may include, but are not limited to: marketing efforts; providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Plan, the Trustees expect that the Fund will be able to achieve a more predictable flow of cash for investment purposes and to meet redemptions. This will facilitate more efficient portfolio management and assist the Fund in seeking to achieve its investment objectives. By identifying potential investors whose needs are served by the Fund `s objectives, and properly servicing these accounts, the Fund may be able to curb sharp fluctuations in rates of redemptions and sales. Other benefits, which may be realized under either arrangement, may include: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal year ended October 31, 1996, payments in the amount of $61,083 and $750,832 were made pursuant to the Plan for Cash II Shares and Institutional Service Shares, respectively, all of which was voluntarily waived. In addition, for the fiscal year ended October 31, 1996, the Fund paid shareholder service fees in the amounts of $61,083 and $751,279 for Cash II Shares and Institutional Service Shares, respectively, of which $0 and $540,243, respectively were voluntarily waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the `Rule'') promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.50% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the `base period.'' This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. For the seven-day period ended October 31, 1996, the yields for Cash II Shares and Institutional Service Shares were 3.01% and 3.19%, respectively. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. For the seven-day period ended October 31, 1996, the effective yields for Cash II Shares and Institutional Service Shares were 3.05% and 3.24%, respectively. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming 39.60% tax rate (the maximum combined effective federal and state rate for individuals) and assuming that the income is 100% tax exempt. For the seven-day period ended October 31, 1996, the tax-equivalent yields for Cash II Shares and Institutional Service Shares were 5.65% and 5.99%, respectively. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a `tax- free''investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1996 STATE OF NEW YORK TAX BRACKET: FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60% COMBINED FEDERAL AND STATE 22.125% 35.125% 38.125% 43.125% 46.725% JOINT $1- $40,101- $96,901- $147,701- OVER RETURN 40,100 96,900 147,700 263,750 $263,750 SINGLE $1- $24,001- $58,151- $121,301- OVER RETURN 24,000 58,150 121,300 263,750 $263,750 TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT 1.50% 1.93% 2.31% 2.42% 2.64% 2.82% 2.00% 2.57% 3.08% 3.23% 3.52% 3.75% 2.50% 3.21% 3.85% 4.04% 4.40% 4.69% 3.00% 3.85% 4.62% 4.85% 5.27% 5.63% 3.50% 4.49% 5.39% 5.66% 6.15% 6.57% 4.00% 5.14% 6.17% 6.46% 7.03% 7.51% 4.50% 5.78% 6.94% 7.27% 7.91% 8.45% 5.00% 6.42% 7.71% 8.08% 8.79% 9.39% 5.50% 7.06% 8.48% 8.89% 9.67% 10.32% 6.00% 7.70% 9.25% 9.70% 10.55% 11.26% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. The Fund's Cash II Shares average annual total returns for the one-year and five-year periods ended October 31, 1996 and for the period from April 25, 1991 (date of initial public investment) through October 31, 1996 were 3.05%, 2.68% and 2.83%, respectively. The Fund's Institutional Service Shares average annual total returns for the one-year, five-year and ten-year periods ended October 31, 1996 were 3.24%, 2.86% and 3.86%, respectively. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. oMONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. Advertising and other promotional literature may include charts, graphs and other illustrations using the Fund`s returns, or returns in general, that demonstrate basic investment concepts such as tax-deferred compounding, dollar-cost averaging and systematic investment. In addition, the Fund can compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, such as bank savings accounts, certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION Advertising and sales literature for the Fund may include discussions of economic, financial and political developments and their effect on the securities market. Such discussions may take the form of commentary on these developments by the Fund portfolio mangers and their views and analysis on how such developments could affect the Funds. In addition, advertising and sales literature may quote statistics and give general information about the mutual fund industry, including growth of the industry, from sources such as the Investment Company Institute. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. These traders handle trillions of dollars in annual trading volume. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1995, Federated Investors managed more than $40.2 billion in assets across approximately 47 money market funds, including 17 government, 10 prime and 20 municipal with assets approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $3 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. Federated's service to financial professionals and institutions has earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for service quality measurement. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (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 rate `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. MOODYS 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 SERVICES, INC. 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. FLORIDA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH II SHARES PROSPECTUS The Cash II Shares of Florida Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Florida municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Florida, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and which will enable the Fund to maintain an investment portfolio that will cause its shares to be exempt from the Florida intangibles tax consistent with stability of principal and liquidity. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS SUMMARY OF FUND EXPENSES 1 FINANCIAL HIGHLIGHTS -- CASH II SHARES 2 GENERAL INFORMATION 3 INVESTMENT INFORMATION 3 Investment Objective 3 Investment Policies 3 Florida Municipal Securities 5 Investment Risks 6 Investment Limitations 6 FUND INFORMATION 6 Management of the Fund 6 Distribution of Cash II Shares 7 Administration of the Fund 8 NET ASSET VALUE 9 HOW TO PURCHASE SHARES 9 Special Purchase Features 9 HOW TO REDEEM SHARES 10 Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 11 TAX INFORMATION 12 Federal Income Tax 12 State and Local Taxes 12 Florida Intangibles Tax 12 Florida State Municipal Taxation 13 OTHER CLASSES OF SHARES 13 PERFORMANCE INFORMATION 13 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES 14 FINANCIAL STATEMENTS 15 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 32 ADDRESSES 33 SUMMARY OF FUND EXPENSES
CASH II SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable) None Redemption Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None ANNUAL FUND OPERATING EXPENSES (As a percentage of projected average net assets) Management Fee (after waiver) (1) 0.12% 12b-1 Fee (after waiver) (2) 0.20% Total Other Expenses 0.43% Shareholder Services Fee 0.25% Total Operating Expenses (3) 0.75%
(1) The estimated management fee has been reduced to reflect the anticipated voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The 12b-1 Fee has been reduced to reflect the anticipated voluntary waiver of a portion of the 12b-1 fee. The distributor can terminate the voluntary waiver at any time at its sole discretion. The maximum 12b-1 fee is 0.25%. (3) The total operating expenses in the table are based on expenses expected during the fiscal year ending October 31, 1997. The total operating expenses were 0.65% for the fiscal year ended October 31, 1996, and would have been 1.08% absent the voluntary waivers of portions of the management fee and 12b-1 fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Cash II Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period $8 $24 $42 $93
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. FLORIDA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- CASH II SHARES (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Reference is made to the Report of Independent Public Accountants on page 32.
PERIOD ENDED OCTOBER 31, 1996(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 LESS DISTRIBUTIONS Distributions from net investment income (0.03) NET ASSET VALUE, END OF PERIOD $ 1.00 TOTAL RETURN(B) 2.80% RATIOS TO AVERAGE NET ASSETS Expenses 0.65%* Net investment income 3.07%* Expense waiver/reimbursement(c) 0.43%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $31,824
* Computed on an annualized basis. (a) Reflects operations for the period from November 27, 1995 (date of initial public investment) to October 31, 1996. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees has established two classes of shares known as Cash II Shares and Institutional Shares. This prospectus relates only to Cash II Shares of the Fund, which are designed primarily for retail customers of financial institutions as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Florida taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax consistent with stability of principal and liquidity and to maintain an investment portfolio that will cause its shares to be exempt from the Florida intangibles tax. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and the Florida intangibles tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Florida and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and the Florida intangibles tax. Examples of Florida Municipal Securities, ("Florida Municipal Securities") include, but are not limited to: * tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; * bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; * municipal commercial paper and other short-term notes; * variable rate demand notes; * municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and * participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Florida Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Florida Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Florida Municipal Securities is subject to the federal alternative minimum tax. FLORIDA MUNICIPAL SECURITIES Florida Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Florida Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Florida Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Florida Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Florida Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Florida Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Florida Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Florida Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Florida Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations the Fund's concentration in Florida Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) Shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF CASH II SHARES Federated Securities Corp. is the principal distributor for Cash II Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in accordance with Rule 12b-1 under the Investment Company Act of 1940 (the "Plan"), the distributor may be paid a fee by the Fund in an amount computed at an annual rate of .25% of the average daily net asset value of the Fund. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide sales services or distribution-related support services as agents for their clients or customers. The Plan is a compensation-type Plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Plan. In addition, the Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of its shares to obtain certain personal services for shareholders and to maintain shareholder accounts. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Distribution Plan and Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or it affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below: AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Cash II Shares from the value of Fund assets attributable to Cash II Shares, and dividing the remainder by the number of Cash II Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more over a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 (Eastern time) that day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Florida Municipal Cash Trust -- Cash II Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Florida Municipal Cash Trust -- Cash II Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contracting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Shareholder Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company, or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights; except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 2, 1996, Trustman Company Bank, Atlanta, GA (as a record owner holding Cash II Shares for its clients) owned 99.98% of the voting securities of the Fund, and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Florida. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. FLORIDA INTANGIBLES TAX Shareholders of the Fund that are subject to the Florida intangibles tax will not be required to include the value of their Fund shares in their taxable intangible property if all of the Fund's investments on the annual assessment date are obligations that would be exempt from such tax if held directly by such shareholders, such as Florida and U.S. government obligations. As described earlier, the Fund will normally attempt to invest substantially all of its assets in securities which are exempt from the Florida intangibles tax. Accordingly, the value of the Fund shares held by a shareholder should under normal circumstances be exempt from the Florida intangibles tax. However, if the portfolio consists of any assets which are not so exempt on the annual assessment date, only the portion of the shares of the Fund which relate to securities issued by the United States and its possessions and territories will be exempt from the Florida intangibles tax, even if they partly relate to Florida tax exempt securities. FLORIDA STATE MUNICIPAL TAXATION In a majority of states that have an income tax, dividends paid by a mutual fund attributable to investments in a particular state's municipal obligations are exempt from both federal and such state's income tax. If Florida were to adopt an income tax in the future, and assuming that its income tax policy with respect to mutual funds investing in Florida state and local municipal obligations would be similar to the general tax policy of other states, dividends paid by the Fund would be exempt from Florida state income tax. A constitutional amendment approved by referendum would be required before an individual tax could be imposed. OTHER CLASSES OF SHARES The Fund also offers another class of shares called Institutional Shares that are sold primarily to financial institutions acting in a fiduciary capacity. Institutional Shares are sold at net asset value and are subject to a Shareholder Services Agreement. Investment in Institutional Shares are subject to a minimum initial investment of $10,000 over a 90-day period. All classes are subject to certain of the same expenses. Institutional Shares are distributed under a 12b-1 Plan adopted by the Fund and also are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. FLORIDA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 32.
YEAR ENDED OCTOBER 31, 1996 1995 1994(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.000 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.04 0.004 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.04) (0.004) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.000 TOTAL RETURN(B) 3.20% 3.60% 0.35% RATIOS TO AVERAGE NET ASSETS Expenses 0.49% 0.45% 0.28%* Net investment income 3.17% 3.58% 3.28%* Expense waiver/reimbursement(c) 0.34% 0.42% 1.03%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $500,993 $153,347 $53,966
* Computed on an annualized basis. (a) Reflects operations for the period from September 21, 1994 (date of initial public investment) to October 31, 1994. For the period from September 12, 1994 (start of business) to September 21, 1994 the Fund had no investment activity. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) FLORIDA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--99.6% FLORIDA--87.0% $ 14,000,000 Alachua County, FL Health Facilities Authority, Health Facilities Revenue Bonds (Series 1996B) Weekly VRDNs (Shands Teaching Hospital and Clinics, Inc.)/(MBIA INS)/(SunTrust Bank, Central Florida LIQ) $ 14,000,000 6,500,000 Brevard County, FL School District, Series 1996, 4.20% TANs, 6/30/1997 6,523,026 3,000,000 Broward County, FL HFA, Multifamily Housing Revenue Refunding Bonds (1995 Series B) Weekly VRDNs (Harbour Town of Jacaranda Project)/(SouthTrust Bank of Alabama, 3,000,000 Birmingham LOC) 3,510,000 Broward County, FL Health Facility Authority, Revenue Bonds Weekly VRDNs (John Knox Village of Florida)/(First Union National Bank, Charlotte, NC LOC) 3,510,000 1,130,000 Broward County, FL, IDRB (Series 1993) Weekly VRDNs (American Whirlpool Products Corp. 1,130,000 Project)/(NationsBank, South LOC) 8,000,000 Charlotte County, FL School District, Series 1996, 4.00% TANs, 6/30/1997 8,016,493 14,190,000 (b)Clipper Florida Tax-Exempt Trust, Class A Certificates of Participation, Series 1996-3B Weekly VRDNs (Escambia County, FL HFA)/(State Street Bank and Trust Co. LOC) 14,190,000 4,300,000 Collier County, FL HFA, Multi-Family Revenue Bonds (Series 1985) Weekly VRDNs (River Reach Project)/(Morgan Guaranty Trust Co., New York LOC) 4,300,000 9,000,000 Dade County, FL HFA, (Series 1996), 4.00% TOBs (FGIC INV), Mandatory Tender 10/1/1997 9,000,000 11,500,000 Dade County, FL HFA, Hospital Revenue Bonds (Series 1995) Weekly VRDNs (Miami Children's Hospital Project)/(AMBAC INS)/ (SunTrust Bank, Atlanta LIQ) 11,500,000 1,800,000 Dade County, FL IDA, IDRB (Series 1995) Weekly VRDNs (June Leasing Co. Project (FL))/(First Union 1,800,000 National Bank of Florida LOC) 2,000,000 Dade County, FL IDA, IDRB (Series 1996A) Weekly VRDNs (U.S. Holdings, Inc.)/(First Union National 2,000,000 Bank of Florida LOC)
FLORIDA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED FLORIDA--CONTINUED $ 2,550,000 Dade County, FL Resource Recovery Facilities, 4.00% Bonds (AMBAC INS), 10/1/1997 $ 2,550,000 11,000,000 Dade County, FL Water & Sewer System Weekly VRDNs (FGIC INS)/ (Commerzbank AG, Frankfurt LIQ) 11,000,000 3,000,000 Duval County, FL HFA, Multifamily Housing Revenue Bonds (Series 1985 F) Weekly VRDNs (Lakes of Mayport Apartments Project)/(SunTrust Bank, Atlanta LOC) 3,000,000 3,900,000 Escambia County, FL HFA, SFM Revenue Bonds (Series 1996B), 3.65% TOBs (Trinity Funding Company INV), Mandatory 3,900,000 Tender 4/1/1997 6,250,000 Eustis Health Facilities Authority, FL, (Series 1985) Weekly VRDNs (Waterman Medical Center)/(Banque Paribas, 6,250,000 Paris LOC) 9,730,000 Eustis Health Facilities Authority, FL, Health Facilities Revenue Bonds, (Series 1992) Weekly VRDNs (Florida Hospital/Waterman, Inc. Project)/(Banque Paribas, Paris LOC) 9,730,000 9,220,000 Florida HFA Weekly VRDNs (Cornerstone Imaging, Inc.)/(PNC Bank, NA LOC) 9,220,000 6,920,000 (b)Florida HFA, Homeowner Mortgage Revenue Bonds PT-88 (Series 1996-3) Weekly VRDNs (Banco Santander 6,920,000 LIQ) 4,700,000 Florida HFA, Housing Revenue Bonds (Series J) Weekly VRDNs (Ashley Lake Project)/(Barclays Bank PLC, 4,700,000 London LOC) 6,570,000 Florida HFA, Multifamily Housing Revenue Bonds (1995 Series M) Weekly VRDNs (Bainbridge Club Apartments Project)/(PNC Bank, Kentucky LOC) 6,570,000 5,380,000 Florida State Board of Education Administration, (CR55D), 3.60% TOBs (Citibank NA, New York LIQ), Optional 5,380,000 Tender 12/1/1996 2,500,000 (b)Florida State Department of Transportation, (Series 1993A) Weekly VRDNs (Norwest Bank Minnesota, Minneapolis 2,500,000 LOC) 7,960,000 Fort Lauderdale, FL Performing Arts Center Authority Weekly VRDNs (SunTrust Bank, Central Florida LOC) 7,960,000 3,620,000 Gainesville, FL Utilities Systems, (Series A), 7.75% Bonds (United States Treasury PRF), 10/1/1997 (@102) 3,817,058
FLORIDA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED FLORIDA--CONTINUED $ 9,000,000 Greater Orlando (FL) Aviation Authority, Airport Facilities Subordinated CP Notes (Series B), 3.55%, Mandatory Tender 12/13/1996 $ 8,999,190 3,000,000 Gulf Breeze, FL, Variable Rate Demand Revenue Bonds (Series 1995A) Weekly VRDNs (Florida Municipal Bond Fund)/(Barnett Bank, NA LOC) 3,000,000 6,900,000 Hillsborough County, FL Aviation Authority, Bond Anticipation Commercial Paper Notes, 3.65% CP (Tampa International Airport)/ (National Westminster Bank, PLC, London LOC), Mandatory Tender 1/14/1997 6,900,000 5,500,000 Hillsborough County, FL Aviation Authority, Bond Anticipation Commercial Paper Notes, 3.80% CP (Tampa International Airport)/ (National Westminster Bank, PLC, London LOC), Mandatory Tender 1/16/1997 5,500,000 2,000,000 Hillsborough County, FL IDA Weekly VRDNs (Ringhager Equipment Co.)/(Mellon Bank NA, Pittsburgh LOC) 2,000,000 2,400,000 Hillsborough County, FL IDA, (Series 1992) Weekly VRDNs (SIFCO Turbine Component Service)/(National City Bank, Cleveland, OH LOC) 2,400,000 1,400,000 Hillsborough County, FL IDA, IDRB (Series 1996) Weekly VRDNs (VIGO Importing Company Project)/(Barnett 1,400,000 Bank, NA LOC) 17,975,000 Hillsborough County, FL IDA, PCR Refunding Bonds Long Option Period (CR-31I), 3.60% TOBs (Tampa Electric Company)/(MBIA INS), Optional Tender 4/1/1997 17,975,000 1,500,000 Hillsborough County, FL IDA, Variable Rate Demand IDRB's (Series 1996) Weekly VRDNs (Trident Yacht Building Partnership Project)/(First Union National Bank of Florida 1,500,000 LOC) 7,000,000 Indian River County, FL Hospital District, (Series 1985) Weekly VRDNs (Kredietbank N.V., Brussels LOC) 7,000,000 9,000,000 Jacksonville Health Facilities Authority, Hospital Revenue Improvement Bonds (Series 1994) Weekly VRDNs (Baptist Medical Center, FL)/(First Union National Bank of 9,000,000 Florida LOC)
FLORIDA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED FLORIDA--CONTINUED $ 6,425,000 Jacksonville, FL HFDC Daily VRDNs (River Garden Project)/(Banque Paribas, Paris LOC) $ 6,425,000 2,905,000 Jacksonville, FL HFDC, Health Facilities Revenue Bonds (Series 1994) Weekly VRDNs (River Garden/The Coves Project)/(First Union National Bank, Charlotte, NC LOC) 2,905,000 2,000,000 Jacksonville, FL HFDC, Health Facilities Revenue Bonds (Series 1996) Weekly VRDNs (Jacksonville Faculty Practice Association Project)/ (NationsBank, South LOC) 2,000,000 1,000,000 Jacksonville, FL Weekly VRDNs (Metal Sales)/(National City Bank, Kentucky LOC) 1,000,000 6,000,000 Jacksonville, FL, Hospital Revenue Bonds (Series 1989) Weekly VRDNs (Baptist Medical Center, AL)/(First Union National Bank, Charlotte, NC LOC) 6,000,000 1,900,000 Jacksonville, FL, Hospital Revenue Bonds, 10.50% Bonds (Methodist Hospital of Florida)/(United States Treasury 2,047,212 PRF), 10/1/1997 (@102) 4,300,000 Key West, FL Community Redevelopment Authority Weekly VRDNs (Pier House Joint Venture)/(PNC Bank, NA LOC) 4,300,000 1,000,000 Lee County, FL IDA, IDRB (Series 1994) Weekly VRDNs (Baader North America Corporation)/(Deutsche Bank, AG 1,000,000 LOC) 5,710,000 Manatee County, FL HFA Weekly VRDNs (Carriage Club)/(Mellon Bank NA, Pittsburgh LOC) 5,710,000 3,800,000 Manatee County, FL HFA, Multifamily Mortgage Revenue Refunding Bonds (Series 1989-A) Weekly VRDNs (Hampton/McGuire L.P.)/ (Nationsbank, NA LOC) 3,800,000 1,000,000 Marion County, FL Health Facility Authority, Multifamily Revenue Bonds (1985 Series F) Weekly VRDNs (Paddock Place Project)/ (SunTrust Bank, Atlanta LOC) 1,000,000 2,850,000 Marion County, FL IDA, IDRB (Series 1989) Weekly VRDNs (Charter Springs Hospital, Inc.)/(Bankers Trust Co., 2,850,000 New York LOC) 2,400,000 Martin County, FL IDA, Tender Industrial Revenue Bonds (Series 1986) Weekly VRDNs (Tampa Farm Service, Inc. Project)/(SunTrust Banks, Inc. LOC) 2,400,000
FLORIDA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED FLORIDA--CONTINUED $ 5,800,000 Ocean Highway and Port Authority, Revenue Bonds (Series 1990) Weekly VRDNs (ABN AMRO Bank NV, Amsterdam LOC) $ 5,800,000 5,000,000 Orange County, FL HFA, (Series 1996B), 3.65% TOBs (Westdeutsche Landesbank Girozentrale INV), Mandatory Tender 5,000,000 4/1/1997 4,000,000 Orange County, FL HFA, Multifamily Housing Refunding Revenue Bonds (1992 Series A) Weekly VRDNs (Smokewood/Sun Key Apartments Project (FL))/(Citibank NA, New 4,000,000 York LOC) 11,630,000 Orange County, FL HFA, Multifamily Housing Revenue Bonds Weekly VRDNs (Sutton Place. Ltd. 11,630,000 Project)/(Nationsbank, NA LOC) 800,000 Orange County, FL, Health Facilities Authority Weekly VRDNs (Mayflower Retirement Community)/(Rabobank Nederland, Utrecht LOC) 800,000 18,125,000 (b)Orange County, FL, Health Facilities Authority, CDC Municipal Products, Inc. Class A Certificates (Series 1996 D-1) Weekly VRDNs (FGIC INS)/(CDC Municipal Products, Inc. LIQ) 18,125,000 10,830,000 (b)Orange County, FL, Health Facilities Authority, CDC Municipal Products Class A Certificates (Series 1996 D-2) Weekly VRDNs (FGIC INS)/(CDC Municipal Products, Inc. LIQ) 10,830,000 3,500,000 Pinellas County Industry Council, FL, IDRB (Series 1994) Weekly VRDNs (Genca Corporation Project)/(PNC Bank, 3,500,000 Ohio, NA LOC) 2,813,000 Pinellas County Industry Council, FL, IDRB (Series 1995) Weekly VRDNs (ATR International Inc., Project)/(First Union National Bank of Florida LOC) 2,813,000 6,000,000 Pinellas County, FL HFA, SFM Revenue Bonds (Series B), 3.40% TOBs (Trinity Funding Company INV), Mandatory 6,000,000 Tender 3/1/1997 11,900,000 Pinellas County, FL Health Facility Authority Daily VRDNs (Chase Manhattan Bank NA, New York LOC) 11,900,000 2,645,000 Pinellas County, FL Health Facility Authority, (Series 1987) Weekly VRDNs (St. Mark Village Project)/(NationsBank, 2,645,000 South LOC) 3,200,000 (b)Pinellas County, FL Health Facility Authority, SFM Revenue Bonds (Series PA-92) Weekly VRDNs (GNMA COL)/(Merrill Lynch Capital Services, Inc. LIQ) 3,200,000
FLORIDA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED FLORIDA--CONTINUED $ 1,000,000 Polk County, FL IDA, Variable Rate Demand IDRB's (Series 1996) Weekly VRDNs (Ytong Florida, Ltd. Project)/(First Union National Bank of Florida LOC) $ 1,000,000 8,300,000 Putnam County, FL Development Authority, Floating/Fixed Rate Poll Control Revenue Bonds (Pooled Series 1984 H-4), 3.80% TOBs (Seminole Electric Cooperative, Inc (FL))/(National Rural Utilities Cooperative Finance Corp. LOC), Optional 8,300,000 Tender 3/15/1997 4,165,000 Putnam County, FL Development Authority, PCR Bonds (Pooled Series 1984S) Weekly VRDNs (Seminole Electric Cooperative, Inc (FL))/(National Rural Utilities Cooperative 4,165,000 Finance Corp. LOC) 5,550,000 Putnam County, FL Development Authority, PCR Bonds (Series 1984H) Weekly VRDNs (Seminole Electric Cooperative, Inc (FL))/ (National Rural Utilities Cooperative Finance 5,550,000 Corp. LOC) 3,040,000 (d)Sarasota County, FL IDRB, (Series 1994), 3.60%, Monthly VRDNs (Resource Recovery Systems of Sarasota Project)/(Fleet National Bank, Providence, RI LOC), 11/1/1996 3,040,000 3,000,000 Sarasota County, FL Public Hospital District, Series 1993A, 3.60% CP (Sarasota Memorial Hospital), Mandatory Tender 3,000,000 1/28/1997 1,500,000 Sarasota, FL, Educational Facilities Revenue Bonds (Series 1996) Weekly VRDNs (Ringling School of Art and Design, Inc.)/(SunTrust Bank, Central Florida LOC) 1,500,000 4,600,000 Seminole County, FL Health Facility Authority IDA, (Series 1991) Weekly VRDNs (Florida Living Nursing Center)/(Barnett Bank, NA LOC) 4,600,000 4,350,000 St. Lucie County, FL PCR, Pollution Ctrl Revenue Refunding Bonds (Series 1994A), 3.70% CP (Florida Power & Light Co.), Mandatory Tender 1/29/1997 4,350,000 7,720,000 St. Lucie County, FL, IDR Bonds (Series 1985) Weekly VRDNs (Savannahs Hospital)/(NationsBank, South LOC) 7,720,000 1,400,000 Sumter County, FL IDA Weekly VRDNs (Great Southern Wood of Florida)/(SouthTrust Bank of Alabama, 1,400,000 Birmingham LOC)
FLORIDA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED FLORIDA--CONTINUED $ 10,000,000 Sunshine State Governmental Finance Commission, FL, 3.60% CP (Morgan Guaranty Trust Co., New York, National Westminster Bank, PLC, London and Union Bank of Switzerland, Zurich LOCs), Mandatory Tender 2/19/1997 $ 10,000,000 16,385,000 Sunshine State Governmental Finance Commission, FL, 3.60% CP, Mandatory Tender 1/10/1997 16,385,000 6,050,000 Sunshine State Governmental Finance Commission, FL, 3.70% CP, Mandatory Tender 1/29/1997 6,050,000 13,500,000 (b)TEB Municipal Trust I, Class A Floating Rate Receipts Weekly VRDNs (Uniforet Inc.)/(Bank One, Columbus, NA LOC) 13,500,000 2,300,000 Tamarac, FL, IDRB (Series 1995) Weekly VRDNs (Arch Aluminum & Glass Co., Inc. Project)/(Mellon Bank NA, 2,300,000 Pittsburgh LOC) 6,200,000 Titusville, FL, Multi-Purpose Revenue Bonds, Installment 1995A Weekly VRDNs (Banque Paribas, Paris LOC) 6,200,000 2,565,000 Volusia County, FL HFA Weekly VRDNs (Fisherman's Landing)/ (Mellon Bank NA, Pittsburgh LOC) 2,565,000 2,060,000 Volusia County, FL Health Facilities Authority, (Series 1994A) Weekly VRDNs (Southwest Volusia Healthcare Corp.)/(First Union National Bank, Charlotte, NC LOC) 2,060,000 1,625,000 Volusia County, FL IDA Weekly VRDNs (Crane Cams)/(First Interstate Bank of Arizona, NA LOC) 1,625,000 2,800,000 Wakulla County, FL IDA Weekly VRDNs (Winco Utilities, Inc. Project)/(Barnett Bank, NA LOC) 2,800,000 Total 463,930,979 KENTUCKY--2.7% 14,400,000 Kentucky Pollution Abatement & Water Resource Finance Authority Daily VRDNs (Toyota Motor Credit Corp.) 14,400,000 MICHIGAN--1.1% 6,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1995) Weekly VRDNs (United Waste Systems, Inc.)/(Bank of America Illinois LOC) 6,000,000
FLORIDA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED MINNESOTA--3.3% $ 2,955,000 Byron, MN IDB Weekly VRDNs (Schmidt Printing)/(Norwest Bank Minnesota, Minneapolis LOC) $ 2,955,000 5,000,000 Faribault, MN IDA, (Series 1988) Weekly VRDNs (Jerome Foods)/ (Norwest Bank Minnesota, Minneapolis LOC) 5,000,000 3,800,000 Minnesota State Higher Education Coordinating Board, (Series 1992A) Weekly VRDNs (First Bank NA, Minneapolis LIQ) 3,800,000 2,100,000 Owatonna, MN, Hospital Revenue Bonds Weekly VRDNs (Health Central System)/(Norwest Bank Minnesota, 2,100,000 Minneapolis LOC) 3,600,000 White Bear, MN Weekly VRDNs (Thermoform Plastic, Inc.)/(Norwest Bank Minnesota, Minneapolis LOC) 3,600,000 Total 17,455,000 OHIO--1.1% 3,800,000 Ohio HFA, Trust Receipts, (Series 1996 FR/RI-5) Weekly VRDNs (Bank of New York, New York LIQ)/(GNMA LOC) 3,800,000 2,000,000 Ohio State Water Development Authority, Ohio PCR Bonds (Series 1989) Weekly VRDNs (Duquesne Light Power Co.)/(Barclays Bank PLC, London LOC) 2,000,000 Total 5,800,000 PUERTO RICO--0.9% 5,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory Tender 2/14/1997 5,000,000 TENNESSEE--0.5% 2,300,000 Oak Ridge, TN IDB, Solid Waste Facility Bonds (Series 1996) Weekly VRDNs (M4 Environmental L.P. Project)/(SunTrust Bank, Atlanta LOC) 2,300,000 200,000 South Pittsburg, TN IDB, (Series 1996) Weekly VRDNs (Lodge Manufacturing Co. Project)/(SunTrust Bank, 200,000 Nashville LOC) Total 2,500,000
FLORIDA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED TEXAS--3.0% $ 10,750,000 Angelina and Neches River Authority, Texas, Solid Waste Disposal Revenue Bonds (Series 1993), 3.70% CP (Temple-Eastex Inc. Project)/ (Temple-Inland, Inc. GTD), Mandatory Tender $ 10,750,000 12/12/1996 5,000,000 Texas State, 4.75% TRANs, 8/29/1997 5,031,153 Total 15,781,153 TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 530,867,132
Securities that are subject to Alternative Minimum Tax represent 33.4% of the portfolio as calculated based upon total portfolio market value. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSRO's") 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 & Poors Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are 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 application regulations in determining whether a security is rated and whether a security rated by multiple NRSRO's in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED) FIRST TIER SECOND TIER 100.00% 0.00% (b) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. At the end of the period, these securities amounted to $69,265,000 which represents 13% of net assets. (c) Also represents cost for federal tax purposes. (d) Current rate and next reset date shown. Note: The categories of investments are shown as a percentage of net assets ($532,816,645) at October 31, 1996. The following acronyms are used throughout this portfolio: AMBAC -- American Municipal Bond Assurance Corporation COL -- Collateralized CP -- Commercial Paper FGIC -- Financial Guaranty Insurance Company GNMA -- Government National Mortgage Association GTD -- Guaranty HFA -- Housing Finance Authority HFDC -- Health Facility Development Corporation IDA -- Industrial Development Authority IDB -- Industrial Development Bond IDR -- Industrial Development Revenue IDRB -- Industrial Development Revenue Bond INS -- Insured INV -- Investment Agreement LIQ -- Liquidity Agreement LOCs -- Letter(s) of Credit LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance PCR -- Pollution Control Revenue PLC -- Public Limited Company PRF -- Prerefunded SFM -- Single Family Mortgage TANs -- Tax Anticipation Notes TOBs -- Tender Option Bonds TRANs -- Tax and Revenue Anticipation Notes VRDNs -- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) FLORIDA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996
ASSETS: Total investments in securities, at amortized cost $530,867,132 and value Cash 326,304 Income receivable 2,448,806 Deferred expenses 23,988 Total assets 533,666,230 LIABILITIES: Payable for shares redeemed $ 6,687 Income distribution payable 612,866 Accrued expenses 230,032 Total liabilities 849,585 NET ASSETS for 532,816,645 shares outstanding $532,816,645 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: INSTITUTIONAL SHARES: $500,992,905 / 500,992,905 shares outstanding $1.00 CASH II SHARES: $31,823,740 / 31,823,740 shares outstanding $1.00
(See Notes which are an integral part of the Financial Statements) FLORIDA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 INVESTMENT INCOME: Interest $ 14,309,120 EXPENSES: Investment advisory fee $ 1,558,498 Administrative personnel 294,886 and services fee Custodian fees 52,742 Transfer and dividend 48,434 disbursing agent fees and expenses Directors'/Trustees' fees 4,998 Auditing fees 13,156 Legal fees 13,564 Portfolio accounting fees 91,304 Distribution services fee 113,244 -- Cash II Shares Shareholder services fee -- 860,815 Institutional Shares Shareholder services fee -- 113,244 Cash II Shares Share registration costs 146,642 Printing and postage 24,078 Insurance premiums 5,701 Miscellaneous 3,504 Total expenses 3,344,810 Waivers -- Waiver of investment $ (1,071,607) advisory fee Waiver of distribution (67,947) services fee -- Cash II Shares Waiver of shareholder (206,595) services fee -- Institutional Shares Total waivers (1,346,149) Net expenses 1,998,661 Net investment $ 12,310,459 income
(See Notes which are an integral part of the Financial Statements) FLORIDA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS -- Net investment income $ 12,310,459 $ 4,683,407 DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income Institutional Shares (10,917,907) (4,683,407) Cash II Shares (1,392,552) -- Change in net assets resulting from distributions to shareholders (12,310,459) (4,683,407) SHARE TRANSACTIONS -- Proceeds from sale of shares 2,270,320,962 1,361,774,097 Net asset value of shares issued to shareholders in payment of distributions declared 6,801,443 2,166,363 Cost of shares redeemed (1,897,652,278) (1,264,560,129) Change in net assets resulting 379,470,127 99,380,331 from share transactions Change in net assets 379,470,127 99,380,331 NET ASSETS: Beginning of period 153,346,518 53,966,187 End of period $ 532,816,645 $ 153,346,518
(See Notes which are an integral part of the Financial Statements) FLORIDA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 1. ORGANIZATION Federated Municipal Cash Trust (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 sixteen portfolios. The financial statements included herein are only those of Florida Municipal Cash Trust (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 current income exempt from federal regular income tax consistent with stability of principal and liquidity and to maintain an investment portfolio that will cause its shares to be exempt from the Florida intangibles tax. The Fund offers two classes of shares: Institutional Shares and Cash II Shares. Effective November 17, 1995, the Fund added Cash II Shares. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. DEFERRED EXPENSES -- The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized over a period not to exceed five years from the Fund's commencement 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. In some cases, the issuer of restricted securities has agreed to register such securities for resale, at the issuer's expense either upon demand by the Fund or in connection with another registered offering of the securities. Many restricted securities may be resold in the secondary market in transactions exempt from registration. Such restricted securities may be determined to be liquid under criteria established by the Board of Directors. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined by the Fund's pricing committee. Additional information on each restricted security held at October 31, 1996, is as follows:
SECURITY ACQUISITION DATA ACQUISITION COST Clipper Florida Tax-Exempt Trust, Class A 6/14/1996- Certificates of Participation, Series 6/19/1996 $14,190,000 1996-3B Florida HFA, Homeowner Mortgage Revenue Bonds PT-88 (Series 1996-3) 9/27/1996 6,920,000 Florida State Department of Transportation, (Series 1993A) 7/23/1996 2,500,000 Orange County, FL, Health Facilities Authority, CDC Municipal Products, Inc. Class A Certificates (Series 1996 D-1) 9/3/1996 18,125,000 Orange County, FL, Health Facilities Authority, CDC Municipal Products, Inc. Class A Certificates (Series 1996 D-2) 5/5/1995 10,830,000 Pinellas County, FL Health Facility Authority, SFM Revenue Bonds (Series PA-92) 3/3/1995 3,200,000 TEB Municipal Trust I, Class A Floating Rate Receipts 8/27/1996 13,500,000
USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER -- Investment transactions are accounted for on the trade date. 3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1996, capital paid-in aggregated $532,816,645. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, INSTITUTIONAL SHARES 1996 1995 Shares sold 1,967,231,853 1,361,774,097 Shares issued to shareholders in 6,801,419 2,166,363 payment of distributions declared Shares redeemed (1,626,386,885) (1,264,560,129) Net change resulting from 347,646,387 99,380,331 Institutional Shares transactions PERIOD ENDED OCTOBER 31, CASH II SHARES 1996(A) 1995 Shares sold 303,089,109 -- Shares issued to shareholders in 24 -- payment of distributions declared Shares redeemed (271,265,393) -- Net change resulting from 31,823,740 -- Institutional Shares transactions Net change resulting from share 379,470,127 99,380,331 transactions
(a) For the period from November 27, 1995 (date of initial public investment) to October 31, 1996. 4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Institutional Shares and Cash II Shares. The Plan provides that the Fund may incur distribution expenses according to the following schedule annually, to compensate FSC. PERCENTAGE OF AVERAGE SHARE CLASS NAME DAILY NET ASSETS OF CLASS Institutional Shares 0.25% Cash II Shares 0.25% The distributor may voluntarily choose to waive any portion of its fee. The distributor can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended October 31, 1996, Institutional Shares did not incur a distribution services fee. SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund shares for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- Federated Services Company ("FServ"), through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES -- Organizational expenses of $15,374 were borne initially by Adviser. The Fund has agreed to reimburse Adviser for the organizational expenses during the five-year period following effective date. For the period ended October 31, 1996, the Fund paid $2,135 pursuant to this agreement. INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, 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 $1,179,910,345 and $1,246,725,000, respectively. GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 5. CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 76.1% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 7.5% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (FLORIDA MUNICIPAL CASH TRUST): We have audited the accompanying statement of assets and liabilities of Florida Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996 and the related statement of operations for the year then ended and the statement of changes in net assets, and the financial highlights (see pages 2 and 14 of the prospectus) for the periods presented. 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 October 31, 1996, 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 Florida Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania November 20, 1996 ADDRESSES ADDRESSES Florida Municipal Cash Trust Cash II Shares Federated Investors Tower Pittsburgh, PA 15222-3779 Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 Transfer Agent and Dividend Disbursing Agent Federated Shareholder P.O. Box 8600 Services Company Boston, MA 02266-8600 Independent Public Accountants Arthur Andersen LLP 2100 PPG Place Pittsburgh, PA 15222 FLORIDA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH II SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 Federated Investors Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. [Graphic] Cusip 314229683 G00537-02-CII (12/96) FLORIDA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS The Institutional Shares of Florida Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Florida municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Florida, or its political subdivisions and financing authorities, but which provide income exempt from federal regular income tax and which will enable the Fund to maintain an investment portfolio that will cause its shares to be exempt from the Florida intangibles tax consistent with stability of principal and liquidity. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS SUMMARY OF FUND EXPENSES 1 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES 2 GENERAL INFORMATION 3 INVESTMENT INFORMATION 3 Investment Objective 3 Investment Policies 3 Florida Municipal Securities 5 Investment Risks 6 Investment Limitations 6 FUND INFORMATION 6 Management of the Fund 6 Distribution of Institutional Shares 7 Administration of the Fund 8 NET ASSET VALUE 8 HOW TO PURCHASE SHARES 9 Special Purchase Features 9 HOW TO REDEEM SHARES 10 Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 11 TAX INFORMATION 12 Federal Income Tax 12 State and Local Taxes 12 Florida Intangibles Tax 12 Florida State Municipal Taxation 13 OTHER CLASSES OF SHARES 13 PERFORMANCE INFORMATION 13 FINANCIAL HIGHLIGHTS -- CLASS II SHARES 14 FINANCIAL STATEMENTS 15 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 32 ADDRESSES 33 SUMMARY OF FUND EXPENSES
INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable) None Redemption Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1) 0.12% 12b-1 Fee (2) 0.00% Total Other Expenses 0.37% Shareholder Services Fee (after waiver) (3) 0.19% Total Operating Expenses (4) 0.49%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The Fund has no present intention of paying or accruing the 12b-1 fee during the fiscal year ending October 31, 1997. If the Fund were paying or accruing the 12b-1 fee, the Fund would be able to pay up to 0.25% of its average daily net assets for the 12b-1 fee. See "Fund Information." (3) The shareholder services fee has been reduced to reflect the voluntary waiver of a portion of the shareholders services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (4) The total operating expenses would have been 0.83% absent the voluntary waivers of portions of the management fee and the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Institutional Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period $5 $16 $27 $62
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. FLORIDA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 32.
YEAR ENDED OCTOBER 31, 1996 1995 1994(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.000 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.04 0.004 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.04) (0.004) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.000 TOTAL RETURN(B) 3.20% 3.60% 0.35% RATIOS TO AVERAGE NET ASSETS Expenses 0.49% 0.45% 0.28%* Net investment income 3.17% 3.58% 3.28%* Expense waiver/reimbursement(c) 0.34% 0.42% 1.03%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $500,993 $153,347 $53,966
* Computed on an annualized basis. (a) Reflects operations for the period from September 21, 1994 (date of initial public investment) to October 31, 1994. For the period from September 12, 1994 (start of business) to September 21, 1994 the Fund had no investment activity. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees has established two classes of shares known as Institutional Shares and Cash II Shares. This prospectus relates only to Institutional Shares of the Fund, which are designed primarily for financial institutions acting in an agency or fiduciary capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing primarily in short-term Florida municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Florida taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 within a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax consistent with stability of principal and liquidity and to maintain an investment portfolio that will cause its shares to be exempt from the Florida intangibles tax. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and the Florida intangibles tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Florida and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and the Florida intangibles tax ("Florida Municipal Securities"). Examples of Florida Municipal Securities, but are not limited to: * tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; * bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; * municipal commercial paper and other short-term notes; * variable rate demand notes; * municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and * participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Florida Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Florida Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Florida Municipal Securities is subject to the federal alternative minimum tax. FLORIDA MUNICIPAL SECURITIES Florida Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Florida Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Florida Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Florida Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Florida Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Florida Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Florida Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Florida Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Florida Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations the Fund's concentration in Florida Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .40% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) Shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SHARES Federated Securities Corp. is the principal distributor for Institutional Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in accordance with Rule 12b-1 under the Investment Company Act of 1940 (the "Plan"), the distributor may be paid a fee by the Fund in an amount computed at an annual rate of .25% of the average daily net asset value of the Fund. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide sales services or distribution-related support services as agents for their clients or customers. The Plan is a compensation-type Plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Plan. In addition, the Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of its shares to obtain certain personal services for shareholders and to maintain shareholder accounts. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Distribution Plan and Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below: AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Institutional Shares from the value of Fund assets attributable to Institutional Shares, and dividing the remainder by the number of Institutional Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more over a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 (Eastern time) that day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Florida Municipal Cash Trust -- Institutional Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Florida Municipal Cash Trust -- Institutional Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholders checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Shareholder Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares by Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company, or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights; except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of November 26, 1996, Charles Schwab and Co., Inc., San Francisco, CA (as a record owner holding Institutional Shares for its clients) owned 42.74% of the voting securities of the Fund, and, therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Florida. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. FLORIDA INTANGIBLES TAX Shareholders of the Fund that are subject to the Florida intangibles tax will not be required to include the value of their Fund shares in their taxable intangible property if all of the Fund's investments on the annual assessment date are obligations that would be exempt from such tax if held directly by such shareholders, such as Florida and U.S. government obligations. As described earlier, the Fund will normally attempt to invest substantially all of its assets in securities which are exempt from the Florida intangibles tax. Accordingly, the value of the Fund shares held by a shareholder should under normal circumstances be exempt from the Florida intangibles tax. FLORIDA STATE MUNICIPAL TAXATION In a majority of states that have an income tax, dividends paid by a mutual fund attributable to investments in a particular states municipal obligations are exempt from both federal and such states income tax. If Florida were to adopt an income tax in the future, and assuming that its income tax policy with respect to mutual funds investing in Florida state and local municipal obligations would be similar to the general tax policy of other states, dividends paid by the Fund would be exempt from Florida state income tax. A constitutional amendment approved by referendum would be required before an individual tax could be imposed. OTHER CLASSES OF SHARES The Fund also offers another class of shares called Cash II Shares. Cash II Shares are sold at net asset value primarily to retail customers of financial institutions and are subject to a minimum initial investment of $10,000 over a 90-day period. All classes are subject to certain of the same expenses. Cash II Shares are distributed under a 12b-1 Plan adopted by the Fund and also are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. FLORIDA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- CASH II SHARES (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Reference is made to the Report of Independent Public Accountants on page 32.
PERIOD ENDED OCTOBER 31, 1996(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 LESS DISTRIBUTIONS Distributions from net investment income (0.03) NET ASSET VALUE, END OF PERIOD $ 1.00 TOTAL RETURN(B) 2.80% RATIOS TO AVERAGE NET ASSETS Expenses 0.65%* Net investment income 3.07%* Expense waiver/reimbursement(c) 0.43%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $31,824
* Computed on an annualized basis. (a) Reflects operations for the period from November 27, 1995 (date of initial public investment) to October 31, 1996. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) FLORIDA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--99.6% FLORIDA--87.0% $ 14,000,000 Alachua County, FL Health Facilities Authority, Health Facilities Revenue Bonds (Series 1996B) Weekly VRDNs (Shands Teaching Hospital and Clinics, Inc.)/(MBIA INS)/(SunTrust Bank, Central Florida LIQ) $ 14,000,000 6,500,000 Brevard County, FL School District, Series 1996, 4.20% TANs, 6/30/1997 6,523,026 3,000,000 Broward County, FL HFA, Multifamily Housing Revenue Refunding Bonds (1995 Series B) Weekly VRDNs (Harbour Town of Jacaranda Project)/(SouthTrust Bank of Alabama, 3,000,000 Birmingham LOC) 3,510,000 Broward County, FL Health Facility Authority, Revenue Bonds Weekly VRDNs (John Knox Village of Florida)/(First Union National Bank, Charlotte, NC LOC) 3,510,000 1,130,000 Broward County, FL, IDRB (Series 1993) Weekly VRDNs (American Whirlpool Products Corp. 1,130,000 Project)/(NationsBank, South LOC) 8,000,000 Charlotte County, FL School District, Series 1996, 4.00% TANs, 6/30/1997 8,016,493 14,190,000 (b)Clipper Florida Tax-Exempt Trust, Class A Certificates of Participation, Series 1996-3B Weekly VRDNs (Escambia County, FL HFA)/(State Street Bank and Trust Co. LOC) 14,190,000 4,300,000 Collier County, FL HFA, Multi-Family Revenue Bonds (Series 1985) Weekly VRDNs (River Reach Project)/(Morgan Guaranty Trust Co., New York LOC) 4,300,000 9,000,000 Dade County, FL HFA, (Series 1996), 4.00% TOBs (FGIC INV), Mandatory Tender 10/1/1997 9,000,000 11,500,000 Dade County, FL HFA, Hospital Revenue Bonds (Series 1995) Weekly VRDNs (Miami Children's Hospital Project)/(AMBAC INS)/ (SunTrust Bank, Atlanta LIQ) 11,500,000 1,800,000 Dade County, FL IDA, IDRB (Series 1995) Weekly VRDNs (June Leasing Co. Project (FL))/(First Union 1,800,000 National Bank of Florida LOC) 2,000,000 Dade County, FL IDA, IDRB (Series 1996A) Weekly VRDNs (U.S. Holdings, Inc.)/(First Union National 2,000,000 Bank of Florida LOC)
FLORIDA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED FLORIDA--CONTINUED $ 2,550,000 Dade County, FL Resource Recovery Facilities, 4.00% Bonds (AMBAC INS), 10/1/1997 $ 2,550,000 11,000,000 Dade County, FL Water & Sewer System Weekly VRDNs (FGIC INS)/ (Commerzbank AG, Frankfurt LIQ) 11,000,000 3,000,000 Duval County, FL HFA, Multifamily Housing Revenue Bonds (Series 1985 F) Weekly VRDNs (Lakes of Mayport Apartments Project)/(SunTrust Bank, Atlanta LOC) 3,000,000 3,900,000 Escambia County, FL HFA, SFM Revenue Bonds (Series 1996B), 3.65% TOBs (Trinity Funding Company INV), Mandatory 3,900,000 Tender 4/1/1997 6,250,000 Eustis Health Facilities Authority, FL, (Series 1985) Weekly VRDNs (Waterman Medical Center)/(Banque Paribas, 6,250,000 Paris LOC) 9,730,000 Eustis Health Facilities Authority, FL, Health Facilities Revenue Bonds, (Series 1992) Weekly VRDNs (Florida Hospital/Waterman, Inc. Project)/(Banque Paribas, Paris LOC) 9,730,000 9,220,000 Florida HFA Weekly VRDNs (Cornerstone Imaging, Inc.)/(PNC Bank, NA LOC) 9,220,000 6,920,000 (b)Florida HFA, Homeowner Mortgage Revenue Bonds PT-88 (Series 1996-3) Weekly VRDNs (Banco Santander 6,920,000 LIQ) 4,700,000 Florida HFA, Housing Revenue Bonds (Series J) Weekly VRDNs (Ashley Lake Project)/(Barclays Bank PLC, 4,700,000 London LOC) 6,570,000 Florida HFA, Multifamily Housing Revenue Bonds (1995 Series M) Weekly VRDNs (Bainbridge Club Apartments Project)/(PNC Bank, Kentucky LOC) 6,570,000 5,380,000 Florida State Board of Education Administration, (CR55D), 3.60% TOBs (Citibank NA, New York LIQ), Optional 5,380,000 Tender 12/1/1996 2,500,000 (b)Florida State Department of Transportation, (Series 1993A) Weekly VRDNs (Norwest Bank Minnesota, Minneapolis 2,500,000 LOC) 7,960,000 Fort Lauderdale, FL Performing Arts Center Authority Weekly VRDNs (SunTrust Bank, Central Florida LOC) 7,960,000 3,620,000 Gainesville, FL Utilities Systems, (Series A), 7.75% Bonds (United States Treasury PRF), 10/1/1997 (@102) 3,817,058
FLORIDA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED FLORIDA--CONTINUED $ 9,000,000 Greater Orlando (FL) Aviation Authority, Airport Facilities Subordinated CP Notes (Series B), 3.55%, Mandatory Tender 12/13/1996 $ 8,999,190 3,000,000 Gulf Breeze, FL, Variable Rate Demand Revenue Bonds (Series 1995A) Weekly VRDNs (Florida Municipal Bond Fund)/(Barnett Bank, NA LOC) 3,000,000 6,900,000 Hillsborough County, FL Aviation Authority, Bond Anticipation Commercial Paper Notes, 3.65% CP (Tampa International Airport)/ (National Westminster Bank, PLC, London LOC), Mandatory Tender 1/14/1997 6,900,000 5,500,000 Hillsborough County, FL Aviation Authority, Bond Anticipation Commercial Paper Notes, 3.80% CP (Tampa International Airport)/ (National Westminster Bank, PLC, London LOC), Mandatory Tender 1/16/1997 5,500,000 2,000,000 Hillsborough County, FL IDA Weekly VRDNs (Ringhager Equipment Co.)/(Mellon Bank NA, Pittsburgh LOC) 2,000,000 2,400,000 Hillsborough County, FL IDA, (Series 1992) Weekly VRDNs (SIFCO Turbine Component Service)/(National City Bank, Cleveland, OH LOC) 2,400,000 1,400,000 Hillsborough County, FL IDA, IDRB (Series 1996) Weekly VRDNs (VIGO Importing Company Project)/(Barnett 1,400,000 Bank, NA LOC) 17,975,000 Hillsborough County, FL IDA, PCR Refunding Bonds Long Option Period (CR-31I), 3.60% TOBs (Tampa Electric Company)/(MBIA INS), Optional Tender 4/1/1997 17,975,000 1,500,000 Hillsborough County, FL IDA, Variable Rate Demand IDRB's (Series 1996) Weekly VRDNs (Trident Yacht Building Partnership Project)/(First Union National Bank of Florida 1,500,000 LOC) 7,000,000 Indian River County, FL Hospital District, (Series 1985) Weekly VRDNs (Kredietbank N.V., Brussels LOC) 7,000,000 9,000,000 Jacksonville Health Facilities Authority, Hospital Revenue Improvement Bonds (Series 1994) Weekly VRDNs (Baptist Medical Center, FL)/(First Union National Bank of 9,000,000 Florida LOC)
FLORIDA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED FLORIDA--CONTINUED $ 6,425,000 Jacksonville, FL HFDC Daily VRDNs (River Garden Project)/(Banque Paribas, Paris LOC) $ 6,425,000 2,905,000 Jacksonville, FL HFDC, Health Facilities Revenue Bonds (Series 1994) Weekly VRDNs (River Garden/The Coves Project)/(First Union National Bank, Charlotte, NC LOC) 2,905,000 2,000,000 Jacksonville, FL HFDC, Health Facilities Revenue Bonds (Series 1996) Weekly VRDNs (Jacksonville Faculty Practice Association Project)/ (NationsBank, South LOC) 2,000,000 1,000,000 Jacksonville, FL Weekly VRDNs (Metal Sales)/(National City Bank, Kentucky LOC) 1,000,000 6,000,000 Jacksonville, FL, Hospital Revenue Bonds (Series 1989) Weekly VRDNs (Baptist Medical Center, AL)/(First Union National Bank, Charlotte, NC LOC) 6,000,000 1,900,000 Jacksonville, FL, Hospital Revenue Bonds, 10.50% Bonds (Methodist Hospital of Florida)/(United States Treasury 2,047,212 PRF), 10/1/1997 (@102) 4,300,000 Key West, FL Community Redevelopment Authority Weekly VRDNs (Pier House Joint Venture)/(PNC Bank, NA LOC) 4,300,000 1,000,000 Lee County, FL IDA, IDRB (Series 1994) Weekly VRDNs (Baader North America Corporation)/(Deutsche Bank, AG 1,000,000 LOC) 5,710,000 Manatee County, FL HFA Weekly VRDNs (Carriage Club)/(Mellon Bank NA, Pittsburgh LOC) 5,710,000 3,800,000 Manatee County, FL HFA, Multifamily Mortgage Revenue Refunding Bonds (Series 1989-A) Weekly VRDNs (Hampton/McGuire L.P.)/ (Nationsbank, NA LOC) 3,800,000 1,000,000 Marion County, FL Health Facility Authority, Multifamily Revenue Bonds (1985 Series F) Weekly VRDNs (Paddock Place Project)/ (SunTrust Bank, Atlanta LOC) 1,000,000 2,850,000 Marion County, FL IDA, IDRB (Series 1989) Weekly VRDNs (Charter Springs Hospital, Inc.)/(Bankers Trust Co., 2,850,000 New York LOC) 2,400,000 Martin County, FL IDA, Tender Industrial Revenue Bonds (Series 1986) Weekly VRDNs (Tampa Farm Service, Inc. Project)/(SunTrust Banks, Inc. LOC) 2,400,000
FLORIDA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED FLORIDA--CONTINUED $ 5,800,000 Ocean Highway and Port Authority, Revenue Bonds (Series 1990) Weekly VRDNs (ABN AMRO Bank NV, Amsterdam LOC) $ 5,800,000 5,000,000 Orange County, FL HFA, (Series 1996B), 3.65% TOBs (Westdeutsche Landesbank Girozentrale INV), Mandatory Tender 5,000,000 4/1/1997 4,000,000 Orange County, FL HFA, Multifamily Housing Refunding Revenue Bonds (1992 Series A) Weekly VRDNs (Smokewood/Sun Key Apartments Project (FL))/(Citibank NA, New 4,000,000 York LOC) 11,630,000 Orange County, FL HFA, Multifamily Housing Revenue Bonds Weekly VRDNs (Sutton Place. Ltd. 11,630,000 Project)/(Nationsbank, NA LOC) 800,000 Orange County, FL, Health Facilities Authority Weekly VRDNs (Mayflower Retirement Community)/(Rabobank Nederland, Utrecht LOC) 800,000 18,125,000 (b)Orange County, FL, Health Facilities Authority, CDC Municipal Products, Inc. Class A Certificates (Series 1996 D-1) Weekly VRDNs (FGIC INS)/(CDC Municipal Products, Inc. LIQ) 18,125,000 10,830,000 (b)Orange County, FL, Health Facilities Authority, CDC Municipal Products Class A Certificates (Series 1996 D-2) Weekly VRDNs (FGIC INS)/(CDC Municipal Products, Inc. LIQ) 10,830,000 3,500,000 Pinellas County Industry Council, FL, IDRB (Series 1994) Weekly VRDNs (Genca Corporation Project)/(PNC Bank, 3,500,000 Ohio, NA LOC) 2,813,000 Pinellas County Industry Council, FL, IDRB (Series 1995) Weekly VRDNs (ATR International Inc., Project)/(First Union National Bank of Florida LOC) 2,813,000 6,000,000 Pinellas County, FL HFA, SFM Revenue Bonds (Series B), 3.40% TOBs (Trinity Funding Company INV), Mandatory 6,000,000 Tender 3/1/1997 11,900,000 Pinellas County, FL Health Facility Authority Daily VRDNs (Chase Manhattan Bank NA, New York LOC) 11,900,000 2,645,000 Pinellas County, FL Health Facility Authority, (Series 1987) Weekly VRDNs (St. Mark Village Project)/(NationsBank, 2,645,000 South LOC) 3,200,000 (b)Pinellas County, FL Health Facility Authority, SFM Revenue Bonds (Series PA-92) Weekly VRDNs (GNMA COL)/(Merrill Lynch Capital Services, Inc. LIQ) 3,200,000
FLORIDA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED FLORIDA--CONTINUED $ 1,000,000 Polk County, FL IDA, Variable Rate Demand IDRB's (Series 1996) Weekly VRDNs (Ytong Florida, Ltd. Project)/(First Union National Bank of Florida LOC) $ 1,000,000 8,300,000 Putnam County, FL Development Authority, Floating/Fixed Rate Poll Control Revenue Bonds (Pooled Series 1984 H-4), 3.80% TOBs (Seminole Electric Cooperative, Inc (FL))/(National Rural Utilities Cooperative Finance Corp. LOC), Optional 8,300,000 Tender 3/15/1997 4,165,000 Putnam County, FL Development Authority, PCR Bonds (Pooled Series 1984S) Weekly VRDNs (Seminole Electric Cooperative, Inc (FL))/(National Rural Utilities Cooperative 4,165,000 Finance Corp. LOC) 5,550,000 Putnam County, FL Development Authority, PCR Bonds (Series 1984H) Weekly VRDNs (Seminole Electric Cooperative, Inc (FL))/ (National Rural Utilities Cooperative Finance 5,550,000 Corp. LOC) 3,040,000 (d)Sarasota County, FL IDRB, (Series 1994), 3.60%, Monthly VRDNs (Resource Recovery Systems of Sarasota Project)/(Fleet National Bank, Providence, RI LOC), 11/1/1996 3,040,000 3,000,000 Sarasota County, FL Public Hospital District, Series 1993A, 3.60% CP (Sarasota Memorial Hospital), Mandatory Tender 3,000,000 1/28/1997 1,500,000 Sarasota, FL, Educational Facilities Revenue Bonds (Series 1996) Weekly VRDNs (Ringling School of Art and Design, Inc.)/(SunTrust Bank, Central Florida LOC) 1,500,000 4,600,000 Seminole County, FL Health Facility Authority IDA, (Series 1991) Weekly VRDNs (Florida Living Nursing Center)/(Barnett Bank, NA LOC) 4,600,000 4,350,000 St. Lucie County, FL PCR, Pollution Ctrl Revenue Refunding Bonds (Series 1994A), 3.70% CP (Florida Power & Light Co.), Mandatory Tender 1/29/1997 4,350,000 7,720,000 St. Lucie County, FL, IDR Bonds (Series 1985) Weekly VRDNs (Savannahs Hospital)/(NationsBank, South LOC) 7,720,000 1,400,000 Sumter County, FL IDA Weekly VRDNs (Great Southern Wood of Florida)/(SouthTrust Bank of Alabama, 1,400,000 Birmingham LOC)
FLORIDA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED FLORIDA--CONTINUED $ 10,000,000 Sunshine State Governmental Finance Commission, FL, 3.60% CP (Morgan Guaranty Trust Co., New York, National Westminster Bank, PLC, London and Union Bank of Switzerland, Zurich LOCs), Mandatory Tender 2/19/1997 $ 10,000,000 16,385,000 Sunshine State Governmental Finance Commission, FL, 3.60% CP, Mandatory Tender 1/10/1997 16,385,000 6,050,000 Sunshine State Governmental Finance Commission, FL, 3.70% CP, Mandatory Tender 1/29/1997 6,050,000 13,500,000 (b)TEB Municipal Trust I, Class A Floating Rate Receipts Weekly VRDNs (Uniforet Inc.)/(Bank One, Columbus, NA LOC) 13,500,000 2,300,000 Tamarac, FL, IDRB (Series 1995) Weekly VRDNs (Arch Aluminum & Glass Co., Inc. Project)/(Mellon Bank NA, 2,300,000 Pittsburgh LOC) 6,200,000 Titusville, FL, Multi-Purpose Revenue Bonds, Installment 1995A Weekly VRDNs (Banque Paribas, Paris LOC) 6,200,000 2,565,000 Volusia County, FL HFA Weekly VRDNs (Fisherman's Landing)/ (Mellon Bank NA, Pittsburgh LOC) 2,565,000 2,060,000 Volusia County, FL Health Facilities Authority, (Series 1994A) Weekly VRDNs (Southwest Volusia Healthcare Corp.)/(First Union National Bank, Charlotte, NC LOC) 2,060,000 1,625,000 Volusia County, FL IDA Weekly VRDNs (Crane Cams)/(First Interstate Bank of Arizona, NA LOC) 1,625,000 2,800,000 Wakulla County, FL IDA Weekly VRDNs (Winco Utilities, Inc. Project)/(Barnett Bank, NA LOC) 2,800,000 Total 463,930,979 KENTUCKY--2.7% 14,400,000 Kentucky Pollution Abatement & Water Resource Finance Authority Daily VRDNs (Toyota Motor Credit Corp.) 14,400,000 MICHIGAN--1.1% 6,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1995) Weekly VRDNs (United Waste Systems, Inc.)/(Bank of America Illinois LOC) 6,000,000
FLORIDA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED MINNESOTA--3.3% $ 2,955,000 Byron, MN IDB Weekly VRDNs (Schmidt Printing)/(Norwest Bank Minnesota, Minneapolis LOC) $ 2,955,000 5,000,000 Faribault, MN IDA, (Series 1988) Weekly VRDNs (Jerome Foods)/ (Norwest Bank Minnesota, Minneapolis LOC) 5,000,000 3,800,000 Minnesota State Higher Education Coordinating Board, (Series 1992A) Weekly VRDNs (First Bank NA, Minneapolis LIQ) 3,800,000 2,100,000 Owatonna, MN, Hospital Revenue Bonds Weekly VRDNs (Health Central System)/(Norwest Bank Minnesota, 2,100,000 Minneapolis LOC) 3,600,000 White Bear, MN Weekly VRDNs (Thermoform Plastic, Inc.)/(Norwest Bank Minnesota, Minneapolis LOC) 3,600,000 Total 17,455,000 OHIO--1.1% 3,800,000 Ohio HFA, Trust Receipts, (Series 1996 FR/RI-5) Weekly VRDNs (Bank of New York, New York LIQ)/(GNMA LOC) 3,800,000 2,000,000 Ohio State Water Development Authority, Ohio PCR Bonds (Series 1989) Weekly VRDNs (Duquesne Light Power Co.)/(Barclays Bank PLC, London LOC) 2,000,000 Total 5,800,000 PUERTO RICO--0.9% 5,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory Tender 2/14/1997 5,000,000 TENNESSEE--0.5% 2,300,000 Oak Ridge, TN IDB, Solid Waste Facility Bonds (Series 1996) Weekly VRDNs (M4 Environmental L.P. Project)/(SunTrust Bank, Atlanta LOC) 2,300,000 200,000 South Pittsburg, TN IDB, (Series 1996) Weekly VRDNs (Lodge Manufacturing Co. Project)/(SunTrust Bank, 200,000 Nashville LOC) Total 2,500,000
FLORIDA MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (A)SHORT-TERM MUNICIPALS--CONTINUED TEXAS--3.0% $ 10,750,000 Angelina and Neches River Authority, Texas, Solid Waste Disposal Revenue Bonds (Series 1993), 3.70% CP (Temple-Eastex Inc. Project)/ (Temple-Inland, Inc. GTD), Mandatory Tender $ 10,750,000 12/12/1996 5,000,000 Texas State, 4.75% TRANs, 8/29/1997 5,031,153 Total 15,781,153 TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 530,867,132
Securities that are subject to Alternative Minimum Tax represent 33.4% of the portfolio as calculated based upon total portfolio market value. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSRO's") 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 & Poors Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are 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 application regulations in determining whether a security is rated and whether a security rated by multiple NRSRO's in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED) FIRST TIER SECOND TIER 100.00% 0.00% (b) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. At the end of the period, these securities amounted to $69,265,000 which represents 13% of net assets. (c) Also represents cost for federal tax purposes. (d) Current rate and next reset date shown. Note: The categories of investments are shown as a percentage of net assets ($532,816,645) at October 31, 1996. The following acronyms are used throughout this portfolio: AMBAC -- American Municipal Bond Assurance Corporation COL -- Collateralized CP -- Commercial Paper FGIC -- Financial Guaranty Insurance Company GNMA -- Government National Mortgage Association GTD -- Guaranty HFA -- Housing Finance Authority HFDC -- Health Facility Development Corporation IDA -- Industrial Development Authority IDB -- Industrial Development Bond IDR -- Industrial Development Revenue IDRB -- Industrial Development Revenue Bond INS -- Insured INV -- Investment Agreement LIQ -- Liquidity Agreement LOCs -- Letter(s) of Credit LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance PCR -- Pollution Control Revenue PLC -- Public Limited Company PRF -- Prerefunded SFM -- Single Family Mortgage TANs -- Tax Anticipation Notes TOBs -- Tender Option Bonds TRANs -- Tax and Revenue Anticipation Notes VRDNs -- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) FLORIDA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996
ASSETS: Total investments in securities, at amortized cost $530,867,132 and value Cash 326,304 Income receivable 2,448,806 Deferred expenses 23,988 Total assets 533,666,230 LIABILITIES: Payable for shares redeemed $ 6,687 Income distribution payable 612,866 Accrued expenses 230,032 Total liabilities 849,585 NET ASSETS for 532,816,645 shares outstanding $532,816,645 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: INSTITUTIONAL SHARES: $500,992,905 / 500,992,905 shares outstanding $1.00 CASH II SHARES: $31,823,740 / 31,823,740 shares outstanding $1.00
(See Notes which are an integral part of the Financial Statements) FLORIDA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 INVESTMENT INCOME: Interest $ 14,309,120 EXPENSES: Investment advisory fee $ 1,558,498 Administrative personnel 294,886 and services fee Custodian fees 52,742 Transfer and dividend 48,434 disbursing agent fees and expenses Directors'/Trustees' fees 4,998 Auditing fees 13,156 Legal fees 13,564 Portfolio accounting fees 91,304 Distribution services fee 113,244 -- Cash II Shares Shareholder services fee -- 860,815 Institutional Shares Shareholder services fee -- 113,244 Cash II Shares Share registration costs 146,642 Printing and postage 24,078 Insurance premiums 5,701 Miscellaneous 3,504 Total expenses 3,344,810 Waivers -- Waiver of investment $ (1,071,607) advisory fee Waiver of distribution (67,947) services fee -- Cash II Shares Waiver of shareholder (206,595) services fee -- Institutional Shares Total waivers (1,346,149) Net expenses 1,998,661 Net investment $ 12,310,459 income
(See Notes which are an integral part of the Financial Statements) FLORIDA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: OPERATIONS -- Net investment income $ 12,310,459 $ 4,683,407 DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income Institutional Shares (10,917,907) (4,683,407) Cash II Shares (1,392,552) -- Change in net assets resulting from distributions to shareholders (12,310,459) (4,683,407) SHARE TRANSACTIONS -- Proceeds from sale of shares 2,270,320,962 1,361,774,097 Net asset value of shares issued to shareholders in payment of distributions declared 6,801,443 2,166,363 Cost of shares redeemed (1,897,652,278) (1,264,560,129) Change in net assets resulting 379,470,127 99,380,331 from share transactions Change in net assets 379,470,127 99,380,331 NET ASSETS: Beginning of period 153,346,518 53,966,187 End of period $ 532,816,645 $ 153,346,518
(See Notes which are an integral part of the Financial Statements) FLORIDA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 1. ORGANIZATION Federated Municipal Cash Trust (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 sixteen portfolios. The financial statements included herein are only those of Florida Municipal Cash Trust (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 current income exempt from federal regular income tax consistent with stability of principal and liquidity and to maintain an investment portfolio that will cause its shares to be exempt from the Florida intangibles tax. The Fund offers two classes of shares: Institutional Shares and Cash II Shares. Effective November 17, 1995, the Fund added Cash II Shares. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. DEFERRED EXPENSES -- The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized over a period not to exceed five years from the Fund's commencement 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. In some cases, the issuer of restricted securities has agreed to register such securities for resale, at the issuer's expense either upon demand by the Fund or in connection with another registered offering of the securities. Many restricted securities may be resold in the secondary market in transactions exempt from registration. Such restricted securities may be determined to be liquid under criteria established by the Board of Directors. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined by the Fund's pricing committee. Additional information on each restricted security held at October 31, 1996, is as follows:
SECURITY ACQUISITION DATA ACQUISITION COST Clipper Florida Tax-Exempt Trust, Class A 6/14/1996- Certificates of Participation, Series 6/19/1996 $14,190,000 1996-3B Florida HFA, Homeowner Mortgage Revenue Bonds PT-88 (Series 1996-3) 9/27/1996 6,920,000 Florida State Department of Transportation, (Series 1993A) 7/23/1996 2,500,000 Orange County, FL, Health Facilities Authority, CDC Municipal Products, Inc. Class A Certificates (Series 1996 D-1) 9/3/1996 18,125,000 Orange County, FL, Health Facilities Authority, CDC Municipal Products, Inc. Class A Certificates (Series 1996 D-2) 5/5/1995 10,830,000 Pinellas County, FL Health Facility Authority, SFM Revenue Bonds (Series PA-92) 3/3/1995 3,200,000 TEB Municipal Trust I, Class A Floating Rate Receipts 8/27/1996 13,500,000
USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER -- Investment transactions are accounted for on the trade date. 3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1996, capital paid-in aggregated $532,816,645. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, INSTITUTIONAL SHARES 1996 1995 Shares sold 1,967,231,853 1,361,774,097 Shares issued to shareholders in 6,801,419 2,166,363 payment of distributions declared Shares redeemed (1,626,386,885) (1,264,560,129) Net change resulting from 347,646,387 99,380,331 Institutional Shares transactions PERIOD ENDED OCTOBER 31, CASH II SHARES 1996(A) 1995 Shares sold 303,089,109 -- Shares issued to shareholders in 24 -- payment of distributions declared Shares redeemed (271,265,393) -- Net change resulting from 31,823,740 -- Institutional Shares transactions Net change resulting from share 379,470,127 99,380,331 transactions
(a) For the period from November 27, 1995 (date of initial public investment) to October 31, 1996. 4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Institutional Shares and Cash II Shares. The Plan provides that the Fund may incur distribution expenses according to the following schedule annually, to compensate FSC. PERCENTAGE OF AVERAGE SHARE CLASS NAME DAILY NET ASSETS OF CLASS Institutional Shares 0.25% Cash II Shares 0.25% The distributor may voluntarily choose to waive any portion of its fee. The distributor can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended October 31, 1996, Institutional Shares did not incur a distribution services fee. SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund shares for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- Federated Services Company ("FServ"), through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES -- Organizational expenses of $15,374 were borne initially by Adviser. The Fund has agreed to reimburse Adviser for the organizational expenses during the five-year period following effective date. For the period ended October 31, 1996, the Fund paid $2,135 pursuant to this agreement. INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, 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 $1,179,910,345 and $1,246,725,000, respectively. GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 5. CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 76.1% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 7.5% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (FLORIDA MUNICIPAL CASH TRUST): We have audited the accompanying statement of assets and liabilities of Florida Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996 and the related statement of operations for the year then ended and the statement of changes in net assets, and the financial highlights (see pages 2 and 14 of the prospectus) for the periods presented. 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 October 31, 1996, 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 Florida Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania November 20, 1996 ADDRESSES Florida Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, PA 15222-3779 Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 Transfer Agent and Dividend Disbursing Agent Federated Shareholder P.O. Box 8600 Services Company Boston, MA 02266-8600 Independent Public Accountants Arthur Andersen LLP 2100 PPG Place Pittsburgh, PA 15222 FLORIDA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End, Management Investment Company Prospectus dated December 31, 1996 [Graphic] Federated Investors Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. Cusip 314229758 005392 (12/96) FLORIDA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES CASH II SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectuses of Florida Municipal Cash Trust (the ``Fund'), a portfolio of Federated Municipal Trust (the ``Trust') dated December 31, 1996 . This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-341-7400. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1996 [LOGO] Federated Securities Corp. is the distributor of the Funds and is a subsidiary of Federated Investors. Cusip 314229758 Cusip 314229683 G00537-01 (12/96) INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1 Repurchase Agreements 2 Credit Enhancement 2 INVESTMENT LIMITATIONS 2 FEDERATED MUNICIPAL TRUST MANAGEMENT 3 Share Ownership 8 Trustees Compensation 9 Trustee Liability 10 INVESTMENT ADVISORY SERVICES 10 Investment Adviser 10 Advisory Fees 10 BROKERAGE TRANSACTIONS 10 OTHER SERVICES 10 Fund Administration 10 Custodian and Portfolio Accountant 11 Transfer Agent 11 Independent Public Accountants 11 DETERMINING NET ASSET VALUE 11 REDEMPTION IN KIND 12 MASSACHUSETTS PARTNERSHIP LAW 12 THE FUND'S TAX STATUS 12 PERFORMANCE INFORMATION 12 Yield 12 Effective Yield 12 Tax-Equivalent Yield 13 Tax-Equivalency Table 13 Total Return 16 Performance Comparisons 16 Economic and Market Information 16 ABOUT FEDERATED INVESTORS 16 Mutual Fund Market 17 Institutional Clients 17 Broker/Dealers and Bank Broker/Dealer Subsidiaries 17 APPENDIX 18 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security; the issuer of any demand feature applicable to the security; or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an `event of non-appropriation''); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations (`NRSROs'') or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group (`S&P''), MIG-1 or MIG-2 by Moody's Investors Service, Inc. (`Moody's''), or F-1+, F-1, or F-2 by Fitch Investors Service, Inc. (`Fitch'') are all considered rated in one of the two highest short-term rating categories. The Fund will follow applicable regulations in determining whether a security rated by more than one NRSRO can be treated as being in one of the two highest short-term rating categories; currently, such securities must be rated by two NRSROs in one of their two highest rating categories. See `Regulatory Compliance.'' WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund in a dollar amount sufficient to make payment for the securities to be purchased are: segregated on the Fund`s records at the trade date; marked to market daily; and maintained until the transaction is settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the `credit enhancer''), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. FLORIDA INVESTMENT RISKS Florida's economic expansion continues to be among the strongest in the region. Employment and population have been on the increase since 1991. The state's economic forecast predicts modest growth through 1996, slightly outpacing national averages. Labor force growth has been consistent since 1992, and service, construction, and trade sectors comprise more than 64% of the state's labor force. The unemployment rate through 1996 is estimated at 5.9%, down from a recessionary peak of 8.2% in 1992. Florida continues to experience strong population growth, but at decelerating rates. The over 65 group is no longer the fastest growing component. Personal income continues to grow. After setbacks in the early 1990s because of recession and natural disasters, personal income growth is now above the national average (5.9% for Florida, 5.5% nationally). Florida's debt structure is complex, differing from other states in that almost all of its General Obligation Debt is secured from dedicated taxes with full faith and credit as a back-up. Also, special obligations are mostly issued in the state's name and responsibility for the debt is taken by the state, subject to a pledged revenue source. In Florida, a state income tax is unconstitutional. Therefore, the resulting heavy dependence on sales tax revenues makes the general fund vulnerable to recession. In 1994, Florida voters approved a revenue limit which allows annual revenue to grow by the average of annual personal income growth over the previous five years. This limit along with growth pressure and the vulnerability of the sales tax present a challenge to Florida if it intends to continue its expansion. The Fund's concentration in securities issued by the state and its political subdivisions provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. The ability of the state or its municipalities to meet their obligation will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the state; and the underlying condition of the state, and its municipalities. INVESTMENT LIMITATIONS 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. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of the value of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may purchase or hold portfolio securities permitted by its investment objective, policies, and limitations or the Trust's Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, including limited partnership interests, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not invest 25% or more of the value of its total assets in any one industry, or in industrial development bonds or other securities the interest upon which is paid from revenues of similar types of projects, except that the Fund may invest 25% or more of the value of its total assets in cash, cash items, or securities issued or guaranteed by the government of the United States or its agencies, or instrumentalities and repurchase agreements collateralized by such U.S. government securities. The above limitations cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities including certain restricted securities not determined to be liquid under criteria established by the Trustees, non-negotiable time deposits and repurchase agreements providing for settlement in more than seven days after notice. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be `cash items.'' Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments , as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director or Trustee of the Funds. Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee, University of Pittsburgh; Director or Trustee of the Funds. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest Florida; formerly, President, Naples Property Management, Inc. and Northgate Village Development Corporation; Director or Trustee of the Funds. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds. Edward L. Flaherty, Jr.@ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region; Director or Trustee of the Funds. Glen R. Johnson* Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. Peter E. Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16, 1942 Trustee Consultant; Former State Representative, Commonwealth of Massachusetts; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation; Director or Trustee of the Funds. Gregor F. Meyer Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director or Trustee of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics; Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., National Defense University, U.S. Space Foundation and Czech Management Center; President Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council for Environmental Policy and Technology, Federal Emergency Management Advisory Board and Czech Management Center; Director or Trustee of the Funds. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/Marketing/Conference Planning, Manchester Craftsmen's Guild; Restaurant Consultant, Frick Art & History Center; Conference Coordinator, University of Pittsburgh Art History Department; Director or Trustee of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated Shareholder Services; Director, Federated Services Company; President or Executive Vice President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Shareholder Services Company; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President , Secretary and Treasurer Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. *This Trustee is deemed to be an ``interested person'' as defined in the Investment Company Act of 1940. @Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board between meetings of the Board. As referred to in the list of Trustees and Officers, `Funds'' includes the following investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated Investment Portfolios; Federated Investment Trust; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of November 26, 1996, the following shareholders of record owned 5% or more of the outstanding Institutional Shares of the Florida Municipal Cash Trust: Charles Schwab & Company, Inc., (as record owner holding Institutional Shares for its clients), San Francisco, California owned approximately 207,671,958 shares (42.74%); St. Joe Container Corp., Jacksonville, Florida owned approximately 91,076,616 shares (18.74%). As of December 2, 1996, the following shareholder of record owned 5% or more of the outstanding Cash II Shares of the Florida Municipal Cash Trust: Trustman, Trust Company Bank, (as record owner holding Cash II Shares for its clients), Atlanta, Georgia owned approximately 73,525,976 shares (99.98%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 54 other investment companies in the Fund Complex Thomas G. Bigley++ $3,611 $86,331 for the Trust and Trustee 54 other investment companies in the Fund Complex John T. Conroy, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex William J. Copeland $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Peter E. Madden $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Gregor F. Meyer $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex John E. Murray, Jr., $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Wesley W. Posvar $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Marjorie P. Smuts $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1996. #The aggregate compensation is provided for the Trust which is comprised of 16 portfolios. +The information is provided for the last calendar year. ++ Mr. Bigley served on 39 investment companies in the Federated Funds complex from January 1 through September 30, 1995. On October 1, 1995, he was appointed a Trustee on 15 additional Federated Funds. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31,1996, 1995 and 1994, the adviser earned $1,558,498, $522,992, and $20,127, respectively, of which $1,071,607, $480,076 and $20,127, respectively, were voluntarily waived. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal years ended October 31, 1996, 1995, and 1994, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative Services served as the Fund's Administrator. Prior to March 1, 1994, Federated Administrative Services, Inc. served as the Fund's Administrator. Both former Administrators are subsidiaries of Federated Investors. For purposes of this Statement of Additional Information, Federated Services Company and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the `Administrators.'' For the fiscal years ended October 31, 1996, 1995 and 1994, the Administrators earned $294,886, $125,000, and $13,699, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. The fee paid for this service is based upon the level of the Fund's average net assets for the period plus out-of- pocket expenses. TRANSFER AGENT Federated Services Company, through its registered transfer agent, Federated Shareholder Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES These arrangements permit the payment of fees to financial institutions, the distributor, and Federated Shareholder Services, to stimulate distribution activities and to cause services to be provided to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities may include, but are not limited to: marketing efforts; providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Plan, the Trustees expect that the Fund will be able to achieve a more predictable flow of cash for investment purposes and to meet redemptions. This will facilitate more efficient portfolio management and assist the Fund in seeking to achieve its investment objectives. By identifying potential investors whose needs are served by the Fund `s objectives, and properly servicing these accounts, the Fund may be able to curb sharp fluctuations in rates of redemptions and sales. Other benefits, which may be realized under either arrangement, may include: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal period ended October 31, 1996, payments in the amount of $113,244 were made pursuant to the Plan for Cash II Shares. In addition, for the fiscal period period ended October 31, 1996, the Fund paid shareholder service fees in the amounts of $860,815 and $113,244 on behalf of Institutional Shares and Cash II Shares, respectively, of which $206,595 and $0 were voluntarily waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the `Rule'') promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the `base period.'' This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. For the seven-day period ended October 31, 1996, the yields for Institutional Shares and Cash II Shares were 3.11% and 2.95%, respectively. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. For the seven-day period ended October 31, 1996, the effective yields for Institutional Shares and Cash II Shares were 3.16% and 3.00%, respectively. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming 39.6% tax rate (the maximum effective rate for individuals) and assuming that the income is 100% tax exempt. For the seven-day period ended October 31, 1996, the tax-equivalent yields for Institutional Shares and Cash II Shares were 5.23% and 4.97%, respectively. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a `tax- free''investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1996 FEDERAL INCOME TAX BRACKET: 15.00% 28.00% 31.00% 36.00% 39.60% JOINT $1- $40,101- $96,901- $147,701- OVER RETURN 40,100 96,900 147,700 263,750 $263,750 SINGLE $1- $24,001- $58,151- $121,301- OVER RETURN 24,000 58,150 121,300 263,750 $263,750 Tax-Exempt Yield Taxable Yield Equivalent 1.00% 1.18% 1.39% 1.45% 1.56% 1.66% 1.50% 1.76% 2.08% 2.17% 2.34% 2.48% 2.00% 2.35% 2.78% 2.90% 3.13% 3.31% 2.50% 2.94% 3.47% 3.62% 3.91% 4.14% 3.00% 3.53% 4.17% 4.35% 4.69% 4.97% 3.50% 4.12% 4.86% 5.07% 5.47% 5.79% 4.00% 4.71% 5.56% 5.80% 6.25% 6.62% 4.50% 5.29% 6.25% 6.52% 7.03% 7.45% 5.00% 5.88% 6.94% 7.25% 7.81% 8.28% 5.50% 6.47% 7.64% 7.97% 8.59% 9.11% 6.00% 7.06% 8.33% 8.70% 9.38% 9.93% 6.50% 7.65% 9.03% 9.42% 10.16% 10.76% 7.00% 8.24% 9.72% 10.14% 10.94% 11.59% 7.50% 8.82% 10.42% 10.87% 11.72% 12.42% 8.00% 9.41% 11.11% 11.59% 12.50% 13.25% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of Fund shares. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local income taxes. TAXABLE YIELD EQUIVALENT FOR 1996 State of Florida FEDERAL INCOME TAX BRACKET: 15.00% 28.00% 31.00% 36.00% 39.60% JOINT $1 $40,101 $96,901 $143,701 OVER RETURN 40,100 96,900 147,700 263,750 263,750 SINGLE $1 $24,001 $58,151 $121,301 OVER RETURN 24,000 58,150 121,300 263,750 263,750 Tax-Exempt Yield Taxable Yield Equivalent 1.00% 1.38% 1.59% 1.65% 1.76% 1.86% 1.50% 1.96% 2.28% 2.37% 2.54% 2.68% 2.00% 2.55% 2.98% 3.10% 3.33% 3.51% 2.50% 3.14% 3.67% 3.82% 4.11% 4.34% 3.00% 3.73% 4.37% 4.55% 4.89% 5.17% 3.50% 4.32% 5.06% 5.27% 5.67% 5.99% 4.00% 4.91% 5.76% 6.00% 6.45% 6.82% 4.50% 5.49% 6.45% 6.72% 7.23% 7.65% 5.00% 6.08% 7.14% 7.45% 8.01% 8.48% 5.50% 6.67% 7.84% 8.17% 8.79% 9.31% 6.00% 7.26% 8.53% 8.90% 9.58% 10.13% 6.50% 7.85% 9.23% 9.62% 10.36% 10.96% 7.00% 8.44% 9.92% 10.34% 11.14% 11.79% 7.50% 9.02% 10.62% 11.07% 11.92% 12.62% 8.00% 9.61% 11.31% 11.79% 12.70% 13.45% Note: The State of Florida levies a tax on intangible personal property, such as stocks, bonds and other evidences of indebtedness, at the rate of $2.00 per $1,000 of the properties' market value as of January 1st. Because this is a tax on the value of an investment as opposed to the income generated therefrom, it becomes more difficult to include its effect in an income-derived equivalent yield table. In an effort to simplify your analysis, this table has been prepared assuming an across-the-board 20 basis point incremental benefit resulting from the avoidance of this tax. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. For the one-year period ended October 31, 1996, and for the period from September 21, 1994 (date of initial public investment), through October 31, 1996, the average annual total returns were 3.20% and 3.39%, respectively for Institutional Shares. For the period from November 27, 1995 (date of initial public investment) through October 31, 1996, the cumulative total return was 2.80% for Cash II Shares. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. oMONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. Advertising and other promotional literature may include charts, graphs and other illustrations using the Fund`s returns, or returns in general, that demonstrate basic investment concepts such as tax-deferred compounding, dollar-cost averaging and systematic investment. In addition, the Fund can compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, such as bank savings accounts, certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION Advertising and sales literature for the Fund may include discussions of economic, financial and political developments and their effect on the securities market. Such discussions may take the form of commentary on these developments by the Fund portfolio mangers and their views and analysis on how such developments could affect the Funds. In addition, advertising and sales literature may quote statistics and give general information about the mutual fund industry, including growth of the industry, from sources such as the Investment Company Institute. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. These traders handle trillions of dollars in annual trading volume. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1995, Federated Investors managed more than $40.2 billion in assets across approximately 47 money market funds, including 17 government, 10 prime and 20 municipal with assets approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $3 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. Trust Organizations Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--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 perfromed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for service quality measurement. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (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 rate `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. MOODYS 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 SERVICES, INC. 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. MASSACHUSETTS MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS The Institutional Service Shares of Massachusetts Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Massachusetts municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Massachusetts, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and Massachusetts state income tax consistent with stability of principal. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS-- INSTITUTIONAL SERVICE SHARES 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Massachusetts Municipal Securities 5 Investment Risks 6 Investment Limitations 6 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Institutional Service Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ Special Purchase Features 10 HOW TO REDEEM SHARES 10 - ------------------------------------------------------ Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 12 - ------------------------------------------------------ TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 State and Local Taxes 13 OTHER CLASSES OF SHARES 14 - ------------------------------------------------------ PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS--1784 FUNDS SHARES 15 - ------------------------------------------------------ FINANCIAL STATEMENTS 16 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 28 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................ None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)........................................................................ None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)........................................................................ None Redemption Fee (as a percentage of amount redeemed, if applicable)........................................... None Exchange Fee................................................................................................. None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)......................................................................... 0.33% 12b-1 Fee..................................................................................... ............ None Total Other Expenses...................................................................................... 0.22% Shareholder Services Fee (after waiver) (2).................................................. 0.00% Total Operating Expenses (3).................................................................... 0.55%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The shareholder services fee has been reduced to reflect the voluntary waiver of the shareholder services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (3) The Total Operating Expenses would have been 0.97% absent the voluntary waivers of a portion of the management fee and the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Services Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period............................................................... $ 6 $ 18 $ 31 $ 69
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. MASSACHUSETTS MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 28.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993 1992 1991 1990(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00$ 1.00 - --------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------------- Net investment income 0.03 0.03 0.02 0.02 0.03 0.05 0.03 - --------------------------------------------- LESS DISTRIBUTIONS - --------------------------------------------- Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.05) (0.03) - --------------------------------------------- --------- --------- --------- --------- --------- --------- ------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------------------------------------- --------- --------- --------- --------- --------- --------- ------- TOTAL RETURN (b) 3.07% 3.34% 2.14% 1.99% 2.87% 4.63% 2.59% - --------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------- Expenses 0.55% 0.55% 0.55% 0.53% 0.34% 0.30% 0.17%* - --------------------------------------------- Net investment income 3.02% 3.30% 2.12% 1.97% 2.82% 4.48% 5.66%* - --------------------------------------------- Expense waiver/reimbursement (c) 0.42% 0.45% 0.35% 0.43% 0.55% 0.69% 0.57%* - --------------------------------------------- SUPPLEMENTAL DATA - --------------------------------------------- Net assets, end of period (000 omitted) $119,739 $99,628 $90,013 $84,524 $85,570 $81,681 $63,483 - ---------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from May 18, 1990 (date of initial public investment) to October 31, 1990. (b) Based on net asset value, which does not reflect sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees have established two classes of shares known as Institutional Service Shares and 1784 Funds Shares. This prospectus relates only to Institutional Service Shares of the Fund, which are designed primarily for financial institutions acting in an agency capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Massachusetts taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to provide current income which is exempt from federal regular income tax and Massachusetts state income tax consistent with stability of principal. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Massachusetts state income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Massachusetts and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Massachusetts state income tax ("Massachusetts Municipal Securities"). Examples of Massachusetts Municipal Securities include, but are not limited to: tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; municipal commercial paper and other short-term notes; variable rate demand notes; municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Massachusetts Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Massachusetts Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Massachusetts Municipal Securities is subject to the federal alternative minimum tax. MASSACHUSETTS MUNICIPAL SECURITIES Massachusetts Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Massachusetts Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Massachusetts Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Massachusetts Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Massachusetts Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Massachusetts Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Massachusetts Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Massachusetts Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Massachusetts Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these considerations, the Fund's concentration in Massachusetts Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933. These investment limitations cannot be changed without shareholder approval. The following limitation may be changed without shareholder approval. The Fund will not invest more than 10% of the value of its net assets in illiquid securities including repurchase agreements providing for settlement in more than seven days after notice. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES Federated Securities Corp. is the principal distributor for Institutional Service Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to 0.25% of the average daily net asset value of its shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate as which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS .150% on the first $250 million .125% on the next $250 million .100% on the next $250 million .075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Institutional Service Shares from the value of Fund assets attributable to Institutional Service Shares, and dividing the remainder by the number of Institutional Service Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $25,000 over a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. Eastern time to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. Eastern time in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Massachusetts Municipal Cash Trust--Institutional Service Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Massachusetts Municipal Cash Trust-Institutional Service Shares. Please include an account number on the check. 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. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $25,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 2, 1996 John & Co., Burlington, Massachusetts, acting in various capacities for numerous accounts, was the owner of record of 100% of the 1784 Funds Shares of the Fund, and therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Massachusetts. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. MASSACHUSETTS TAXES. Under existing Massachusetts laws, distributions made by the Fund will not be subject to Massachusetts personal income taxes to the extent that such dividends qualify as exempt interest dividends under the Internal Revenue Code, and represent (i) interest or gain on obligations issued by the Commonwealth of Massachusetts, its political subdivisions or agencies; or (ii) interest on obligations of the United States , its territories or possessions to the extent exempt from taxation by the states pursuant to federal law. Conversely, to the extent that the distributions made by the Fund are derived from other types of obligations, such dividends will be subject to Massachusetts personal income taxes. Shareholders subject to the Massachusetts corporate excise tax must include all dividends paid by the Fund in their net income, and the value of their shares of stock in the Fund in their net worth, when computing the Massachusetts excise tax. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- The Fund also offers another class of shares called 1784 Funds Shares that are sold primarily to retail customers of the banking subsidiaries of Bank of Boston. 1784 Funds Shares are sold at net asset value and are subject to a Shareholder Services Agreement. Investments in 1784 Funds Shares are subject to a minimum initial investment of $1,000. Instututional Service Shares and 1784 Funds Shares are subject to certain of the same expenses. Expense differences, however, between Institutional Service Shares and 1784 Funds Shares may affect the performance of each class. To obtain more information and a prospectus for 1784 Funds Shares, investors may call 1-800-252-1784. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. MASSACHUSETTS MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--1784 FUNDS SHARES (FORMERLY, BAYFUNDS SHARES) - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 28.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------------------------------------- Net investment income 0.03 0.03 0.02 0.01 - ----------------------------------------------------------------------- LESS DISTRIBUTIONS - ----------------------------------------------------------------------- Distributions from net investment income (0.03) (0.03) (0.02) (0.01) - ----------------------------------------------------------------------- --------- --------- --------- ----------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------------------------------------- --------- --------- --------- ----------- TOTAL RETURN (b) 3.05% 3.30% 2.05% 1.25% - ----------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------------------------------------- Expenses 0.58% 0.60% 0.64% 0.65%* - ----------------------------------------------------------------------- Net investment income 3.01% 3.25% 2.09% 1.85%* - ----------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.42% 0.45% 0.35% 0.43%* - ----------------------------------------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------------------------------------- Net assets, end of period (000 omitted) $54,667 $46,580 $41,912 $18,143 - -----------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from March 8, 1993 (date of initial public investment) to October 31, 1993. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ------------------------------------------------------------------------------------- -------------- (a) SHORT-TERM MUNICIPALS--99.3% - ---------------------------------------------------------------------------------------------------- MASSACHUSETTS--95.6% -------------------------------------------------------------------------------------- $ 2,000,000 Attleboro, MA, 3.50% BANs, 2/6/1997 $ 2,000,513 -------------------------------------------------------------------------------------- 2,000,000 Boston, MA Water & Sewer Commission, General Revenue Bonds (1994 Series A) Weekly VRDNs (State Street Bank and Trust Co. LOC) 2,000,000 -------------------------------------------------------------------------------------- 5,000,000 (b) Clipper, MA Tax Exempt Trust Weekly VRDNs (State Street Bank and Trust Co. LIQ) 5,000,000 -------------------------------------------------------------------------------------- 3,465,000 (b) Clipper, MA Tax Exempt Trust, (Series 1993-1) Weekly VRDNs (State Street Bank and Trust Co. LIQ) 3,465,000 -------------------------------------------------------------------------------------- 3,000,000 Commonwealth of Massachusetts Weekly VRDNs (AMBAC INS)/ (Citibank NA, New York LIQ) 3,000,000 -------------------------------------------------------------------------------------- 1,645,000 Commonwealth of Massachusetts, (Series B), 5.00% Bonds, 6/1/1997 1,656,134 -------------------------------------------------------------------------------------- 3,200,000 Framingham, MA IDA Weekly VRDNs (Perini Corp)/(Barclays Bank PLC, London LOC) 3,200,000 -------------------------------------------------------------------------------------- 2,500,000 Gardner, MA, 4.00% BANs, 4/1/1997 2,501,986 -------------------------------------------------------------------------------------- 4,300,000 Hingham, MA, 3.75% BANs, 12/20/1996 4,300,671 -------------------------------------------------------------------------------------- 3,925,000 Mashpee, MA, 4.00% BANs, 2/7/1997 3,929,061 -------------------------------------------------------------------------------------- 8,200,000 Massachusetts Bay Transit Authority, (Series C), 3.55% CP (Westdeutsche Landesbank Girozentrale LOC), Mandatory Tender 11/22/1996 8,200,000 -------------------------------------------------------------------------------------- 700,000 Massachusetts HEFA Weekly VRDNs (Harvard University) 700,000 -------------------------------------------------------------------------------------- 6,800,000 Massachusetts HEFA, (Series A) Weekly VRDNs (Brigham & Women's Hospital)/(Sanwa Bank Ltd, Osaka LOC) 6,800,000 -------------------------------------------------------------------------------------- 2,200,000 Massachusetts HEFA, (Series A) Weekly VRDNs (Endicott College)/ (Baybank, Burlington, MA LOC) 2,200,000 -------------------------------------------------------------------------------------- 3,320,000 Massachusetts HEFA, (Series A) Weekly VRDNs (New England Home For Little Wanderers)/(First National Bank of Boston, MA LOC) 3,320,000 -------------------------------------------------------------------------------------- 2,600,000 Massachusetts HEFA, (Series B) Weekly VRDNs (Clark University)/ (Sanwa Bank Ltd, Osaka LOC) 2,600,000 -------------------------------------------------------------------------------------- 2,300,000 Massachusetts HEFA, (Series E) Weekly VRDNs (Williams College, MA) 2,300,000 --------------------------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ------------------------------------------------------------------------------------ -------------- (a) SHORT-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------------------------------------- MASSACHUSETTS--CONTINUED -------------------------------------------------------------------------------------- $ 7,200,000 Massachusetts HEFA, (Series F) Weekly VRDNs (Children's Hospital of Boston) $ 7,200,000 -------------------------------------------------------------------------------------- 5,500,000 Massachusetts HEFA, (Series G) Weekly VRDNs (Massachusetts Institute of Technology) 5,500,000 -------------------------------------------------------------------------------------- 5,000,000 Massachusetts HEFA, 3.65% CP (Harvard University), Mandatory Tender 1/8/1997 5,000,000 -------------------------------------------------------------------------------------- 500,000 Massachusetts IFA Weekly VRDNs (Berkshire, MA School)/(National Westminster Bank, PLC, London LOC) 500,000 -------------------------------------------------------------------------------------- 1,300,000 Massachusetts IFA Weekly VRDNs (Groton School)/(National Westminster Bank, PLC, London LOC) 1,300,000 -------------------------------------------------------------------------------------- 1,350,000 Massachusetts IFA Weekly VRDNs (Kendall Square Entity)/ (State Street Bank and Trust Co. LOC) 1,350,000 -------------------------------------------------------------------------------------- 1,910,000 Massachusetts IFA, (1995 Series A) Weekly VRDNs (Bradford College Issue)/(First National Bank of Boston, MA LOC) 1,910,000 -------------------------------------------------------------------------------------- 300,000 Massachusetts IFA, (Series 1992) Weekly VRDNs (Holyoke Water Power Co.)/(Canadian Imperial Bank of Commerce, Toronto LOC) 300,000 -------------------------------------------------------------------------------------- 2,000,000 Massachusetts IFA, (Series 1992A) Weekly VRDNs (Ogden Haverhill)/ (Union Bank of Switzerland, Zurich LOC) 2,000,000 -------------------------------------------------------------------------------------- 5,000,000 Massachusetts IFA, (Series 1992B), 3.60% CP (New England Power Co.), Mandatory Tender 1/13/1997 5,000,000 -------------------------------------------------------------------------------------- 3,000,000 Massachusetts IFA, (Series 1992B), 3.70% CP (New England Power Co.), Mandatory Tender 12/11/1996 3,000,000 -------------------------------------------------------------------------------------- 5,000,000 Massachusetts IFA, (Series 1993A), 3.60% CP (New England Power Co.), Mandatory Tender 1/10/1997 5,000,000 -------------------------------------------------------------------------------------- 5,000,000 Massachusetts IFA, (Series 1995) Weekly VRDNs (Goddard House)/ (Fleet Bank of New York LOC) 5,000,000 -------------------------------------------------------------------------------------- 5,800,000 Massachusetts IFA, (Series 1995) Weekly VRDNs (Whitehead Institute for Biomedical Research) 5,800,000 -------------------------------------------------------------------------------------- 4,000,000 Massachusetts IFA, (Series 1996) Weekly VRDNs (Newbury College)/ (Baybank, Burlington, MA LOC) 4,000,000 -------------------------------------------------------------------------------------- 1,525,000 Massachusetts IFA, (Series A) Weekly VRDNs (Hockomock YMCA)/ (Bank of Nova Scotia, Toronto LOC) 1,525,000 --------------------------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ------------------------------------------------------------------------------------ -------------- (a) SHORT-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------------------------------------- MASSACHUSETTS--CONTINUED -------------------------------------------------------------------------------------- $ 4,000,000 Massachusetts IFA, (Series B) Weekly VRDNs (Williston North Hampton School)/(National Westminster Bank, PLC, London LOC) $ 4,000,000 -------------------------------------------------------------------------------------- 1,495,000 Massachusetts IFA, Museum Revenue Refunding Bonds (1996 Issue), 3.80% Bonds (Museum of Fine Arts, Boston)/(MBIA INS), 1/1/1997 1,496,697 -------------------------------------------------------------------------------------- 2,310,000 Massachusetts IFA, Refunding Revenue Bonds 1994 Project Daily VRDNs (Showa Womens Institute Boston, Inc.)/(Bank of America NT and SA, San Francisco LOC) 2,310,000 -------------------------------------------------------------------------------------- 6,255,000 Massachusetts IFA, Revenue Bonds (Series 1995) Weekly VRDNs (Emerson College Issue)/(Baybank, Burlington, MA LOC) 6,255,000 -------------------------------------------------------------------------------------- 5,000,000 Massachusetts IFA, Revenue Bonds (Series 1995C) Weekly VRDNs (Edgewood Retirement Community Project)/(Dresdner Bank Ag, Frankfurt LOC) 5,000,000 -------------------------------------------------------------------------------------- 1,800,000 Massachusetts Municipal Wholesale Electric Company, Power Supply System Revenue Bonds (1994 Series C) Weekly VRDNs (Canadian Imperial Bank of Commerce, Toronto LOC) 1,800,000 -------------------------------------------------------------------------------------- 4,000,000 Massachusetts State HFA, (Series 50), 3.70% TOBs (Bayerische Landesbank Girozentrale INV), Mandatory Tender 6/2/1997 4,000,000 -------------------------------------------------------------------------------------- 2,500,000 Massachusetts Water Resources Authority, (Series 1994), 3.65% CP (Morgan Guaranty Trust Co., New York LOC), Mandatory Tender 12/11/1996 2,500,000 -------------------------------------------------------------------------------------- 2,000,000 Medway, MA, 4.50% BANs, 6/13/1997 2,008,980 -------------------------------------------------------------------------------------- 757,140 Melrose, MA, 4.09% GANs, 4/8/1997 757,744 -------------------------------------------------------------------------------------- 2,300,000 Melrose, MA, 4.25% BANs, 8/22/1997 2,304,472 -------------------------------------------------------------------------------------- 3,080,000 Middleton, MA, 4.10% BANs, 9/5/1997 3,084,990 -------------------------------------------------------------------------------------- 6,000,000 North Andover, MA, 4.00% BANs, 1/23/1997 6,003,004 -------------------------------------------------------------------------------------- 3,773,100 North Andover, MA, 4.10% BANs, 9/11/1997 3,774,009 -------------------------------------------------------------------------------------- 4,500,000 Springfield, MA , 4.50% BANs (Fleet National Bank, Providence, R.I. LOC), 6/27/1997 4,514,094 -------------------------------------------------------------------------------------- 1,725,000 Stoughton, MA, 3.51% BANs, 1/30/1997 1,725,244 -------------------------------------------------------------------------------------- 2,514,160 Stoughton, MA, 3.75% BANs, 3/7/1997 2,517,093 --------------------------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ------------------------------------------------------------------------------------ -------------- (a) SHORT-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------------------------------------- MASSACHUSETTS--CONTINUED -------------------------------------------------------------------------------------- $ 1,148,837 Yarmouth, MA, 3.40% RANs, 3/4/1997 $ 1,149,287 -------------------------------------------------------------------------------------- -------------- Total 166,758,979 -------------------------------------------------------------------------------------- -------------- PUERTO RICO--3.7% -------------------------------------------------------------------------------------- 5,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory Tender 2/14/1997 5,000,000 -------------------------------------------------------------------------------------- 1,500,000 Puerto Rico Industrial, Tourist, Education, Medical & Environmental Control Finance Authority, (Series 1994A), 3.80% CP (Inter American University of Puerto Rico)/(Banque Paribas, Paris LOC), Mandatory Tender 12/9/1996 1,500,000 -------------------------------------------------------------------------------------- -------------- Total 6,500,000 -------------------------------------------------------------------------------------- -------------- TOTAL INVESTMENTS (AT AMORTIZED COST)(c) $ 173,258,979 -------------------------------------------------------------------------------------- --------------
(a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSRO's") 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 & Poors Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are 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 application regulations in determining whether a security is rated and whether a security rated by multiple NRSRO's in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER 97.2% 2.8%
(b) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. At October 31, 1996, these securities amounted to $8,465,000 which represents 4.85% of net assets. (c) Also represents cost for federal tax purposes. MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- Note: The categories of investments are shown as a percentage of net assets ($174,406,321) at October 31, 1996. The following acronyms are used throughout this portfolio: AMBAC--American Municipal Bond Assurance Corporation BANs--Bond Anticipation Notes CP--Commercial Paper GANs--Grant Anticipation Notes HEFA--Health and Education Facilities Authority HFA--Housing Finance Authority IDA--Industrial Development Authority IFA--Industrial Finance Authority INS--Insured INV--Investment Agreement LIQ--Liquidity Agreement LOC--Letter of Credit MBIA--Municipal Bond Investors Assurance PLC--Public Limited Company RANs--Revenue Anticipation Notes SA--Support Agreement TOBs--Tender Option Bonds VRDNs--Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------------------------------ Total investments in securities, at amortized cost and value $ 173,258,979 - ------------------------------------------------------------------------------------------------------ Cash 238,291 - ------------------------------------------------------------------------------------------------------ Income receivable 1,159,659 - ------------------------------------------------------------------------------------------------------ Receivable for shares sold 3,665 - ------------------------------------------------------------------------------------------------------ -------------- Total assets 174,660,594 - ------------------------------------------------------------------------------------------------------ LIABILITIES: - ------------------------------------------------------------------------------------------ Payable for shares redeemed $ 5,151 - ------------------------------------------------------------------------------------------ Income distribution payable 184,990 - ------------------------------------------------------------------------------------------ Payable to transfer agent 23,413 - ------------------------------------------------------------------------------------------ Accrued expenses 40,719 - ------------------------------------------------------------------------------------------ ---------- Total liabilities 254,273 - ------------------------------------------------------------------------------------------------------ -------------- NET ASSETS for 174,406,321 shares outstanding $ 174,406,321 - ------------------------------------------------------------------------------------------------------ -------------- NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS Per Share: - ------------------------------------------------------------------------------------------------------ INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------------------------------ $119,738,845 / 119,738,845 shares outstanding $1.00 - ------------------------------------------------------------------------------------------------------ -------------- 1784 FUNDS SHARES: - ------------------------------------------------------------------------------------------------------ $54,667,476 / 54,667,476 shares outstanding $1.00 - ------------------------------------------------------------------------------------------------------ --------------
(See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - -------------------------------------------------------------------------------------------------------- Interest $ 6,129,748 - -------------------------------------------------------------------------------------------------------- EXPENSES: - ------------------------------------------------------------------------------------------ Investment advisory fee $ 856,487 - ------------------------------------------------------------------------------------------ Administrative personnel and services fee 155,108 - ------------------------------------------------------------------------------------------ Custodian fees 26,446 - ------------------------------------------------------------------------------------------ Transfer and dividend disbursing agent fees and expenses 60,024 - ------------------------------------------------------------------------------------------ Sub-transfer agent fees--1784 Funds Shares 13,090 - ------------------------------------------------------------------------------------------ Directors'/Trustees' fees 2,603 - ------------------------------------------------------------------------------------------ Auditing fees 13,561 - ------------------------------------------------------------------------------------------ Legal fees 4,491 - ------------------------------------------------------------------------------------------ Portfolio accounting fees 59,116 - ------------------------------------------------------------------------------------------ Shareholder services fee--Institutional Service Shares 299,707 - ------------------------------------------------------------------------------------------ Shareholder services fee--1784 Funds Shares 128,514 - ------------------------------------------------------------------------------------------ Share registration costs 42,821 - ------------------------------------------------------------------------------------------ Printing and postage 20,600 - ------------------------------------------------------------------------------------------ Insurance premiums 4,302 - ------------------------------------------------------------------------------------------ Miscellaneous 1,899 - ------------------------------------------------------------------------------------------ ------------ Total expenses 1,688,769 - ------------------------------------------------------------------------------------------ Waivers-- - ----------------------------------------------------------------------------- Waiver of investment advisory fee $ (297,835) - ----------------------------------------------------------------------------- Waiver of shareholder services fee--Institutional Service Shares (299,707) - ----------------------------------------------------------------------------- Waiver of shareholder services fee--1784 Funds Shares (128,514) - ----------------------------------------------------------------------------- ----------- Total waivers (726,056) - ------------------------------------------------------------------------------------------ ------------ Net expenses 962,713 - -------------------------------------------------------------------------------------------------------- ------------ Net investment income $ 5,167,035 - -------------------------------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: - ---------------------------------------------------------------------------------- OPERATIONS-- - ---------------------------------------------------------------------------------- Net investment income $ 5,167,035 $ 4,506,984 - ---------------------------------------------------------------------------------- --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ---------------------------------------------------------------------------------- Distributions from net investment income - ---------------------------------------------------------------------------------- Institutional Service Shares (3,622,277) (3,066,535) - ---------------------------------------------------------------------------------- 1784 Funds Shares (1,544,758) (1,440,449) - ---------------------------------------------------------------------------------- --------------- --------------- Change in net assets resulting from distributions to shareholders (5,167,035) (4,506,984) - ---------------------------------------------------------------------------------- --------------- --------------- SHARE TRANSACTIONS-- - ---------------------------------------------------------------------------------- Proceeds from sale of shares 533,103,977 371,068,422 - ---------------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,757,964 2,255,146 - ---------------------------------------------------------------------------------- Cost of shares redeemed (507,663,326) (359,040,754) - ---------------------------------------------------------------------------------- --------------- --------------- Change in net assets resulting from share transactions 28,198,615 14,282,814 - ---------------------------------------------------------------------------------- --------------- --------------- Change in net assets 28,198,615 14,282,814 - ---------------------------------------------------------------------------------- NET ASSETS: - ---------------------------------------------------------------------------------- Beginning of period 146,207,706 131,924,892 - ---------------------------------------------------------------------------------- --------------- --------------- End of period $ 174,406,321 $ 146,207,706 - ---------------------------------------------------------------------------------- --------------- ---------------
(See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Corporation") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Corporation consists of sixteen portfolios. The financial statements included herein are only those of Massachusetts Municipal Cash Trust (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 Fund offers two classes of shares: Institutional Service Shares and 1784 Funds Shares (formerly BayFunds Shares). The investment objective of the Fund is current income exempt from federal regular income tax and Massachusetts state income tax consistent with stability of principal. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- 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 October 31, 1996 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST Clipper, MA Tax Exempt Trust Weekly VRDNs 5/15/95 $ 5,000,000 Clipper, MA Tax Exempt Trust, (Series 1993-1) Weekly VRDNs 6/30/95 $ 3,465,000
USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, 1996 1995 INSTITUTIONAL SERVICE SHARES - ---------------------------------------------------------------------------------- Shares sold 489,456,450 337,436,671 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,214,590 814,368 - ---------------------------------------------------------------------------------- Shares redeemed (470,559,983) (328,636,637) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from Institutional Service Share transactions 20,111,057 9,614,402 - ---------------------------------------------------------------------------------- -------------- --------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1996 1995 1784 FUNDS SHARES - ---------------------------------------------------------------------------------- Shares sold 43,647,527 33,631,751 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,543,374 1,440,778 - ---------------------------------------------------------------------------------- Shares redeemed (37,103,343) (30,404,117) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from 1784 Funds Share transactions 8,087,558 4,668,412 - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from share transactions 28,198,615 14,282,814 - ---------------------------------------------------------------------------------- -------------- --------------
At October 31, 1996, capital paid-in aggregated $174,406,321. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to .50% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Institutional Service Shares for the period. Under the terms of a Shareholder Services Agreement with BayBank Systems, Inc., the Fund will pay BayBank Systems, Inc., up to 0.25% of average daily net assets of 1784 Funds Shares for the period. These fees are used to finance certain services for shareholders and to maintain shareholder accounts. FSS and BayBank Systems, Inc. may voluntarily choose to waive any portion of their fees. FSS and BayBank Systems, Inc. can modify or terminate these voluntary waivers at any time at their sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- 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 October 31, 1996, 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 $198,450,000 and $196,600,000, respectively. GENERAL--Certain of the Officers and Directors of the Corporation are Officers and Directors or Trustees of the above companies. (5) CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 45.4% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 7.2% of total investments. (6) SUBSEQUENT EVENT Effective November 25, 1996, BayFunds Shares were renamed 1784 Funds Shares. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Massachusetts Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Massachusetts Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1996, the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see pages 2 and 15 of the prospectus) for the periods presented. 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 October 31, 1996, 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 Massachusetts Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 13, 1996 ADDRESSES - -------------------------------------------------------------------------------- Massachusetts Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 - ----------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and Trust Company P.O. Box 8600 Boston, MA 02266-8600 - ----------------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Shareholder Services Company P.O. Box 8600 Boston, MA 02266-8600 - ----------------------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 - -----------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST INSTITUTIONAL SERVICE SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 [LOGO OF FEDERATED INVESTORS] Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and a subsidiary of Federated Investors. Cusip 314229303 0032603A-ISS (12/96) MASSACHUSETTS MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus of Institutional Service Shares of Massachusetts Municipal Cash Trust (the ``Fund'), a portfolio of Federated Municipal Trust (the ``Trust') dated December 31, 1996. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-341-7400. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1996 [LOGO] Federated Securities Corp. is the distributor of the Funds and is a subsidiary of Federated Investors. Cusip 314229303 0032603B-ISS (12/96) INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1 Repurchase Agreements 2 Credit Enhancement 2 MASSACHUSETTS INVESTMENT RISKS 2 INVESTMENT LIMITATIONS 3 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 Share Ownership 8 Trustees Compensation 9 Trustee Liability 9 INVESTMENT ADVISORY SERVICES 10 Investment Adviser 10 Advisory Fees 10 BROKERAGE TRANSACTIONS 10 OTHER SERVICES 10 Fund Administration 10 Custodian and Portfolio Accountant 11 Transfer Agent 11 Independent Public Accountants 11 SHAREHOLDER SERVICES 11 DETERMINING NET ASSET VALUE 11 REDEMPTION IN KIND 12 MASSACHUSETTS PARTNERSHIP LAW 12 THE FUND'S TAX STATUS 12 PERFORMANCE INFORMATION 12 Yield 12 Effective Yield 12 Tax-Equivalent Yield 13 Tax-Equivalency Table 13 Total Return 14 Performance Comparisons 14 Economic and Market Information 14 ABOUT FEDERATED INVESTORS 14 Mutual Fund Market 15 Institutional Clients 15 Trust Organizations 15 Broker/Dealers and Bank Broker/Dealer Subsidiaries 15 APPENDIX 16 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security; the issuer of any demand feature applicable to the security; or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an `event of non-appropriation''); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations (`NRSROs'') or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group (`S&P''), MIG-1 or MIG-2 by Moody's Investors Service, Inc. (`Moody's''), or F-1+, F-1, or F-2 by Fitch Investors Service, Inc. (`Fitch'') are all considered rated in one of the two highest short-term rating categories. The Fund will follow applicable regulations in determining whether a security rated by more than one NRSRO can be treated as being in one of the two highest short-term rating categories; currently, such securities must be rated by two NRSROs in one of their two highest rating categories. See `Regulatory Compliance.'' WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund in a dollar amount sufficient to make payment for the securities to be purchased are: segregated on the Fund`s records at the trade date; marked to market daily; and maintained until the transaction is settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the `credit enhancer''), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. MASSACHUSETTS INVESTMENT RISKS The Fund invests in obligations of Massachusetts issuers which results in the Fund's performance being subject to risks associated with the overall economic conditions present within Massachusetts (the "Commonwealth"). The following information is a brief summary of the recent prevailing economic conditions and a general summary of the Commonwealth's financial status. This information is based on official statements relating to securities that have been offered by Massachusetts issuers and from other sources believed to be reliable but should not be relied upon as a complete description of all relevant information. The Commonwealth has a diverse economy with manufacturing, education, health care, computers and financial services all being significant contributors. Massachusetts is generally considered the leader in research and development within the biotechnology, software and robotics industries as well as having many highly prestigious universities. In addition to a highly skilled and educated workforce, the Commonwealth has one of the higher average per capita incomes in this country. Beginning in the late 1980's, economic growth in the New England region and Massachusetts, in particular, slowed and showed pronounced deterioration in the construction, real estate, financial and manufacturing sectors. Between 1988 and 1992, there were extensive job losses that resulted in a 10% reduction in the work force. Also, over the same period, property values in the region experienced a similar decline. More recently, the Massachusetts economy has experienced a slight recovery, however, at a slower pace than the nation and there are signs that this recovery may be slowing. In addition, after years of above average property value growth, property values have decreased an estimated 6% over the same period. The two major revenue sources available to cities and towns in Massachusetts are local property taxes and local aid from the Commonwealth. Property taxes are subject to limitations imposed by a state-wide initiative approved by the voters in November, 1980 (commonly known as Proposition 2-1/2), which limits the property taxes that may be levied by any city or town in any fiscal year to the lesser of (i) 2.5% of the full valuation of the real estate and personal property therein or (ii) 2.5% over the previous year's levy limit plus any growth in the tax base from new construction. In recent years the decrease in property values due to the recession and the limitations of tax levy growth imposed by Proposition 2-1/2 have resulted in budget constraints for many cities and towns. The overall financial condition of the Commonwealth can also be illustrated by the changes of its debt ratings. During the period in which the Commonwealth has experienced its financial difficulties beginning in 1988, its general obligation long-term debt ratings as determined by Moody's and S & P's decreased from Aa and AA+ to Baa and BBB respectively. Since then the Commonwealth has had its debt ratings raised by the two rating agencies to A1 and A+ by Moody's and S&P, respectively, reflecting improved fiscal performance. The Fund's concentration in securities issued by the Commonwealth and its political subdivisions provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. The ability of the Commonwealth or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the Commonwealth; and the underlying fiscal condition of the Commonwealth and its municipalities. INVESTMENT LIMITATIONS 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 the clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of the value of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may acquire publicly or non-publicly issued Massachusetts Municipal Securities or temporary investments or enter into repurchase agreements, in accordance with its investment objective, policies, and limitations or Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate or real estate limited partnerships, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry, or in industrial development bonds or other securities the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. DIVERSIFICATION OF INVESTMENTS With regard to at least 50% of its total assets, no more than 5% of its total assets are to be invested in the securities of a single issuer, and no more than 25% of its total assets are to be invested in the securities of a single issuer at the close of each quarter of each fiscal year. Under this limitation, each governmental subdivision, including states, territories, possessions of the United States, or their political subdivisions, agencies, authorities, instrumentalitites, or similar entities will be considered a separate issuer if its assets and revenues are separate from those of the governmental body creating it and the security is backed only by its own assets and revenues. Industrial development bonds backed only by the assets and revenues of a non-governmental issuer are considered to be issued solely by that issuer. If, in the case of an industrial development bond or government issued security, a governmental or other entity guarantees the security, such guarantee would be considered a separate security issued by the guarantor, as well as the other issuer, subject to limited exclusions allowed by the Investment Company Act of 1940. The above limitations cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities including repurchase agreements providing for settlement in more than seven days after notice. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. For purposes of its policies and limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be `cash items.'' Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments , as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director or Trustee of the Funds. Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee, University of Pittsburgh; Director or Trustee of the Funds. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest Florida; formerly, President, Naples Property Management, Inc. and Northgate Village Development Corporation; Director or Trustee of the Funds. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds. Edward L. Flaherty, Jr.@ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region; Director or Trustee of the Funds. Glen R. Johnson* Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. Peter E. Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16, 1942 Trustee Consultant; Former State Representative, Commonwealth of Massachusetts; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation; Director or Trustee of the Funds. Gregor F. Meyer Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director or Trustee of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics; Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., National Defense University, U.S. Space Foundation and Czech Management Center; President Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council for Environmental Policy and Technology, Federal Emergency Management Advisory Board and Czech Management Center; Director or Trustee of the Funds. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/Marketing/Conference Planning, Manchester Craftsmen's Guild; Restaurant Consultant, Frick Art & History Center; Conference Coordinator, University of Pittsburgh Art History Department; Director or Trustee of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated Shareholder Services; Director, Federated Services Company; President or Executive Vice President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Shareholder Services Company; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President , Secretary and Treasurer Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. *This Trustee is deemed to be an ``interested person'' as defined in the Investment Company Act of 1940. @Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board between meetings of the Board. As referred to in the list of Trustees and Officers, `Funds'' includes the following investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated Investment Portfolios; Federated Investment Trust; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 2, 1996, the following shareholders of record owned 5% or more of the oustanding Institutional Service Shares of the Fund: State Street Bank and Trust Company, acting in various capacities for numerous accounts, owned approximately 55,042,437 shares (38.98%); and John & Co. owned approximately 17,474,106 shares (12.37%).As of the same date, the following shareholders of record owned 5% or more of the outstanding 1784 Funds Shares of Massachusetts Municipal Cash Trust:John & Co., Burlington, Massachusetts, acting in various capacities for numerous accounts, owned approximately 53,216,829 shares (100%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 54 other investment companies in the Fund Complex Thomas G. Bigley++ $3,611 $86,331 for the Trust and Trustee 54 other investment companies in the Fund Complex John T. Conroy, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex William J. Copeland $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Peter E. Madden $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Gregor F. Meyer $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex John E. Murray, Jr., $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Wesley W. Posvar $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Marjorie P. Smuts $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1996. #The aggregate compensation is provided for the Trust which is comprised of 16 portfolios. +The information is provided for the last calendar year. ++ Mr. Bigley served on 39 investment companies in the Federated Funds complex from January 1 through September 30, 1995. On October 1, 1995, he was appointed a Trustee on 15 additional Federated Funds. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund,or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1996, 1995, and 1994, the adviser earned $856,487, $686,918, and $643,293, respectively, of which $297,835, $276,299, and $445,711, respectively, were waived. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal years ended October 31, 1996, 1995, and 1994, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative Services served as the Fund's Administrator. Prior to March 1, 1994, Federated Administrative Services, Inc. served as the Fund's Administrator. Both former Administrators are subsidiaries of Federated Investors. For purposes of this Statement of Additional Information, Federated Services Company, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the `Administrators.'' For the fiscal years ended October 31, 1996, 1995, and 1994, the Administrators earned $155,108, $155,000, and $195,483, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. The fee paid for this service is based upon the level of the Fund's average net assets for the period plus out-of- pocket expenses. TRANSFER AGENT Federated Services Company, through its registered transfer agent, Federated Shareholder Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. SHAREHOLDER SERVICES This arrangement permits the payment of fees to Federated Shareholder Services to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Agreement, the Trustees expect that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal year ended October 31, 1996, the Fund paid no shareholder service fees on behalf of Institutional Service Shares. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the `Rule'') promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.50% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the `base period.'' This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. For the seven-day period ended October 31, 1996, the yield for Institutional Service Shares was 3.00%. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. For the seven-day period ended October 31, 1996, the effective yield for Institutional Service Shares was 3.04%. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming 51.60% tax rate (the maximum combined effective federal and state rate for individuals) and assuming that the income is 100% tax exempt. For the seven-day period ended October 31, 1996, the tax-equivalent yield for Institutional Service Shares was 6.20%. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a `tax- free''investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1996 STATE OF MASSACHUSETTS TAX BRACKET: FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60% COMBINED FEDERAL AND STATE 27.00% 40.00% 43.00% 48.00% 51.60% JOINT $1- $40,101- $96,901- $147,701- OVER RETURN 40,100 96,900 147,700 263,750 $263,750 SINGLE $1- $24,001- $58,151- $121,301- OVER RETURN 24,000 58,150 121,300 263,750 $263,750 TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT 1.50% 2.05% 2.50% 2.63% 2.88% 3.10% 2.00% 2.74% 3.33% 3.51% 3.85% 4.13% 2.50% 3.42% 4.17% 4.39% 4.81% 5.17% 3.00% 4.11% 5.00% 5.26% 5.77% 6.20% 3.50% 4.79% 5.83% 6.14% 6.73% 7.23% 4.00% 5.48% 6.67% 7.02% 7.69% 8.26% 4.50% 6.16% 7.50% 7.89% 8.65% 9.30% 5.00% 6.85% 8.33% 8.77% 9.62% 10.33% 5.50% 7.53% 9.17% 9.65% 10.58% 11.36% 6.00% 8.22% 10.00% 10.53% 11.54% 12.40% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. The Fund's average annual total returns for the one-year and five-year periods ended October 31, 1996 and for the period from May 18, 1990 (date of initial public investment) through ended October 31, 1996 were 3.07%, 2.68% and 3.20%, respectively. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. oMONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. Advertising and other promotional literature may include charts, graphs and other illustrations using the Fund`s returns, or returns in general, that demonstrate basic investment concepts such as tax-deferred compounding, dollar-cost averaging and systematic investment. In addition, the Fund can compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, such as bank savings accounts, certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION Advertising and sales literature for the Fund may include discussions of economic, financial and political developments and their effect on the securities market. Such discussions may take the form of commentary on these developments by the Fund portfolio mangers and their views and analysis on how such developments could affect the Funds. In addition, advertising and sales literature may quote statistics and give general information about the mutual fund industry, including growth of the industry, from sources such as the Investment Company Institute. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. These traders handle trillions of dollars in annual trading volume. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1995, Federated Investors managed more than $40.2 billion in assets across approximately 47 money market funds, including 17 government, 10 prime and 20 municipal with assets approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $3 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. Federated's service to financial professionals and institutions has earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for service quality measurement. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (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 rate `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. MOODYS 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 SERVICES, INC. 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. 1784 FUNDS ----------------- MONEY MARKET FUNDS 1784 U.S. Treasury Money Market Fund 1784 Prime Money Market Fund 1784 Tax-Free Money Market Fund 1784 Institutional U.S. Treasury Money Market Fund BOND FUNDS 1784 U.S. Government Medium-Term Income Fund 1784 Short-Term Income Fund 1784 Income Fund TAX-EXEMPT INCOME FUNDS 1784 Tax-Exempt Medium-Term Income Fund 1784 Connecticut Tax-Exempt Income Fund 1784 Florida Tax-Exempt Income Fund 1784 Massachusetts Tax-Exempt Income Fund 1784 Rhode Island Tax-Exempt Income Fund STOCK FUNDS 1784 Asset Allocation Fund 1784 Growth and Income Fund 1784 Growth Fund 1784 International Equity Fund For more information, call 1-800-252-1784. [LOGO] SOUND CHOICES, STRAIGHT TALK, INVESTMENT MANAGEMENT STRENGTH. FEDERATED SECURITEIS CORP. - ---------------------------- Distributor December 31, 1996 Cusip 314229835 G00507-01 (12/96) BKB F-040-01 REV 12/96 MASSACHUSETTS MUNICIPAL CASH TRUST 1784 Funds Shares [LOGO] -------------- PROSPECTUS -------------- OCTOBER 31, 1996 MASSACHUSETTS MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) 1784 FUNDS SHARES (FORMERLY, BAYFUNDS SHARES) PROSPECTUS The 1784 Funds Shares of Massachusetts Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a investment portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Massachusetts municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Massachusetts or its political subdivisions and financing authorities, but which are exempt from the federal regular income tax and Massachusetts state income tax. Shareholders can invest, reinvest, or redeem 1784 Funds Shares at any time with no sales loads or contingent deferred sales charges imposed by the Fund. Shareholders have access to other portfolios in The 1784 Funds. THE 1784 FUNDS SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF THE FIRST NATIONAL BANK OF BOSTON (BANK OF BOSTON) OR ITS AFFILIATES OR SUBSIDIARIES, ARE NOT ENDORSED OR GUARANTEED BY THE FIRST NATIONAL BANK OF BOSTON (BANK OF BOSTON) OR ITS AFFILIATES OR SUBSIDIARIES, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTING IN THESE SHARES INVOLVES INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in 1784 Funds Shares. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information for 1784 Funds Shares dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Informationor a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-252-1784. To obtain other information or to make inquiries about the Fund, contact the Fund at the address listed at the back of this prospectus. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS Summary of Fund Expenses...................................................... 1 Financial Highlights--1784 Funds Shares....................................... 2 General Information........................................................... 3 Investment Information........................................................ 4 Investment Objective and Policies........................................... 4 Acceptable Investments...................................................... 4 Massachusetts Municipal Securities.......................................... 6 Massachusetts Investment Risks.............................................. 6 Investment Limitations...................................................... 7 Shareholder Manual............................................................ 8 Pricing of Shares........................................................... 8 How to Buy Shares........................................................... 8 Automatic Investment Program................................................ 9 How to Exchange Shares......................................................10 How to Redeem Shares........................................................11 Additional Information You Should Know........................................13 Tax Information.............................................................13 Performance Information.....................................................14 Tax-Equivalency Table.......................................................15 Management, Distribution and Administration...........................................................15 Investment Adviser..........................................................16 Distribution................................................................17 Administration..............................................................17 Other Classes of Shares.....................................................18 Financial Highlights--Institutional Service Shares......................................................................19 Financial Statements..........................................................20 Report of Independent Public Accountants......................................32 Addresses......................................................Inside Back Cover - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES MASSACHUSETTS MUNICIPAL CASH TRUST 1784 FUNDS SHARES (FORMERLY, BAYFUNDS SHARES) SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................ None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)........................................................................ None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)...................................................... None Redemption Fee (as a percentage of amount redeemed, if applicable)........................................... None Exchange Fee................................................................................................. None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)............................................................................ 0.33% 12b-1 Fee.................................................................................................... None Total Other Expenses......................................................................................... 0.25% Shareholder Services Fee (after waiver) (2).................................................. 0.00% Total Operating Expenses (3)....................................................................... 0.58%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50% (2) The shareholder services fee has been reduced to reflect the voluntary waiver of the shareholder services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (3) The Total Operating Expenses would have been 1.00% absent the voluntary waiver of a portion of the management fee and the voluntary waiver of the shareholder services fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of 1784 Funds Shares of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period........................................................................... $6 $19 $32 $73
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS--1784 FUNDS SHARES (FORMERLY, BAYFUNDS SHARES) MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 32.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------------------------------------------- Net investment income 0.03 0.03 0.02 0.01 LESS DISTRIBUTIONS - --------------------------------------------------------------------------- Distributions from net investment income (0.03) (0.03) (0.02) 0.01) - --------------------------------------------------------------------------- --------- --------- --------- ---------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------------------------------------------------------------------- --------- --------- --------- ---------- TOTAL RETURN (b) 3.05% 3.30% 2.05% 1.25% - --------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------------------------------------- Expenses 0.58% 0.60% 0.64% 0.65%* - --------------------------------------------------------------------------- Net investment income 3.01% 3.25% 2.09% 1.85%* - --------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.42% 0.45% 0.35% 0.43%* - --------------------------------------------------------------------------- SUPPLEMENTAL DATA - --------------------------------------------------------------------------- Net assets, end of period (000 omitted) $54,667 $46,580 $41,912 $18,143 - ---------------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from March 8, 1993 (date of initial public investment) to October 31, 1993. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- GENERAL INFORMATION As a shareholder of the 1784 Funds Shares class (the "Shares") of the Fund, you have access to all of the portfolios of The 1784 Funds, an open-end, management investment company. The 1784 Funds consists of fifteen separate, professionally managed investment portfolios with distinct investment objectives and policies. As of the date of this prospectus, 1784 Funds offers shares in fifteen portfolios: MONEY MARKET FUNDS 1784 U.S. TREASURY MONEY MARKET FUND; 1784 PRIME MONEY MARKET FUND; and 1784 INSTITUTIONAL U.S. TREASURY MONEY MARKET FUND seek to preserve principal value and maintain a high degree of liquidity while providing current income. 1784 TAX-FREE MONEY MARKET FUND seeks to preserve principal value and maintain a high degree of liquidity while providing current income exempt from federal income tax. These MONEY MARKET FUNDS are designed for conservative investors who want liquidity, current income at money market rates and stability of principal. BOND FUNDS 1784 U.S. GOVERNMENT MEDIUM-TERM INCOME FUND seeks to provide current income consistent with preservation of capital. 1784 SHORT-TERM INCOME FUND; and 1784 INCOME FUND seek to maximize current income. Preservation of capital is a secondary objective. These BOND FUNDS are designed for investors seeking current income. TAX-EXEMPT FUNDS 1784 TAX-EXEMPT MEDIUM-TERM INCOME FUND seeks to provide current income, exempt from federal income tax, consistent with preservation of capital. 1784 CONNECTICUT TAX-EXEMPT INCOME FUND seeks to provide current income exempt from both federal and Connecticut personal income tax. Preservation of capital is a secondary objective. 1784 MASSACHUSETTS TAX-EXEMPT INCOME FUND seeks to provide current income exempt from both federal and Massachusetts personal income tax consistent with preservation of capital. 1784 RHODE ISLAND TAX-EXEMPT INCOME FUND seeks to provide current income exempt from federal income tax, Rhode Island personal income tax and Rhode Island business corporation tax. Preservation of capital is a secondary objective. These TAX-EXEMPT FUNDS are designed for investors seeking income that is exempt from federal income tax, and who are seeking exemption from certain state taxes in Connecticut, Massachusetts and Rhode Island. STOCK FUNDS 1784 ASSET ALLOCATION FUND seeks to achieve a favorable rate of return through current income and capital appreciation consistent with preservation of capital, derived from investing in fixed income and equity securities. 1784 GROWTH AND INCOME FUND seeks to provide long-term growth of capital with a secondary objective of income. 1784 GROWTH FUND seeks to provide capital appreciation. Dividend income, if any, is incidental to this objective. 1784 INTERNATIONAL EQUITY FUND seeks to provide long-term growth of capital. Dividend income, if any, is incidental to this objective. These STOCK FUNDS are designed for long-term investors seeking high long-term returns who can tolerate changes in the value of their investments. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- INVESTMENT INFORMATION INVESTMENT OBJECTIVE AND POLICIES The investment objective of the Fund is to provide current income which is exempt from federal regular income tax, and Massachusetts state income tax consistent with stability of principal. The investment objective cannot be changed without approval of shareholders. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. Interest income of the Fund that is exempt from the income taxes described above retains its tax-free status when distributed to the Fund's shareholders. However, income distributed by the Fund may not necessarily be exempt from state or municipal taxes in states other than Massachusetts. The Fund pursues its investment objective by investing primarily in a portfolio of Massachusetts municipal securities with remaining maturities of 13 months or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Massachusetts state income tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the investment policies may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material changes in these policies become effective. ACCEPTABLE INVESTMENTS The Fund invests primarily in debt obligations issued by or on behalf of Massachusetts and its political subdivisions and financing authorities, and obligations of other states, territories and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Massachusetts state income tax ("Massachusetts Municipal Securities"). Examples of Massachusetts municipal securities include, but are not limited to: tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; municipal commercial paper and other short-term notes; variable rate demand notes; municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and participation, trust and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days' prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS The Fund may purchase interests in Massachusetts Municipal Securities from financial institutions such as commercial and investment banks, savings associations and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Massachusetts Municipal Securities. MUNICIPAL LEASES Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest on any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities or another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. TEMPORARY INVESTMENTS From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other depository institution having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Massachusetts Municipal Securities is subject to the federal alternative minimum tax. MASSACHUSETTS MUNICIPAL SECURITIES Massachusetts Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Massachusetts Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Massachusetts Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. MASSACHUSETTS INVESTMENT RISKS Yields on Massachusetts Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Massachusetts Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Massachusetts Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Massachusetts Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Massachusetts Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Massachusetts Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations, the Fund's concentration in Massachusetts Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 15% of the value of total assets to secure such borrowings. The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933. These investment limitations cannot be changed without shareholder approval. The following limitation may be changed without shareholder approval. The Fund will not invest more than 10% of the value of its net assets in illiquid securities including repurchase agreements providing for settlement in more than seven days after notice. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SHAREHOLDER MANUAL PRICING OF SHARES The Fund attempts to stabilize the net asset value of its Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to shares from the value of Fund assets attributable to shares, and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per Share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. The Fund offers Shares only on days on which the New York Stock Exchange and the Federal Reserve Bank of Boston are open for business ("Business Days"). If BayBank Systems, Inc. (the "Shareholder Servicing Agent") receives your purchase order on a non-Business Day, the order will not be executed until the next Business Day in accordance with the Distributor's procedures. The Fund and the Distributor reserve the right to reject any purchase request. HOW TO BUY SHARES MINIMUM INVESTMENT You can become a shareholder with an initial investment of $1,000. You must submit a completed application at the time of your initial purchase. Subsequent investments must be in amounts of at least $250, or if you participate in the automatic investment program, the minimum for additional Share purchases is $50. The Fund may waive any investment minimums from time to time. In addition, the Fund may reduce or waive investment minimums for investors purchasing through qualified BayBanks/ Bank of Boston accounts. If your purchase order is received in good order and accepted by the Fund from Federated Shareholder Services Company (the "Transfer Agent") by 1:00 p.m. (Eastern time) on a Business Day, it will be executed at the net asset value next determined and your Shares will begin earning dividends that day. The Transfer Agent will not communicate your purchase order to the Fund until the Shareholder Servicing Agent has received the purchase price in federal funds or other immediately available funds. If your purchase order is received in good order and accepted by the Fund from the Transfer Agent after 1:00 p.m. (Eastern time), and prior to 4:00 p.m. (Eastern time), it will be executed at the net asset value next determined and Shares will begin earning dividends the next Business Day. When you purchase Shares by check, the order is considered received when the check is converted into federal funds, normally within two Business Days. The Shareholder Servicing Agent is responsible for the prompt transmission of purchase orders received in good order to the Transfer Agent. BY PHONE Once you are a shareholder, you may purchase additional Shares by calling 1-800-252-1784. You must have previously authorized the Fund in writing to accept telephone requests. If you have not done so, call 1-800-252-1784 to receive the necessary form and information on this Fund feature. The Fund uses reasonable procedures (including a shareholder identity test and sending a written confirmation of each telephone transaction) to confirm that instructions given by telephone are genuine. However, the Fund is not responsible for the authenticity of telephone instructions or for any losses caused by fraudulent or unauthorized telephone instructions if the Fund reasonably believed that the instructions were genuine. The establishment of certain types of deposit account relationships with BayBanks/Bank of Boston may permit the direct deduction of your purchase price from your BayBanks/Bank of Boston deposit account. Please call 1-800-252-1784 to determine whether your BayBanks/Bank of Boston deposit account qualifies. For the protection of investors, all phone communications may be recorded where not otherwise prohibited by law. BY MAIL If you make your initial Share purchase by mail, you must send a completed application, and a check payable to the Fund, to: 1784 Funds P.O. Box 8524 Boston, MA 02266-8524 You may obtain an application by calling 1-800-252-1784. You may make subsequent investments in the Fund at any time by sending a check for a minimum of $250 payable to the Fund at the following address: 1784 Funds P.O. Box 8524 Boston, MA 02266-8524 along with either (a) the detachable form that regularly accompanies confirmation of a prior transaction, (b) a subsequent investment form that may be enclosed in the Fund mailing or can be obtained by calling 1-800-252-1784, or (c) a letter stating the amount of the investment, the name of the Fund, the exact name and address of the account, and your account number. If the check does not clear, your purchase order will be cancelled. BY WIRE Purchases may also be made by wiring money from your bank account to your Fund account. Call 1-800-252-1784 to receive wiring instructions. Shares cannot be purchased by wire on days on which the New York Stock Exchange and the Federal Reserve Wire System are not open for business and on the following holidays: Martin Luther King Day, Columbus Day, or Veterans' Day. THROUGH BAYBANKS/BANK OF BOSTON OFFICES You may place an order to purchase Shares in person through designated BayBanks/Bank of Boston offices. Purchase orders placed through BayBanks/Bank of Boston offices typically would be received by the Transfer Agent within two Business Days. If you want more prompt processing, you should consider another method, such as by phone as described above. AUTOMATIC INVESTMENT PROGRAM When you participate in the automatic investment program, you can purchase additional Shares in minimum amounts of $50. You must previously have authorized in writing the total dollar amount to be deducted automatically from eligible BayBanks/Bank of Boston deposit accounts or your deposit account maintained at a domestic financial institution which is an automated clearing house member, and the frequency of the deductions. The funds will be invested in Shares at the net asset value next determined. The Fund may reduce or waive the investment minimums for investors purchasing through qualified BayBanks/Bank of Boston accounts. HOW TO EXCHANGE SHARES 1784 Funds consist of: 1784 U.S. Treasury Money Market Fund, 1784 Prime Money Market Fund, 1784 Institutional U.S. Treasury Money Market Fund, 1784 Tax-Free Money Market Fund, 1784 Government Medium-Term Income Fund, 1784 Short-Term Income Fund, 1784 Income Fund, 1784 Tax-Exempt Medium Term Income Fund, 1784 Connecticut Tax-Exempt Income Fund, 1784 Massachusetts Tax-Exempt Income Fund, 1784 Rhode Island Tax-Exempt Income Fund, 1784 Asset Allocation Fund, 1784 Growth and Income Fund, 1784 Growth Fund, and 1784 International Equity Fund. You may redeem Shares and purchase shares of any other of the 1784 Funds ("Participating Funds") in which you have an account. The minimum initial investment to establish an account in any other Participating Fund is $1,000 ($100,000 for 1784 Institutional U.S. Treasury Money Market Fund). 1784 Funds do not charge any fees for these transactions. Shares will be redeemed at the net asset value next determined after the Transfer Agent receives the redemption request and Shares of the Participating Fund to be acquired will be purchased at the net asset value per share next determined after receipt of the redemption proceeds by the Transfer Agent for the acquired fund on a Business Day. If you do not have an account in the Participating Fund whose shares you want to acquire, you must establish an account. Prior to any such transaction, you must receive a copy of the current prospectus of the Participating Fund into which a purchase is to be effected. This account will be registered in the same name and you will receive your dividends and distributions as an automatic reinvestment in additional shares. If the new account registration (name, address, and taxpayer identification number) is not identical to your existing account, please call 1-800-252-1784 for the necessary new account or transfer procedures. You may find this privilege useful if your investment objectives or market outlook should change after you invest in the Fund or in any of the Participating Funds. You may obtain further information on this privilege and obtain a prospectus by calling 1-800-252-1784. The exchange privilege is available to shareholders resident in any state in which Participating Funds' shares being acquired may be sold. 1784 Funds reserves the right to terminate this privilege at any time. Shareholders will be notified if this privilege is terminated. Depending on the circumstances, an exchange with a fluctuating net asset value Participating Fund may generate a short-term or long-term capital gain or loss for federal income tax purposes. BY PHONE You may provide instructions to redeem Shares and purchase shares of any Participating Funds by calling 1-800-252-1784. You must have previously authorized the Fund in writing to accept telephone requests. If you have not done so, call 1-800-252-1784 to receive the necessary form and information on this Fund feature. The Fund uses reasonable procedures (including a shareholder identity test and sending a written confirmation of each telephone transaction) to confirm that instructions given by telephone are genuine. However, the Fund is not responsible for the authenticity of telephone instructions or for any losses caused by fraudulent or unauthorized telephone instructions if the Fund reasonably believed that the instructions were genuine. BY MAIL You may send a written request to redeem Shares and purchase shares of any Participating Funds to: 1784 Funds P.O. Box 8524 Boston, MA 02266-8524 Your written request must include your name and tax identification number; the name of the Fund, the dollar amount or number of Shares to be redeemed; the name of the Participating Fund in which shares are to be purchased; and your account number. Your request must be signed by the registered owner(s) exactly as required by the account application. THROUGH BAYBANKS/BANK OF BOSTON OFFICES You may place an order to redeem Shares and purchase shares of any Participating Funds in person through designated BayBanks/Bank of Boston offices. Orders received through designated BayBanks/ Bank of Boston offices typically would be received by the Transfer Agent within two Business Days. For more prompt processing, you should consider another method, such as exchanging shares by phone as described above. HOW TO REDEEM SHARES The Fund redeems Shares at the net asset value next determined after the Fund has received your redemption request from the Transfer Agent in proper form. Redemption requests can be executed only on Business Days. If your redemption request is received by the Shareholder Servicing Agent on a non-Business Day, the Transfer Agent will not communicate your redemption request to the Fund until the next Business Day. Redemption proceeds may be credited to an eligible BayBanks/Bank of Boston deposit account, paid by check, or paid by wire, as you previously designated in writing. The Fund ordinarily will make payment for Shares redeemed after proper receipt from the Transfer Agent of the redemption request and of all documents in proper form within one Business Day to an eligible BayBanks/Bank of Boston deposit account, within five Business Days if you requested redemption proceeds by check, or the same day by wire if the Fund receives your redemption request from the Transfer Agent by 12:00 noon (Eastern time) on the day of redemption. There is a fee for each wire and your bank may charge an additional fee to receive the wire. Shares redeemed and wired the same day will not receive the dividend declared on the day of redemption. SIGNATURE GUARANTEES If you request a redemption for an amount in excess of $25,000 (no limitation if the proceeds are being credited to your BayBanks/Bank of Boston deposit account), a redemption of any amount to be sent to an address other than your address of record with the Fund, the transfer of the registration of Shares, or a redemption of any amount payable to someone other than yourself as the shareholder of record, your signature must be guaranteed on a written redemption request by a trust company or insured commercial bank; an insured savings association or savings bank; a member firm of a national or regional stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. At the Fund's discretion, signature guarantees may also be required for other redemptions. The Transfer Agent has adopted standards for accepting signature guarantees from the above institutions. The Fund may elect in the future to limit eligible signature guarantors to institutions that are members of a signature guarantee program. The Fund does not accept signatures guaranteed by a notary public. The Fund and the Transfer Agent reserve the right to amend these standards at any time without notice. If you have a question about the proper form for redemption requests, call 1-800-252-1784. BY PHONE You may redeem Shares by calling 1-800-252-1784. You must have previously authorized the Fund in writing to accept telephone requests. If you have not done so, call 1-800-252-1784 to receive the necessary form. In the event of drastic economic or market changes, you may experience difficulty in redeeming by telephone. If this occurs, you should consider another method of redemption, such as by mail or by wire. See below. The Fund uses reasonable procedures (including a shareholder identity test and sending a written confirmation of each telephone transaction) to confirm that instructions given by telephone are genuine. However, the Fund is not responsible for the authenticity of telephone instructions or for any losses caused by fraudulent or unauthorized telephone instructions if the Fund reasonably believed that the instructions were genuine. BY MAIL You may redeem Shares by submitting a written request for redemption to: 1784 Funds P.O. Box 8524 Boston, MA 02266-8524 Your written request must include your name and tax identification number, the Fund's name, the dollar amount or number of Shares to be redeemed, and your account number. Your request must be signed by the registered owner(s) exactly as required by the account application. BY WIRE You may redeem Shares by wire by calling 1-800-252-1784. Redemption proceeds will be wired directly to the domestic commercial bank and account you previously designated in writing. You are charged a fee for each wire redemption and the fee is deducted from your redemption proceeds. The Fund reserves the right to wire redemption proceeds within seven days after receiving the redemption order if, in its judgment, an earlier payment could adversely affect the Fund. The Fund also reserves the right to terminate or modify the telephone and wire redemption procedures at any time. In that event, shareholders would be promptly notified. Neither the Fund, the Transfer Agent, the Sub-Transfer Agent, nor the Shareholder Servicing Agent will be responsible for the authenticity of redemption instructions received by phone. THROUGH BAYBANKS/BANK OF BOSTON OFFICES You may place an order to redeem Shares in person through designated BayBanks/Bank of Boston offices. Redemption orders received through designated BayBanks/Bank of Boston offices typically would be received by the Transfer Agent within two Business Days. For more prompt processing, you should consider another method, such as by phone as described above. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ADDITIONAL INFORMATION YOU SHOULD KNOW MINIMUM BALANCE Due to the high cost of maintaining accounts with low balances, the Fund may redeem your Shares and send you the proceeds if, due to shareholder redemptions your account balance falls below a minimum value of $1,000. However, before Shares are redeemed to close an account, the shareholder will be notified in writing and given 60 days to purchase additional Shares to meet the minimum balance requirement. The Fund reserves the right to amend this standard upon 60 days' prior written notice to shareholders. The Fund also reserves the right to redeem Shares involuntarily or make payment for redemptions in the form of securities if it appears appropriate to do so in light of the Fund's responsibilities under the Investment Company Act of 1940. CONFIRMATIONS AND STATEMENTS Confirmations of each purchase, exchange or redemption are sent to each shareholder. Monthly statements are sent to report transactions as well as dividends paid during the month. The Fund may suspend or terminate its practice of confirming each transaction at any time without notice. DIVIDENDS AND DISTRIBUTIONS Dividends from the Fund's net investment income are declared daily to shareholders of record immediately following the 1:00 p.m. (Eastern time) pricing of Shares. Dividends are paid monthly within five Business Days after the end of such calendar month. The Fund does not expect to realize any net long-term capital gains. However, if any such gains are realized, they will be distributed to shareholders at least annually. You will receive your dividends and your distributions as an automatic reinvestment in additional Shares at the net asset value next determined on the payment dates. TAX INFORMATION FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. MASSACHUSETTS TAXES Under existing Massachusetts laws, distributions made by the Fund will not be subject to Massachusetts personal income taxes to the extent that such dividends qualify as exempt interest dividends under the Internal Revenue Code, and represent (i) interest or gain on obligations issued by the Commonwealth of Massachusetts, its political subdivisions or agencies; or (ii) interest on obligations of the United States, its territories or possessions to the extent exempt from taxation by the states pursuant to federal law. Conversely, to the extent that the distributions made by the Fund are derived from other types of obligations, such dividends will be subject to Massachusetts personal income taxes. Shareholders subject to the Massachusetts corporate excise tax must include all dividends paid by the Fund in their net income, and the value of their shares of stock in the Fund in their net worth, when computing the Massachusetts excise tax. OTHER STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Massachusetts. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. PERFORMANCE INFORMATION From time to time, in advertisements or in reports to shareholders, the performance, total return and yield of the Fund may be quoted and compared to those of other mutual funds with similar investment objectives and to relevant money market indices or to rankings prepared by independent services or other financial or industry publications that monitor the performance of mutual funds. For example, the performance of the Fund may be compared to data prepared by Lipper Analytical Services, Inc., a widely recognized independent service which monitors the performance of mutual funds. National financial publications in which performance and yield data are reported may include The Wall Street Journal, The New York Times, Forbes, or Money magazine. Publications of a local or regional nature, such as The Boston Globe or The Boston Herald, may also be used in comparing the performance, total return and yield of the Fund. YIELD Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on the investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield but, when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. TAX-EQUIVALENT YIELD The tax-equivalent yield for the Fund is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 39.6% federal tax rate and the 12% regular personal income tax rate imposed by Massachusetts and assuming that income earned by the Fund is 100% tax-exempt on a regular federal, state, and local basis. For the seven day periods ended October 31, 1996, and November 30, 1996, the tax-equivalent yields for 1784 Funds Shares were 6.16% and 6.16%, respectively TOTAL RETURN Total return represents the change, over a specified period of time, in the value of an investment in the Shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. Yield, effective yield, tax-equivalent yield and total return will be calculated separately for 1784 Funds Shares and Institutional Service Shares. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax*, and is often free from state and local taxes as well. As the table below indicates, a "tax-free" investment is an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1996 STATE OF MASSACHUSETTS - ---------------------------------------------------------------------------- TAX BRACKET: FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60% COMBINED FEDERAL AND STATE 27.00% 40.00% 43.00% 48.00% 51.60% - ---------------------------------------------------------------------------- JOINT $1- $ 40,101- $ 96,901- $ 147,701- Over RETURN: 40,100 96,900 147,700 263,750 $ 263,750 SINGLE $1- $ 24,001- $ 58,151- $ 121,301- Over RETURN: 24,000 58,150 121,300 263,750 $ 263,750 - ---------------------------------------------------------------------------- TAX- TAXABLE EXEMPT YIELD YIELD EQUIVALENT - ---------------------------------------------------------------------------- 1.50% 2.05% 2.50% 2.63% 2.88% 3.10% 2.00 2.74 3.33 3.51 3.85 4.13 2.50 3.42 4.17 4.39 4.81 5.17 3.00 4.11 5.00 5.26 5.77 6.20 3.50 4.79 5.83 6.14 6.73 7.23 4.00 5.48 6.67 7.02 7.69 8.26 4.50 6.16 7.50 7.89 8.65 9.30 5.00 6.85 8.33 8.77 9.62 10.33 5.50 7.53 9.17 9.65 10.58 11.36 6.00 8.22 10.00 10.53 11.54 12.40
Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart is for illustrative purposes only. It is not an indicator of past or future performance of Fund shares. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local income taxes. MANAGEMENT, DISTRIBUTION AND ADMINISTRATION The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees ("Trustees") has established two classes of shares, 1784 Funds Shares and Institutional Service Shares. This prospectus relates only to 1784 Funds Shares of the Fund which are designed primarily for individuals, partnerships and corporations who seek a convenient means of accumulating an interest in a professionally managed portfolio limited to short-term Massachusetts municipal securities. The Fund is not likely to be a suitable investment for non-Massachusetts taxpayers or retirement plans since it intends to invest primarily in Massachusetts municipal securities. VOTING RIGHTS Each Share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. As of December 2, 1996, John & Co., Burlington, Massachusetts, acting in various capacities for numerous accounts, was the owner of record of 100% of the 1784 Funds shares of the Fund, and therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for the election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting of the shareholders shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. The Trust is managed by a Board of Trustees. The Trustees are responsible for managing the business affairs of the Trust and for exercising all of the powers of the Trust except those reserved for the shareholders. An Executive Committee handles the Trustees' responsibilities between meetings of the Trustees. INVESTMENT ADVISER Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase or sale of portfolio instruments. ADVISORY FEES The adviser receives an annual investment advisory fee equal to .50% of the Fund's average daily net assets. The Adviser may voluntarily waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND Federated Management, a Delaware business trust organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. Both the Fund and the Adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of employees' own interest. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION Federated Securities Corp. is the principal distributor (the "Distributor") for the Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICING ARRANGEMENTS The Distributor may pay financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide certain services to shareholders. These services may include, but are not limited to, distributing prospectuses and other information, providing accounting assistance, and communicating or facilitating purchases and redemptions of shares. Any fees paid for these services by the Distributor will be reimbursed by the Adviser and not the Fund. The Glass-Steagall Act prohibits a depository institution (such as a commercial bank or a savings and loan association) from being an underwriter or distributor of most securities. In the event the Glass-Steagall Act is deemed to prohibit depository institutions from acting in the administrative capacities described above or should Congress relax current restrictions on depository institutions, the Trustees will consider appropriate changes in the administrative services. ADMINISTRATION ADMINISTRATIVE SERVICES Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE ADMINISTRATIVE FEE DAILY NET ASSETS .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. SHAREHOLDER SERVICING AGENT BayBank Systems, Inc., Waltham, Massachusetts, is the shareholder servicing agent for 1784 Funds Shares. The Fund may pay the Shareholder Servicing Agent a fee based on the average daily net asset value of Shares for which it provides shareholder services. These shareholder services include, but are not limited to, distributing prospectuses and other information, providing shareholder assistance and communicating or facilitating purchases and redemptions of Shares. This fee will be equal to .25% of the Fund's average daily net assets for which the Shareholder Servicing Agent provides services; however, the Shareholder Servicing Agent may choose voluntarily to waive all or a portion of its fee at any time. OTHER CLASSES OF SHARES The Fund also offers another class of shares called Institutional Service Shares. Institutional Service Shares are sold to accounts for which financial institutions act in an agency capacity. Investments in Institutional Service Shares are subject to a minimum initial investment of $25,000. Institutional Service Shares are sold at net asset value. Instututional Service Shares and 1784 Funds Shares are subject to certain of the same expenses. Institutional Service Shares are distributed with no 12b-1 fees but are subject to shareholder services fees. Expense differences, however, between Institutional Service Shares and 1784 Funds Shares may affect the performance of each class. To obtain more information and a prospectus for Institutional Service Shares, investors may call 1-800-341-7400. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES MASSACHUSETTS MUNICIPAL CASH TRUST (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 32.
YEAR ENDED OCTOBER 31, 1996 1995 1994 1993 1992 1991 1990(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00$ 1.00 - ------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------- Net investment income 0.03 0.03 0.02 0.02 0.03 0.05 0.03 - ------------------------------------------------- LESS DISTRIBUTIONS - ------------------------------------------------- Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.05)(0.03) - ------------------------------------------------- --------- --------- --------- --------- --------- - ----------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------- --------- --------- --------- --------- --------- -------------- TOTAL RETURN (B) 3.07% 3.34% 2.14% 1.99% 2.87% 4.63% 2.59% - ------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------- Expenses 0.55% 0.55% 0.55% 0.53% 0.34% 0.30% 0.17%* - ------------------------------------------------- Net investment income 3.02% 3.30% 2.12% 1.97% 2.82% 4.48% 5.66%* - ------------------------------------------------- Expense waiver/reimbursement (c) 0.42% 0.45% 0.35% 0.43% 0.55% 0.69% 0.57%* - ------------------------------------------------- SUPPLEMENTAL DATA - ------------------------------------------------- Net assets, end of period (000 omitted) $119,739 $99,628 $90,013 $84,524 $85,570 $81,681$63,483 - -------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from May 18, 1990 (date of initial public investment) to October 31, 1990. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ------------------------------------------------------------------------------------- -------------- (a) SHORT-TERM MUNICIPALS--99.3% - ---------------------------------------------------------------------------------------------------- MASSACHUSETTS--95.6% -------------------------------------------------------------------------------------- $ 2,000,000 Attleboro, MA, 3.50% BANs, 2/6/1997 $ 2,000,513 -------------------------------------------------------------------------------------- 2,000,000 Boston, MA Water & Sewer Commission, General Revenue Bonds (1994 Series A) Weekly VRDNs (State Street Bank and Trust Co. LOC) 2,000,000 -------------------------------------------------------------------------------------- 5,000,000 (b) Clipper, MA Tax Exempt Trust Weekly VRDNs (State Street Bank and Trust Co. LIQ) 5,000,000 -------------------------------------------------------------------------------------- 3,465,000 (b) Clipper, MA Tax Exempt Trust, (Series 1993-1) Weekly VRDNs (State Street Bank and Trust Co. LIQ) 3,465,000 -------------------------------------------------------------------------------------- 3,000,000 Commonwealth of Massachusetts Weekly VRDNs (AMBAC INS)/ (Citibank NA, New York LIQ) 3,000,000 -------------------------------------------------------------------------------------- 1,645,000 Commonwealth of Massachusetts, (Series B), 5.00% Bonds, 6/1/1997 1,656,134 -------------------------------------------------------------------------------------- 3,200,000 Framingham, MA IDA Weekly VRDNs (Perini Corp)/(Barclays Bank PLC, London LOC) 3,200,000 -------------------------------------------------------------------------------------- 2,500,000 Gardner, MA, 4.00% BANs, 4/1/1997 2,501,986 -------------------------------------------------------------------------------------- 4,300,000 Hingham, MA, 3.75% BANs, 12/20/1996 4,300,671 -------------------------------------------------------------------------------------- 3,925,000 Mashpee, MA, 4.00% BANs, 2/7/1997 3,929,061 -------------------------------------------------------------------------------------- 8,200,000 Massachusetts Bay Transit Authority, (Series C), 3.55% CP (Westdeutsche Landesbank Girozentrale LOC), Mandatory Tender 11/22/1996 8,200,000 -------------------------------------------------------------------------------------- 700,000 Massachusetts HEFA Weekly VRDNs (Harvard University) 700,000 -------------------------------------------------------------------------------------- 6,800,000 Massachusetts HEFA, (Series A) Weekly VRDNs (Brigham & Women's Hospital)/(Sanwa Bank Ltd, Osaka LOC) 6,800,000 -------------------------------------------------------------------------------------- 2,200,000 Massachusetts HEFA, (Series A) Weekly VRDNs (Endicott College)/ (Baybank, Burlington, MA LOC) 2,200,000 -------------------------------------------------------------------------------------- 3,320,000 Massachusetts HEFA, (Series A) Weekly VRDNs (New England Home For Little Wanderers)/(First National Bank of Boston, MA LOC) 3,320,000 -------------------------------------------------------------------------------------- 2,600,000 Massachusetts HEFA, (Series B) Weekly VRDNs (Clark University)/ (Sanwa Bank Ltd, Osaka LOC) 2,600,000 -------------------------------------------------------------------------------------- 2,300,000 Massachusetts HEFA, (Series E) Weekly VRDNs (Williams College, MA) 2,300,000 --------------------------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ------------------------------------------------------------------------------------ -------------- (a) SHORT-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------------------------------------- MASSACHUSETTS--CONTINUED -------------------------------------------------------------------------------------- $ 7,200,000 Massachusetts HEFA, (Series F) Weekly VRDNs (Children's Hospital of Boston) $ 7,200,000 -------------------------------------------------------------------------------------- 5,500,000 Massachusetts HEFA, (Series G) Weekly VRDNs (Massachusetts Institute of Technology) 5,500,000 -------------------------------------------------------------------------------------- 5,000,000 Massachusetts HEFA, 3.65% CP (Harvard University), Mandatory Tender 1/8/1997 5,000,000 -------------------------------------------------------------------------------------- 500,000 Massachusetts IFA Weekly VRDNs (Berkshire, MA School)/(National Westminster Bank, PLC, London LOC) 500,000 -------------------------------------------------------------------------------------- 1,300,000 Massachusetts IFA Weekly VRDNs (Groton School)/(National Westminster Bank, PLC, London LOC) 1,300,000 -------------------------------------------------------------------------------------- 1,350,000 Massachusetts IFA Weekly VRDNs (Kendall Square Entity)/ (State Street Bank and Trust Co. LOC) 1,350,000 -------------------------------------------------------------------------------------- 1,910,000 Massachusetts IFA, (1995 Series A) Weekly VRDNs (Bradford College Issue)/(First National Bank of Boston, MA LOC) 1,910,000 -------------------------------------------------------------------------------------- 300,000 Massachusetts IFA, (Series 1992) Weekly VRDNs (Holyoke Water Power Co.)/(Canadian Imperial Bank of Commerce, Toronto LOC) 300,000 -------------------------------------------------------------------------------------- 2,000,000 Massachusetts IFA, (Series 1992A) Weekly VRDNs (Ogden Haverhill)/ (Union Bank of Switzerland, Zurich LOC) 2,000,000 -------------------------------------------------------------------------------------- 5,000,000 Massachusetts IFA, (Series 1992B), 3.60% CP (New England Power Co.), Mandatory Tender 1/13/1997 5,000,000 -------------------------------------------------------------------------------------- 3,000,000 Massachusetts IFA, (Series 1992B), 3.70% CP (New England Power Co.), Mandatory Tender 12/11/1996 3,000,000 -------------------------------------------------------------------------------------- 5,000,000 Massachusetts IFA, (Series 1993A), 3.60% CP (New England Power Co.), Mandatory Tender 1/10/1997 5,000,000 -------------------------------------------------------------------------------------- 5,000,000 Massachusetts IFA, (Series 1995) Weekly VRDNs (Goddard House)/ (Fleet Bank of New York LOC) 5,000,000 -------------------------------------------------------------------------------------- 5,800,000 Massachusetts IFA, (Series 1995) Weekly VRDNs (Whitehead Institute for Biomedical Research) 5,800,000 -------------------------------------------------------------------------------------- 4,000,000 Massachusetts IFA, (Series 1996) Weekly VRDNs (Newbury College)/ (Baybank, Burlington, MA LOC) 4,000,000 -------------------------------------------------------------------------------------- 1,525,000 Massachusetts IFA, (Series A) Weekly VRDNs (Hockomock YMCA)/ (Bank of Nova Scotia, Toronto LOC) 1,525,000 --------------------------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ------------------------------------------------------------------------------------ -------------- (a) SHORT-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------------------------------------- MASSACHUSETTS--CONTINUED -------------------------------------------------------------------------------------- $ 4,000,000 Massachusetts IFA, (Series B) Weekly VRDNs (Williston North Hampton School)/(National Westminster Bank, PLC, London LOC) $ 4,000,000 -------------------------------------------------------------------------------------- 1,495,000 Massachusetts IFA, Museum Revenue Refunding Bonds (1996 Issue), 3.80% Bonds (Museum of Fine Arts, Boston)/(MBIA INS), 1/1/1997 1,496,697 -------------------------------------------------------------------------------------- 2,310,000 Massachusetts IFA, Refunding Revenue Bonds 1994 Project Daily VRDNs (Showa Womens Institute Boston, Inc.)/(Bank of America NT and SA, San Francisco LOC) 2,310,000 -------------------------------------------------------------------------------------- 6,255,000 Massachusetts IFA, Revenue Bonds (Series 1995) Weekly VRDNs (Emerson College Issue)/(Baybank, Burlington, MA LOC) 6,255,000 -------------------------------------------------------------------------------------- 5,000,000 Massachusetts IFA, Revenue Bonds (Series 1995C) Weekly VRDNs (Edgewood Retirement Community Project)/(Dresdner Bank Ag, Frankfurt LOC) 5,000,000 -------------------------------------------------------------------------------------- 1,800,000 Massachusetts Municipal Wholesale Electric Company, Power Supply System Revenue Bonds (1994 Series C) Weekly VRDNs (Canadian Imperial Bank of Commerce, Toronto LOC) 1,800,000 -------------------------------------------------------------------------------------- 4,000,000 Massachusetts State HFA, (Series 50), 3.70% TOBs (Bayerische Landesbank Girozentrale INV), Mandatory Tender 6/2/1997 4,000,000 -------------------------------------------------------------------------------------- 2,500,000 Massachusetts Water Resources Authority, (Series 1994), 3.65% CP (Morgan Guaranty Trust Co., New York LOC), Mandatory Tender 12/11/1996 2,500,000 -------------------------------------------------------------------------------------- 2,000,000 Medway, MA, 4.50% BANs, 6/13/1997 2,008,980 -------------------------------------------------------------------------------------- 757,140 Melrose, MA, 4.09% GANs, 4/8/1997 757,744 -------------------------------------------------------------------------------------- 2,300,000 Melrose, MA, 4.25% BANs, 8/22/1997 2,304,472 -------------------------------------------------------------------------------------- 3,080,000 Middleton, MA, 4.10% BANs, 9/5/1997 3,084,990 -------------------------------------------------------------------------------------- 6,000,000 North Andover, MA, 4.00% BANs, 1/23/1997 6,003,004 -------------------------------------------------------------------------------------- 3,773,100 North Andover, MA, 4.10% BANs, 9/11/1997 3,774,009 -------------------------------------------------------------------------------------- 4,500,000 Springfield, MA , 4.50% BANs (Fleet National Bank, Providence, R.I. LOC), 6/27/1997 4,514,094 -------------------------------------------------------------------------------------- 1,725,000 Stoughton, MA, 3.51% BANs, 1/30/1997 1,725,244 -------------------------------------------------------------------------------------- 2,514,160 Stoughton, MA, 3.75% BANs, 3/7/1997 2,517,093 --------------------------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ------------ ------------------------------------------------------------------------------------ -------------- (a) SHORT-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------------------------------------- MASSACHUSETTS--CONTINUED -------------------------------------------------------------------------------------- $ 1,148,837 Yarmouth, MA, 3.40% RANs, 3/4/1997 $ 1,149,287 -------------------------------------------------------------------------------------- -------------- Total 166,758,979 -------------------------------------------------------------------------------------- -------------- PUERTO RICO--3.7% -------------------------------------------------------------------------------------- 5,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory Tender 2/14/1997 5,000,000 -------------------------------------------------------------------------------------- 1,500,000 Puerto Rico Industrial, Tourist, Education, Medical & Environmental Control Finance Authority, (Series 1994A), 3.80% CP (Inter American University of Puerto Rico)/(Banque Paribas, Paris LOC), Mandatory Tender 12/9/1996 1,500,000 -------------------------------------------------------------------------------------- -------------- Total 6,500,000 -------------------------------------------------------------------------------------- -------------- TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 173,258,979 -------------------------------------------------------------------------------------- --------------
(a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSRO's") 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 & Poors Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are 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 application regulations in determining whether a security is rated and whether a security rated by multiple NRSRO's in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER 97.2% 2.8%
(b) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. At October 31, 1996, these securities amounted to $8,465,000 which represents 4.85% of net assets. (c) Also represents cost for federal tax purposes. MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- Note: The categories of investments are shown as a percentage of net assets ($174,406,321) at October 31, 1996. The following acronyms are used throughout this portfolio: AMBAC--American Municipal Bond Assurance Corporation BANs--Bond Anticipation Notes CP--Commercial Paper GANs--Grant Anticipation Notes HEFA--Health and Education Facilities Authority HFA--Housing Finance Authority IDA--Industrial Development Authority IFA--Industrial Finance Authority INS--Insured INV--Investment Agreement LIQ--Liquidity Agreement LOC--Letter of Credit MBIA--Municipal Bond Investors Assurance PLC--Public Limited Company RANs--Revenue Anticipation Notes SA--Support Agreement TOBs--Tender Option Bonds VRDNs--Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------------------------------ Total investments in securities, at amortized cost and value $ 173,258,979 - ------------------------------------------------------------------------------------------------------ Cash 238,291 - ------------------------------------------------------------------------------------------------------ Income receivable 1,159,659 - ------------------------------------------------------------------------------------------------------ Receivable for shares sold 3,665 - ------------------------------------------------------------------------------------------------------ -------------- Total assets 174,660,594 - ------------------------------------------------------------------------------------------------------ LIABILITIES: - ------------------------------------------------------------------------------------------ Payable for shares redeemed $ 5,151 - ------------------------------------------------------------------------------------------ Income distribution payable 184,990 - ------------------------------------------------------------------------------------------ Payable to transfer agent 23,413 - ------------------------------------------------------------------------------------------ Accrued expenses 40,719 - ------------------------------------------------------------------------------------------ ---------- Total liabilities 254,273 - ------------------------------------------------------------------------------------------------------ -------------- NET ASSETS for 174,406,321 shares outstanding $ 174,406,321 - ------------------------------------------------------------------------------------------------------ -------------- NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------------------------------ INSTITUTIONAL SERVICE SHARES: - ------------------------------------------------------------------------------------------------------ $119,738,845 / 119,738,845 shares outstanding $1.00 - ------------------------------------------------------------------------------------------------------ -------------- 1784 FUNDS SHARES: - ------------------------------------------------------------------------------------------------------ $54,667,476 / 54,667,476 shares outstanding $1.00 - ------------------------------------------------------------------------------------------------------ --------------
(See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - -------------------------------------------------------------------------------------------------------- Interest $ 6,129,748 - -------------------------------------------------------------------------------------------------------- EXPENSES: - ------------------------------------------------------------------------------------------ Investment advisory fee $ 856,487 - ------------------------------------------------------------------------------------------ Administrative personnel and services fee 155,108 - ------------------------------------------------------------------------------------------ Custodian fees 26,446 - ------------------------------------------------------------------------------------------ Transfer and dividend disbursing agent fees and expenses 60,024 - ------------------------------------------------------------------------------------------ Sub-transfer agent fees--1784 Funds Shares 13,090 - ------------------------------------------------------------------------------------------ Directors'/Trustees' fees 2,603 - ------------------------------------------------------------------------------------------ Auditing fees 13,561 - ------------------------------------------------------------------------------------------ Legal fees 4,491 - ------------------------------------------------------------------------------------------ Portfolio accounting fees 59,116 - ------------------------------------------------------------------------------------------ Shareholder services fee--Institutional Service Shares 299,707 - ------------------------------------------------------------------------------------------ Shareholder services fee--1784 Funds Shares 128,514 - ------------------------------------------------------------------------------------------ Share registration costs 42,821 - ------------------------------------------------------------------------------------------ Printing and postage 20,600 - ------------------------------------------------------------------------------------------ Insurance premiums 4,302 - ------------------------------------------------------------------------------------------ Miscellaneous 1,899 - ------------------------------------------------------------------------------------------ ------------ Total expenses 1,688,769 - ------------------------------------------------------------------------------------------ Waivers-- - ----------------------------------------------------------------------------- Waiver of investment advisory fee $ (297,835) - ----------------------------------------------------------------------------- Waiver of shareholder services fee--Institutional Service Shares (299,707) - ----------------------------------------------------------------------------- Waiver of shareholder services fee--1784 Funds Shares (128,514) - ----------------------------------------------------------------------------- ----------- Total waivers (726,056) - ------------------------------------------------------------------------------------------ ------------ Net expenses 962,713 - -------------------------------------------------------------------------------------------------------- ------------ Net investment income $ 5,167,035 - -------------------------------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1996 1995 INCREASE (DECREASE) IN NET ASSETS: - ---------------------------------------------------------------------------------- OPERATIONS-- - ---------------------------------------------------------------------------------- Net investment income $ 5,167,035 $ 4,506,984 - ---------------------------------------------------------------------------------- --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ---------------------------------------------------------------------------------- Distributions from net investment income - ---------------------------------------------------------------------------------- Institutional Service Shares (3,622,277) (3,066,535) - ---------------------------------------------------------------------------------- 1784 Funds Shares (1,544,758) (1,440,449) - ---------------------------------------------------------------------------------- --------------- --------------- Change in net assets resulting from distributions to shareholders (5,167,035) (4,506,984) - ---------------------------------------------------------------------------------- --------------- --------------- SHARE TRANSACTIONS-- - ---------------------------------------------------------------------------------- Proceeds from sale of shares 533,103,977 371,068,422 - ---------------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,757,964 2,255,146 - ---------------------------------------------------------------------------------- Cost of shares redeemed (507,663,326) (359,040,754) - ---------------------------------------------------------------------------------- --------------- --------------- Change in net assets resulting from share transactions 28,198,615 14,282,814 - ---------------------------------------------------------------------------------- --------------- --------------- Change in net assets 28,198,615 14,282,814 - ---------------------------------------------------------------------------------- NET ASSETS: - ---------------------------------------------------------------------------------- Beginning of period 146,207,706 131,924,892 - ---------------------------------------------------------------------------------- --------------- --------------- End of period $ 174,406,321 $ 146,207,706 - ---------------------------------------------------------------------------------- --------------- ---------------
(See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Corporation") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Corporation consists of sixteen portfolios. The financial statements included herein are only those of Massachusetts Municipal Cash Trust (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 Fund offers two classes of shares: Institutional Service Shares and 1784 Funds Shares (formerly BayFunds Shares). The investment objective of the Fund is current income exempt from federal regular income tax and Massachusetts state income tax consistent with stability of principal. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- 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 October 31, 1996 is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST Clipper, MA Tax Exempt Trust Weekly VRDNs 5/15/95 $ 5,000,000 Clipper, MA Tax Exempt Trust, (Series 1993-1) Weekly VRDNs 6/30/95 $ 3,465,000
USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. Transactions in shares were as follows:
YEAR ENDED OCTOBER 31, 1996 1995 INSTITUTIONAL SERVICE SHARES - ---------------------------------------------------------------------------------- Shares sold 489,456,450 337,436,671 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,214,590 814,368 - ---------------------------------------------------------------------------------- Shares redeemed (470,559,983) (328,636,637) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from Institutional Service Share transactions 20,111,057 9,614,402 - ---------------------------------------------------------------------------------- -------------- --------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1996 1995 1784 FUNDS SHARES - ---------------------------------------------------------------------------------- Shares sold 43,647,527 33,631,751 - ---------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,543,374 1,440,778 - ---------------------------------------------------------------------------------- Shares redeemed (37,103,343) (30,404,117) - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from 1784 Funds Share transactions 8,087,558 4,668,412 - ---------------------------------------------------------------------------------- -------------- -------------- Net change resulting from share transactions 28,198,615 14,282,814 - ---------------------------------------------------------------------------------- -------------- --------------
At October 31, 1996, capital paid-in aggregated $174,406,321. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to .50% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Institutional Service Shares for the period. Under the terms of a Shareholder Services Agreement with BayBank Systems, Inc., the Fund will pay BayBank Systems, Inc., up to .25% of average daily net assets of 1784 Funds Shares for the period. These fees are used to finance certain services for shareholders and to maintain shareholder accounts. FSS and BayBank Systems, Inc. may voluntarily choose to waive any portion of their fees. FSS and BayBank Systems, Inc. can modify or terminate these voluntary waivers at any time at their sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- 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 October 31, 1996, 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 $198,450,000 and $196,600,000, respectively. GENERAL--Certain of the Officers and Directors of the Corporation are Officers and Directors or Trustees of the above companies. (5) CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 45.4% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 7.2% of total investments. (6) SUBSEQUENT EVENT Effective November 25, 1996, BayFunds Shares were renamed 1784 Funds Shares. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Massachusetts Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Massachusetts Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1996, the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see pages 2 and 19 of the prospectus) for the periods presented. 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 October 31, 1996, 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 Massachusetts Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 13, 1996 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ADDRESSES Massachusetts Municipal Cash Trust 1784 Funds Shares Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 DISTRIBUTOR Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 INVESTMENT ADVISER Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 TRANSFER AGENT AND DIVIDEND DISBURSING AGENT Federated Shareholder Services Company P.O. Box 8600 Boston, Massachusetts 02266-8600 SUB-TRANSFER AGENT Boston Financial Data Services, Inc. Two Heritage Drive Quincy, Massachusetts 02171 SHAREHOLDER SERVICING AGENT BayBank Systems, Inc. One BayBank Technology Place Waltham, Massachusetts 02154 CUSTODIAN State Street Bank and Trust Company P.O. Box 1119 Boston, Massachusetts 02266 INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP 2100 One PPG Place Pittsburgh, Pennsylvania 15222 MASSACHUSETTS MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) 1784 FUNDS SHARES (FORMERLY, BAYFUNDS SHARES) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus for 1784 Funds Shares of Massachusetts Municipal Cash Trust (the "Fund"), a portfolio of Federated Municipal Trust (the ``Trust') dated December 31, 1996. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-252-1784. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 Statement dated December 31, 1996 [logo] Federated Securities Corp. is the distributor of the Funds and is a subsidiary of Federated Investors. Cusip 314229832 0032603B (12/96) INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1 Repurchase Agreements 2 Credit Enhancement 2 Investment Limitations 2 Regulatory Compliance 4 Massachusetts Investment Risks 4 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 Share Ownership 9 Trustees' Compensation 10 Trustee Liability 10 INVESTMENT ADVISORY SERVICES 11 Adviser to the Fund 11 Advisory Fees 11 BROKERAGE TRANSACTIONS 11 OTHER SERVICES 11 Fund Administration 11 Custodian 12 Transfer Agent 12 Sub-Transfer Agent 12 Independent Public Accountants 12 SHAREHOLDER SERVICING AGENT 12 Exchanging Securities for Shares 12 DETERMINING NET ASSET VALUE 12 Redemption in Kind 13 MASSACHUSETTS PARTNERSHIP LAW 13 The Fund's Tax Status 13 Massachusetts State Income Tax 13 PERFORMANCE INFORMATION 14 Yield 14 Effective Yield 14 Total Return 14 Performance Comparisons 15 Economic and Market Information 15 ABOUT FEDERATED INVESTORS 15 Mutual Fund Market 16 Institutional Clients 16 Trust Organizations 16 Broker/Dealers and Bank Broker/Dealers Subsidiaries 16 APPENDIX 17 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security, the issuer of any demand feature applicable to the security, or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an `event of non-appropriation''); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations ("NRSROs") or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Ratings Group ("S&P"), or MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's'), or F-1+, F-1 and F-2 by Fitch Investor Services, Inc. (`Fitch'') are all considered rated in one of the two highest short-term rating categories. The Fund will follow applicable regulations in determining whether a security rated by more than one NRSRO can be treated as being in one of the two highest short-term rating categories; currently, such securities must be rated by two NRSROs in one of their two highest categories. See "Regulatory Compliance." WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price and yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund in a dollar amount sufficient to make payment for the securities to be purchased are segregated on the Fund's records at the trade date; marked to market daily and maintained until the transaction has been settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. The Fund or its custodian will take possession of the securities subject to repurchase agreements and these securities will be marked to market daily. To the extent that the original seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. In the event that such a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy, pursuant to guidelines established by the Trustees. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the `credit enhancer''), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. INVESTMENT LIMITATIONS 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 the clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of the value of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may acquire publicly or non-publicly issued Massachusetts Municipal Securities or temporary investments or enter into repurchase agreements, in accordance with its investment objective, policies, and limitations or Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate or real estate limited partnerships, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry, or in industrial development bonds or other securities the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. DIVERSIFICATION OF INVESTMENTS With regard to at least 50% of its total assets, no more than 5% of its total assets are to be invested in the securities of a single issuer, and no more than 25% of its total assets are to be invested in the securities of a single issuer at the close of each quarter of each fiscal year. Under this limitation, each governmental subdivision, including states, territories, possessions of the United States, or their political subdivisions, agencies, authorities, instrumentalitites, or similar entities will be considered a separate issuer if its assets and revenues are separate from those of the governmental body creating it and the security is backed only by its own assets and revenues. Industrial development bonds backed only by the assets and revenues of a non-governmental issuer are considered to be issued solely by that issuer. If, in the case of an industrial development bond or government issued security, a governmental or other entity guarantees the security, such guarantee would be considered a separate security issued by the guarantor, as well as the other issuer, subject to limited exclusions allowed by the Investment Company Act of 1940. The above investment limitations cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies except as part of a merger, consolidation, reorganization, or other acquisition. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN OPTIONS The Fund will not purchase or sell puts, calls, straddles, spreads, or any combination of them. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities including repurchase agreements providing for settlement in more than seven days after notice. Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such restriction. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be `cash items.'' Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments, as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. MASSACHUSETTS INVESTMENT RISKS The Fund invests in obligations of Massachusetts issuers which results in the Fund's performance being subject to risks associated with the overall economic conditions present within Massachusetts (the "Commonwealth"). The following information is a brief summary of the recent prevailing economic conditions and a general summary of the Commonwealth's financial status. This information is based on official statements relating to securities that have been offered by Massachusetts issuers and from other sources believed to be reliable but should not be relied upon as a complete description of all relevant information. The Commonwealth has a diverse economy with manufacturing, education, health care, computers and financial services all being significant contributors. Massachusetts is generally considered the leader in research and development within the biotechnology, software and robotics industries as well as having many highly prestigious universities. In addition to a highly skilled and educated workforce, the Commonwealth has one of the higher average per capita incomes in this country. Beginning in the late 1980's, economic growth in the New England region and Massachusetts, in particular, slowed and showed pronounced deterioration in the construction, real estate, financial and manufacturing sectors. Between 1988 and 1992, there were extensive job losses that resulted in a 10% reduction in the work force. Also, over the same period, property values in the region experienced a similar decline. More recently, the Massachusetts economy has experienced a slight recovery, however, at a slower pace than the nation and there are signs that this recovery may be slowing. In addition, after years of above average property value growth, property values have decreased an estimated 6% over the same period. The two major revenue sources available to cities and towns in Massachusetts are local property taxes and local aid from the Commonwealth. Property taxes are subject to limitations imposed by a state-wide initiative approved by the voters in November, 1980 (commonly known as Proposition 2-1/2), which limits the property taxes that may be levied by any city or town in any fiscal year to the lesser of (i) 2.5% of the full valuation of the real estate and personal property therein or (ii) 2.5% over the previous year's levy limit plus any growth in the tax base from new construction. In recent years the decrease in property values due to the recession and the limitations of tax levy growth imposed by Proposition 2-1/2 have resulted in budget constraints for many cities and towns. The overall financial condition of the Commonwealth can also be illustrated by the changes of its debt ratings. During the period in which the Commonwealth has experienced its financial difficulties beginning in 1988, its general obligation long-term debt ratings as determined by Moody's and S & P's decreased from Aa and AA+ to Baa and BBB respectively. Since then the Commonwealth has had its debt ratings raised by the two rating agencies to A1 and A+ by Moody's and S&P, respectively, reflecting improved fiscal performance. The Fund's concentration in securities issued by the Commonwealth and its political subdivisions provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. The ability of the Commonwealth or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the Commonwealth; and the underlying fiscal condition of the Commonwealth and its municipalities. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director or Trustee of the Funds. Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee, University of Pittsburgh; Director or Trustee of the Funds. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest Florida; formerly, President, Naples Property Management, Inc. and Northgate Village Development Corporation; Director or Trustee of the Funds. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds. Edward L. Flaherty, Jr.@ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region; Director or Trustee of the Funds. Glen R. Johnson* Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. Peter E. Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16, 1942 Trustee Consultant; Former State Representative, Commonwealth of Massachusetts; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation; Director or Trustee of the Funds. Gregor F. Meyer Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director or Trustee of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics; Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., National Defense University, U.S. Space Foundation and Czech Management Center; President Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council for Environmental Policy and Technology, Federal Emergency Management Advisory Board and Czech Management Center; Director or Trustee of the Funds. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/Marketing/Conference Planning, Manchester Craftsmen's Guild; Restaurant Consultant, Frick Art & History Center; Conference Coordinator, University of Pittsburgh Art History Department; Director or Trustee of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated Shareholder Services; Director, Federated Services Company; President or Executive Vice President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Shareholder Services Company; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President , Secretary and Treasurer Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. *This Trustee is deemed to be an ``interested person'' as defined in the Investment Company Act of 1940. @Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board between meetings of the Board. As referred to in the list of Trustees and Officers, `Funds'' includes the following investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated Investment Portfolios; Federated Investment Trust; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 2, 1996, the following shareholders of record owned 5% or more of the outstanding 1784 Funds Shares of Massachusetts Municipal Cash Trust:John & Co., Burlington, Massachusetts, acting in various capacities for numerous accounts, owned approximately 53,216,829 shares (100%). As of the same date, the following shareholders of record owned 5% or more of the oustanding Institutional Service Shares of the Fund: State Street Bank and Trust Company, acting in various capacities for numerous accounts, owned approximately 55,042,437 shares (38.98%); and John & Co. owned approximately 17,474,106 shares (12.37%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 54 other investment companies in the Fund Complex Thomas G. Bigley++ $3,611 $86,331 for the Trust and Trustee 54 other investment companies in the Fund Complex John T. Conroy, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex William J. Copeland $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Peter E. Madden $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Gregor F. Meyer $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex John E. Murray, Jr., $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Wesley W. Posvar $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Marjorie P. Smuts $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1996. #The aggregate compensation is provided for the Trust which is comprised of 16 portfolios. +The information is provided for the last calendar year. ++ Mr. Bigley served on 39 investment companies in the Federated Funds complex from January 1 through September 30, 1995. On October 1, 1995, he was appointed a Trustee on 15 additional Federated Funds. TRUSTEE LIABILITY The Trust's Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES ADVISER TO THE FUND The Fund's investment adviser is Federated Management (the "Adviser"). It is a subsidiary of Federated Investors. All of the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife, and his son, J. Christopher Donahue. The Adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security, or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, the Adviser receives an annual investment advisory fee as described in the prospectus. During the fiscal years ended October 31, 1996, 1995, and 1994, the Adviser earned $856,487, $686,918, and $643,293, respectively, of which $297,835, $276,299, and $445,711, respectively, were voluntarily waived because of undertakings to limit the Fund's expenses. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Board of Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Trust and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal year ended October 31, 1996, 1995, and 1994, the Trust paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative Services served as the Fund's Administrator. Prior to March 1, 1994, Federated Administrative Services, Inc. served as the Fund's Administrator. Both former Administrators are subsidiaries of Federated Investors. For purposes of this Statement of Additional Information, Federated Services Company, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the `Administrators.'' For the fiscal year ended October 31, 1996, 1995, and 1994, the Administrators earned $155,108, $155,000, and $195,483, respectively. CUSTODIAN State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT Federated Services Company, through its registered transfer agent, Federated Shareholder Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on size, type, and number of accounts and transactions made by shareholders. SUB-TRANSFER AGENT Boston Financial Data Services, Inc., Quincy, Massachusetts, is the sub- transfer agent for the 1784 Funds Shares of the Fund. The Institutional Service Shares class has no sub-transfer agent. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, Pennsylvania. SHAREHOLDER SERVICING AGENT Under a Shareholder Servicing Plan, the Fund may pay a fee to BayBank Systems, Inc., as shareholder servicing agent, for services provided which are necessary for the maintenance of shareholder accounts. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balance; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. For the fiscal year ended October 31, 1996, the Fund paid no shareholder services fees on behalf of the 1784 Funds Shares. EXCHANGING SECURITIES FOR SHARES The Fund may accept securities in exchange for Shares. The Fund will allow such exchanges only upon the prior approval of the Fund and a determination by the Fund and the Adviser that the securities to be exchanged are acceptable. Any securities exchanged must meet the investment objective and policies of the Fund, must have a readily ascertainable market value. The Fund acquires the exchanged securities for investment and not for resale. The market value of any securities exchanged in an initial investment plus any cash, must be at least $25,000. Securities accepted by the Fund will be valued in the same manner as the Fund values its assets. The basis of the exchange will depend upon the net asset value of Shares on the day the securities are valued. One Share of the Fund will be issued for each equivalent amount of securities accepted. Any interest earned on the securities prior to the exchange will be considered in valuing the securities. All interest, dividends, subscription or other rights attached to the securities become the property of the Fund, along with the securities. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the `Rule'') promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than .50% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MONTHLY STATEMENTS Shareholders of the Fund who have eligible BayBanks/Bank of Boston deposit accounts will receive combined monthly statements containing all information relating to their deposit account(s) and 1784 Funds transactions. COMPANION ACCOUNT AVAILABILITY Certain BayBanks/Bank of Boston deposit account customers may elect to open a companion 1784 Funds account to facilitate 1784 Funds transactions. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable under Massachusetts law for obligations of the Trust. To protect shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument that the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. MASSACHUSETTS STATE INCOME TAX Individual shareholders of the Fund who are subject to Massachusetts income taxation will not be required to pay Massachusetts income tax on that portion of their dividends which are attributable to: interest earned on Massachusetts tax-free municipal obligations; gain from the sale of certain of such obligations; and interest earned on obligations of United States territories or possessions, to the extent interest on such obligations is exempt from taxation by the state pursuant to federal law. All remaining dividends will be subject to Massachusetts income tax. If a shareholder of the Fund is a Massachusetts business corporation or any foreign business corporation which exercises its charter, qualifies to do business, actually does business or owns or uses any part of its capital, plant or other property in Massachusetts, then it will be subject to Massachusetts excise taxation either as a tangible property corporation or as an intangible property corporation. If the corporate shareholder is a tangible property corporation, it will be taxed upon its net income allocated to Massachusetts and the value of certain tangible property. If it is an intangible property corporation, it will be taxed upon its net income and net worth allocated to Massachusetts. Net income is gross income less allowable deductions for federal income tax purposes, subject to specified modifications. Dividends received from the Fund are includable in gross income and generally may not be deducted by a corporate shareholder in computing its net income. The corporation's shares in the Fund are not includable in the computation of the tangible property base of a tangible property corporation, but are includable in the computation of the net worth base of an intangible property corporation. Shares of Massachusetts Municipal Cash Trust will be exempt from local property taxes in Massachusetts. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The Fund calculates its yield based upon the seven days ending on the day of the calculation, called the `base period.'' This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. The yield for the seven-day period ended October 31, 1996 for the 1784 Funds Shares of the Fund was 2.98%. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. The effective yield for the seven-day period ended October 31, 1996 for the 1784 Funds Shares of the Fund was 3.02%. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. For the one-year period ended October 31, 1996, and for the period from March 8, 1993 (date of initial public investment) to October 31, 1996, the average annual total returns were 3.05% and 2.62%, respectively, for the 1784 Funds Shares of the Fund. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: OLIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. oMONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. From time to time as it deems appropriate, the Fund may advertise the performance of its shares using charts, graphs and description, compared to federally insured bank products, including certificates of deposit and time deposits, and to money market funds using the Lipper Analytical Services money market instruments average. Unlike federally insured bank products, the shares of the Fund are not insured. Advertising and other promotional literature may include charts, graphs and other illustrations using the Fund`s returns, or returns in general, that demonstrate basic investment concepts such as tax-deferred compounding, dollar-cost averaging and systematic investment. In addition, the Fund can compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, such as bank savings accounts, certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION Advertising and sales literature for the Fund may include discussions of economic, financial and political developments and their effect on the securities market. Such discussions may take the form of commentary on these developments by the Fund portfolio mangers and their views and analysis on how such developments could affect the Funds. In addition, advertising and sales literature may quote statistics and give general information about the mutual fund industry, including growth of the industry, from sources such as the Investment Company Institute. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. These traders handle trillions of dollars in annual trading volume. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1995, Federated Investors managed more than $40.2 billion in assets across approximately 47 money market funds, including 17 government, 10 prime and 20 municipal with assets approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $3 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. Federated's service to financial professionals and institutions has earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for service quality measurement. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (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 rate `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. MOODYS 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 SERVICES, INC. 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. MICHIGAN MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS The Institutional Shares of Michigan Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Michigan municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Michigan, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and the personal income taxes imposed by the state of Michigan consistent with stability of principal and liquidity. In addition, the Fund intends to qualify as an investment substantially exempt from the Michigan intangibles tax. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS SUMMARY OF FUND EXPENSES 1 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES 2 GENERAL INFORMATION 3 INVESTMENT INFORMATION 3 Investment Objective 3 Investment Policies 3 Michigan Municipal Securities 5 Investment Risks 6 Investment Limitations 6 FUND INFORMATION 7 Management of the Fund 7 Distribution of Institutional Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 HOW TO PURCHASE SHARES 9 HOW TO REDEEM SHARES 10 ACCOUNT AND SHARE INFORMATION 11 TAX INFORMATION 11 Federal Income Tax 11 State and Local Taxes 12 OTHER CLASSES OF SHARES 12 PERFORMANCE INFORMATION 13 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES 14 FINANCIAL STATEMENTS 15 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 26 ADDRESSES 27 SUMMARY OF FUND EXPENSES
INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable) None Redemption Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1) 0.00% 12b-1 Fee None Total Other Expenses (after expense reimbursement) 0.37% Shareholder Services Fee (after waiver)(2) 0.00% Total Operating Expenses(3) 0.37%
(1) The management fee has been reduced to reflect the voluntary waiver of the management fee. The advisor can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The shareholder services fee has been reduced to reflect the voluntary waiver of the shareholder services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (3) The total operating expenses would have been 1.26% absent the voluntary waivers of the management fee and the shareholder services fee and the voluntary reimbursement of certain other operating expenses. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Shares of the Trust will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period $4 $12 $21 $47
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. MICHIGAN MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Reference is made to the Report of Independent Public Accountants on page 26.
PERIOD ENDED OCTOBER 31, 1996(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.02 LESS DISTRIBUTIONS Distributions from net investment income (0.02) NET ASSET VALUE, END OF PERIOD $ 1.00 TOTAL RETURN(b) 2.19% RATIOS TO AVERAGE NET ASSETS Expenses 0.37%* Net investment income 3.40%* Expense waiver/reimbursement(c) 0.89%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $11,614
* Computed on an annualized basis. (a) Reflects operations for the period from March 2, 1996 (date of initial public investment) to October 31, 1996. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees has established two classes of shares known as Institutional Shares and Institutional Service Shares. This prospectus relates only to Institutional Shares of the Fund, which are designed primarily for financial institutions acting in an agency or fiduciary capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term Michigan municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Michigan taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the state of Michigan consistent with stability of principal and liquidity. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. In addition, the Fund intends to qualify as an investment substantially exempt from the Michigan Intangibles Personal Property Tax ("intangibles tax"). INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Michigan municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Michigan state income and intangibles tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Michigan and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Michigan personal income tax ("Michigan Municipal Securities"). Examples of Michigan Municipal Securities include, but are not limited to: * tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; * bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; * municipal commercial paper and other short-term notes; * variable rate demand notes; * municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and * participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Michigan Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Michigan Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Michigan Municipal Securities is subject to the federal alternative minimum tax. MICHIGAN MUNICIPAL SECURITIES Michigan Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Michigan Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Michigan Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Michigan Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Michigan Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Michigan Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Michigan Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Michigan Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Michigan Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations, the Fund's concentration in Michigan Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50% of the Fund's average daily net assets. Also, the adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SHARES Federated Securities Corp. is the principal distributor for Institutional Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of its shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund 's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below: AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Institutional Shares from the value of Fund assets attributable to Institutional Shares, and dividing the remainder by the number of Institutional Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 p.m., 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased either by wire or by check. The Fund reserves the right to reject any purchase request. To make a purchase, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken by telephone. The minimum initial investment is $25,000. However, an account may be opened with a smaller amount as long as the minimum is reached within 90 days. Minimum investments will be calculated by combining all accounts maintained with the Fund. Financial institutions may impose different minimum investment requirements on their customers. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Michigan Municipal Cash Trust -- Institutional Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Michigan Municipal Cash Trust -- Institutional Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. HOW TO REDEEM SHARES Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 p.m. (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. ACCOUNT AND SHARE INFORMATION DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 2, 1996, First Mar & Company owned 71.16% of the Institutional Shares of the Fund and McDonald & Company Securities, Inc. owned 37.98% of the Institutional Service Shares of the Fund. These companies may, for certain purposes, be deemed to control the shares of the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Michigan. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. MICHIGAN TAXES. Under existing Michigan laws, distributions made by the Fund will not be subject to Michigan personal income taxes to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest from obligations of Michigan or any of its political subdivisions, or (ii) income from obligations of the United States government which are exempted from state income taxation by a law of the United States. The portion of a shareholder's shares in the Fund representing (i) bonds or other similar obligations of Michigan or its political subdivisions, or (ii) obligations of the United States which are exempt from taxation by a law of the United States, and dividends paid by the Fund representing interest payments on securities, will be exempt from Michigan intangibles tax. 1995 Public Act 5 repeals the intangibles tax effective January 1, 1998. Distributions by the Fund are not subject to the Michigan Single Business Tax to the extent that such distributions are derived from interest on obligations of Michigan or its political subdivisions, or obligations of the United States government that are exempt from state taxation by a law of the United States. Certain municipalities in Michigan also impose an income tax on individuals and corporations. However, to the extent that the dividends from the Funds are exempt from federal regular income taxes, such dividends also will be exempt from Michigan municipal income taxes. OTHER CLASSES OF SHARES The Fund also offers another class of shares called Institutional Service Shares. Institutional Service Shares are sold at net asset value primarily to financial institutions and are subject to a minimum initial investment of $10,000 within a 90-day period. Both classes are subject to certain of the same expenses. Institutional Service Shares are distributed with no 12b-1 Plan, but are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. MICHIGAN MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 26.
YEAR ENDED OCTOBER 31, 1996 1995(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.01 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.01) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 TOTAL RETURN(b) 3.26% 1.35% RATIOS TO AVERAGE NET ASSETS Expenses 0.50% 0.32%* Net investment income 3.21% 3.67%* Expense waiver/reimbursement(c) 0.76% 1.63%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $92,275 $30,133
* Computed on an annualized basis. (a) Reflects operations for the period from June 20, 1995 (date of initial public investment) to October 31, 1995. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) MICHIGAN MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- 100.2% MICHIGAN -- 94.5% $ 1,000,000 Auburn Hills, MI EDC, Limited Obligation Multi-Option Revenue Bonds (Series 1995) Weekly VRDNs (Suburban Tool, Inc.)/ (Huntington National Bank, Columbus, OH LOC) $ 1,000,000 4,209,000 Battle Creek, MI Economic Development Corporation, Ltd. Obligation Economic Development Revenue Refunding Bonds (Series 1992) Weekly VRDNs (Michigan Carton & Paperboard Company)/ (American National Bank, Chicago LOC) 4,209,000 1,580,000 Bedford Township, MI Economic Development Corp., EDRB (Series 1985) Weekly VRDNs (Form-Tech Steel Inc.)/(KeyBank, N.A. LOC) 1,580,000 1,825,000 Bruce Township, MI Hospital Finance Authority, Adjustable Rate Tender Securities (Series 1988B), 3.65% TOBs (Sisters of Charity Health Care System)/(MBIA INS)/(Morgan Guaranty Trust Co., New York LIQ), Optional Tender 11/1/1996 1,825,000 750,000 Dearborn, MI Economic Development Corp., (Series 1990) Weekly VRDNs (Exhibit Productions, Inc. Project)/(First of America Bank - Illinois LOC) 750,000 2,360,000 Delta County, MI Economic Development Corp., Environmental Improvement Revenue Refunding Bonds (Series 1985 B), 3.60% CP (Mead-Escanaba Paper Co. Project)/(Union Bank of Switzerland, Zurich LOC), Mandatory Tender 1/14/1997 2,360,000 800,000 Detroit, MI Water Supply System, Water Supply System Revenue and Revenue Refunding Bonds (Series 1993) Weekly VRDNs (FGIC INS)/ (FGIC Securities Purchase, Inc. LIQ) 800,000 2,300,000 Eaton Rapids, MI Public Schools, 4.20% RANs, 4/1/1997 2,301,844 2,500,000 Fenton Area Public Schools, MI, LT GO State Aid Notes, 4.15% TANs, 5/1/1997 2,502,416 2,000,000 Garden City, MI HFA, Hospital Revenue Bonds (Series 1996A) Weekly VRDNs (Garden City Hospital, Osteopathic)/(First of America Bank - Michigan LOC) 2,000,000 3,500,000 Garden City, MI School District, State Aid Notes, 4.30% RANs (NBD Bank, Michigan LOC), 4/15/1997 3,507,622
MICHIGAN MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED MICHIGAN -- CONTINUED $ 2,800,000 Michigan Higher Education Student Loan Authority, Refunding Revenue Bonds (Series X11-B) Weekly VRDNs (AMBAC INS)/ (Kredietbank N.V., Brussels LIQ) $ 2,800,000 3,100,000 Michigan Job Development Authority, Limited Obligation Revenue Bonds Weekly VRDNs (Andersons Project)/(Morgan Guaranty Trust LOC) 3,100,000 3,000,000 Michigan State Building Authority, (Series 1), 3.65% CP (Canadian Imperial Bank of Commerce, Toronto LOC), Mandatory Tender 12/12/1996 3,000,000 310,000 Michigan State Hospital Finance Authority, (Series 1994) Weekly VRDNs (Mt. Clemens General Hospital)/(Comerica Bank, Detroit, MI LOC) 310,000 2,700,000 Michigan State Hospital Finance Authority, (Series A) Weekly VRDNs (OSF Health Care Systems) 2,700,000 2,000,000 Michigan State Hospital Finance Authority, Hospital Equipment Loan Program Bonds (Series A) Weekly VRDNs (First of America Bank - Michigan LOC) 2,000,000 2,000,000 Michigan State Housing Development Authority, (Series 1990 B) CR-71, 3.70% TOBs, (Citibank N.A., New York LIQ) Optional Tender 12/1/1996 2,000,000 4,870,000 Michigan State Housing Development Authority, Revenue Bonds (Series A), 3.60% CP (Credit Suisse, Zurich LOC), Mandatory Tender 11/21/1996 4,870,000 1,500,000 Michigan State Trunk Line, Refunding Bonds (Series B), 4.00% Bonds (FGIC INS), 11/15/1996 1,500,138 1,445,000 Michigan State, Recreation Program (Series 1992), 4.85% Bonds, 11/1/1996 1,445,000 2,000,000 Michigan Strategic Fund Weekly VRDNs (Tesco Engineering)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 2,000,000 4,000,000 Michigan Strategic Fund, (Series 1989) Weekly VRDNs (Hi-Lex Controls Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 4,000,000 5,620,000 Michigan Strategic Fund, (Series 1991) Weekly VRDNs (AGA Gas, Inc.)/(Svenska Handelsbanken, Stockholm LOC) 5,620,000 900,000 Michigan Strategic Fund, (Series 1995) Weekly VRDNs (Rood Industries, Inc. Project)/(NBD Bank, Michigan LOC) 900,000
MICHIGAN MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED MICHIGAN -- CONTINUED $ 1,500,000 Michigan Strategic Fund, Adjustable Rate Limited Obligation Revenue and Revenue Refunding Bonds (Series 1996) Weekly VRDNs (C-Tec, Inc.)/(SunTrust Bank, Atlanta LOC) $ 1,500,000 6,000,000 Michigan Strategic Fund, Limited Obligation PCR (Series 1993) Weekly VRDNs (Allied-Signal, Inc.) 6,000,000 995,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1995) Weekly VRDNs (Rowe Thomas Company Project)/(Comerica Bank, Detroit, MI LOC) 995,000 1,100,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1991) Weekly VRDNs (Martin Luther Memorial Home, Inc.)/(National Australia Bank, Ltd., Melbourne LOC) 1,100,000 3,860,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1995) Weekly VRDNs (Bear Lake Associates Project)/(Old Kent Bank & Trust Co., Grand Rapids LOC) 3,860,000 1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1995) Weekly VRDNs (Hercules Drawn Steel Corporation Project)/ (KeyBank, N.A. LOC) 1,000,000 2,870,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1995) Weekly VRDNs (J.R. Automation Technologies Project)/(Old Kent Bank & Trust Co., Grand Rapids LOC) 2,870,000 1,020,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1995) Weekly VRDNs (RSR Project)/(Old Kent Bank & Trust Co., Grand Rapids LOC) 1,020,000 3,800,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1995) Weekly VRDNs (Wayne Disposal-Oakland, Inc. Project)/ (Comerica Bank, Detroit, MI LOC) 3,800,000 1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1996) Weekly VRDNs (ACI Properties, L.L.C. Project)/(Comerica Bank, Detroit, MI LOC) 1,000,000 2,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1996) Weekly VRDNs (AVL North America, Inc. Project)/(NBD Bank, Michigan LOC) 2,000,000 1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1996) Weekly VRDNs (Akemi, Inc.)/(Comerica Bank, Detroit, MI LOC) 1,000,000
MICHIGAN MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED MICHIGAN -- CONTINUED $ 1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1996) Weekly VRDNs (Echo Properties, L.L.C. Project)/(Comerica Bank, Detroit, MI LOC) $ 1,000,000 2,700,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1996) Weekly VRDNs (G & T Real Estate Investments Co., L.L.C.)/ (NBD Bank, Michigan LOC) 2,700,000 1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1996) Weekly VRDNs (Inalfa-Hollandia, Inc.)/(Comerica Bank, Detroit, MI LOC) 1,000,000 3,300,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds Weekly VRDNs (Hess Industries, Inc.)/(Norwest Bank Minnesota, Minneapolis LOC) 3,300,000 1,900,000 Wayne County, MI, Airport Revenue Refunding Bonds (Series 1996A) Weekly VRDNs (Detroit Metropolitan Wayne County Airport)/ (Bayerische Landesbank Girozentrale LOC) 1,900,000 3,000,000 Woodhaven, MI School District, State Aid Notes, 4.125% TRANs, 4/30/1997 3,003,194 Total 98,129,214 PUERTO RICO -- 3.8% 4,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory Tender 2/14/1997 4,000,000 VIRGIN ISLANDS -- 1.9% 2,000,000 Virgin Islands HFA, Single Family Mortgage Revenue Refunding Bonds (1995 Series B), 3.50% TOBs (Trinity Funding Company INV), Mandatory Tender 11/1/1996 2,000,000 TOTAL INVESTMENTS (AT AMORTIZED COST)(b) $104,129,214
Securities that are subject to the alternative minimum tax represent 53.3% of the portfolio as calculated based upon total portfolio market value. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term rating categories. Securities rated in the highest short-term rating category (and unrated securities of comparable quality) are identified as First Tier securities. Securities rated in the second highest short-term rating category (and unrated securities of comparable quality) are identified as Second Tier securities. The Fund follows applicable regulations in determining whether a security is rated and whether a security rated by multiple NRSRO's in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED) FIRST TIER SECOND TIER 100.00% 0.00% (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($103,889,129) at October 31, 1996. The following acronyms are used throughout this portfolio: AMBAC -- American Municipal Bond Assurance Corporation CP -- Commercial Paper EDC -- Economic Development Commission EDRB -- Economic Development Revenue Bond FGIC -- Financial Guaranty Insurance Company GO -- General Obligation HFA -- Housing Finance Authority INS -- Insured INV -- Investment Agreement LIQ -- Liquidity Agreement LOC -- Letter of Credit LT -- Limited Tax MBIA -- Municipal Bond Investors Assurance PCR -- Pollution Control Revenue RANs -- Revenue Anticipation Notes TANs -- Tax Anticipation Notes TOBs -- Tender Option Bonds TRANs -- Tax and Revenue Anticipation Notes VRDNs -- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) MICHIGAN MUNICIPAL CASH TRUST Statement of Assets and Liabilities OCTOBER 31, 1996 ASSETS: Total investments in securities, at amortized cost and value $ 104,129,214 Income receivable 615,979 Receivable for shares sold 92 Deferred expenses 6,160 Total assets 104,751,445 LIABILITIES: Income distribution payable $ 59,587 Payable to Bank 759,097 Accrued expenses 43,632 Total liabilities 862,316 Net Assets for 103,889,129 shares outstanding $ 103,889,129 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: INSTITUTIONAL SERVICE SHARES: $92,275,457 / 92,275,457 shares outstanding $1.00 INSTITUTIONAL SHARES: $11,613,672 / 11,613,672 shares outstanding $1.00
(See Notes which are an integral part of the Financial Statements) MICHIGAN MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 INVESTMENT INCOME: Interest $ 2,505,244 EXPENSES: Investment advisory fee $ 337,325 Administrative personnel and services fee 145,082 Custodian fees 19,809 Transfer and dividend disbursing agent fees and expenses 48,098 Directors'/Trustees' fees 1,352 Auditing fees 8,396 Legal fees 3,893 Portfolio accounting fees 49,950 Shareholder services fee -- Institutional Service Shares 152,832 Shareholder services fee -- Institutional Shares 15,830 Share registration costs 46,293 Printing and postage 14,277 Insurance premiums 6,540 Miscellaneous 2,435 Total expenses 852,112 Waivers and reimbursements -- Waiver of investment advisory fee $ (337,325) Waiver of shareholder services fee -- Institutional Service Shares (73,359) Waiver of shareholder services fee -- Institutional Shares (15,830) Reimbursement of other operating expenses (94,212) Total waivers and reimbursements (520,726) Net expenses 331,386 Net investment income $ 2,173,858
(See Notes which are an integral part of the Financial Statements) MICHIGAN MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS
YEAR PERIOD ENDED ENDED OCTOBER 31, OCTOBER 31, 1996 1995(a) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS -- Net investment income $ 2,173,858 $ 235,600 DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income Institutional Service Shares (1,958,685) (235,600) Institutional Shares (215,173) -- Change in net assets resulting from distributions to shareholders (2,173,858) (235,600) SHARE TRANSACTIONS -- Proceeds from sale of shares 318,706,288 41,468,554 Net asset value of shares issued to shareholders in payment of distributions declared 1,590,062 229,562 Cost of shares redeemed (246,540,494) (11,564,843) Change in net assets resulting from share transactions 73,755,856 30,133,273 Change in net assets 73,755,856 30,133,273 NET ASSETS: Beginning of period 30,133,273 -- End of period $ 103,889,129 $ 30,133,273
(a) For the period from June 20, 1995 (date of initial public investment) to October 31, 1995. (See Notes which are an integral part of the Financial Statements) MICHIGAN MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 1. ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of Michigan Municipal Cash Trust (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 Fund offers two classes of shares: Institutional Service Shares and Institutional Shares. The investment objective of the Fund is current income exempt from federal regular income tax and the personal income tax imposed by the State of Michigan consistent with the stability of principal and liquidity. Effective March 2, 1996 the Fund added Institutional Shares. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. DEFERRED EXPENSES -- The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized over a period not to exceed five years from the Fund's commencement date. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER -- Investment transactions are accounted for on the trade date. 3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1996, capital paid-in aggregated $103,889,129. Transactions in shares were as follows:
YEAR PERIOD ENDED ENDED OCTOBER 31, OCTOBER 31, 1996 1995(a) INSTITUTIONAL SERVICE SHARES SHARES SHARES Shares sold 286,548,847 41,468,554 Shares issued to shareholders in payment of distributions declared 1,585,481 229,562 Shares redeemed (225,992,144) (11,564,843) Net change resulting from Institutional Service Shares transactions 62,142,184 30,133,273 PERIOD ENDED OCTOBER 31, 1996(b) 1995 INSTITUTIONAL SHARES SHARES SHARES Shares sold 32,157,441 -- Shares issued to shareholders in payment of distributions 4,581 -- declared Shares redeemed (20,548,350) -- Net change resulting from Institutional Shares transactions 11,613,672 -- Net change resulting from Fund share transactions 73,755,856 30,133,273
(a) For the period from June 20, 1995 (date of initial public investment) to October 31, 1995. (b) For the period from March 2, 1996 (date of initial public investment) to October 31, 1996. 4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.50% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expense of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimburse 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 for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES -- Organizational expenses of $18,618 were borne initially by Adviser. The Fund has agreed to reimburse Adviser for the organizational expenses during the five-year period following effective date. For the period ended October 31, 1996, the Fund paid $1,655 pursuant to this agreement. INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, 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 $155,639,000 and $143,539,000, respectively. GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 5. CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 75.1% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 8.7% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (MICHIGAN MUNICIPAL CASH TRUST): We have audited the accompanying statement of assets and liabilities of Michigan Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1996, the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see pages 2 and 14 of the prospectus) for the periods presented. 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 October 31, 1996, 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 Michigan Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 13, 1996 ADDRESSES Michigan Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, PA 15222-3779 Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 Transfer Agent and Dividend Disbursing Agent Federated Shareholder P.O. Box 8600 Services Company Boston, MA 02266-8600 Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 MICHIGAN MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 [Graphic] Federated Investors Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. Cusip 314229667 G01212-04-IS (12/96) MICHIGAN MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS The Institutional Service Shares of Michigan Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Michigan municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Michigan, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and the personal income taxes imposed by the state of Michigan consistent with stability of principal and liquidity. In addition, the Fund intends to qualify as an investment substantially exempt from the Michigan intangibles tax. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS SUMMARY OF FUND EXPENSES 1 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES 2 GENERAL INFORMATION 3 INVESTMENT INFORMATION 3 Investment Objective 3 Investment Policies 3 Michigan Municipal Securities 5 Investment Risks 6 Investment Limitations 6 FUND INFORMATION 7 Management of the Fund 7 Distribution of Institutional Service Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 HOW TO PURCHASE SHARES 9 Special Purchase Features 10 HOW TO REDEEM SHARES 10 Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 11 TAX INFORMATION 12 Federal Income Tax 12 State and Local Taxes 13 OTHER CLASSES OF SHARES 13 PERFORMANCE INFORMATION 14 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES 15 FINANCIAL STATEMENTS 16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 27 ADDRESSES 28 SUMMARY OF FUND EXPENSES
INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable) None Redemption Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None ANNUAL OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1) 0.00% 12b-1 Fee None Total Other Expenses (after expense reimbursement) 0.50% Shareholder Services Fee (after waiver)(2) 0.13% Total Operating Expenses(3) 0.50%
(1) The management fee has been reduced to reflect the voluntary waiver of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The shareholder services fee has been reduced to reflect the voluntary waiver of a portion of the shareholder services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (3) The total operating expenses would have been 1.26% absent the voluntary waiver of the management fee, the voluntary waiver of a portion of the shareholder services fee and the voluntary reimbursement of certain other operating expenses. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of Institutional Service Shares of the Trust will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period $5 $16 $28 $63
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. MICHIGAN MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 26.
YEAR ENDED OCTOBER 31, 1996 1995(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.03 0.01 LESS DISTRIBUTIONS Distributions from net investment income (0.03) (0.01) NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 TOTAL RETURN(B) 3.26% 1.35% RATIOS TO AVERAGE NET ASSETS Expenses 0.50% 0.32%* Net investment income 3.21% 3.67%* Expense waiver/reimbursement(c) 0.76% 1.63%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $92,275 $30,133
* Computed on an annualized basis. (a) Reflects operations for the period from June 20, 1995 (date of initial public investment) to October 31, 1995. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees has established two classes of shares known as Institutional Service Shares and Institutional Shares. This prospectus relates only to Institutional Service Shares of the Fund, which are designed primarily for financial institutions acting in an agency or fiduciary capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term Michigan municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Michigan taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the state of Michigan consistent with stability of principal and liquidity. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the various requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. In addition, the Fund intends to qualify as an investment substantially exempt from the Michigan Intangibles Personal Property Tax ("intangibles tax"). INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Michigan municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and Michigan state income and intangibles tax. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Michigan and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and Michigan personal income tax ("Michigan Municipal Securities"). Examples of Michigan Municipal Securities include, but are not limited to: * tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; * bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; * municipal commercial paper and other short-term notes; * variable rate demand notes; * municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and * participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Michigan Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Michigan Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other deposit institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Michigan Municipal Securities is subject to the federal alternative minimum tax. MICHIGAN MUNICIPAL SECURITIES Michigan Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Michigan Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Michigan Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Michigan Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Michigan Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Michigan Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Michigan Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Michigan Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Michigan Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations, the Fund's concentration in Michigan Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50% of the Fund's average daily net assets. Also, the adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES Federated Securities Corp. is the principal distributor for Institutional Service Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of its shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund 's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below: AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Institutional Service Shares from the value of Fund assets attributable to Institutional Service Shares, and dividing the remainder by the number of Institutional Service Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 p.m., 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more within a 90-day period and additional investments of as little as $500. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund before 1:00 p.m. (Eastern time). The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) in order to begin earning dividends that same day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Michigan Municipal Cash Trust -- Institutional Service Shares; Fund Number (This number can be found on the account statement or by contacting the Fund.); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Michigan Municipal Cash Trust -- Institutional Service Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Shareholder Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests received before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of December 2, 1996, McDonald & Company Securities, Inc. owned 37.98% of the Institutional Service Shares of the Fund and First Mar & Company owned 71.16% of the Institutional Shares of the Fund. These companies may, for certain purposes, be deemed to control the shares of the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Michigan. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. MICHIGAN TAXES. Under existing Michigan laws, distributions made by the Fund will not be subject to Michigan personal income taxes to the extent that such distributions qualify as exempt-interest dividends under the Internal Revenue Code, and represent (i) interest from obligations of Michigan or any of its political subdivisions, or (ii) income from obligations of the United States government which are exempted from state income taxation by a law of the United States. The portion of a shareholder's shares in the Fund representing (i) bonds or other similar obligations of Michigan or its political subdivisions, or (ii) obligations of the United States which are exempt from taxation by a law of the United States, and dividends paid by the Fund representing interest payments on securities, will be exempt from Michigan intangibles tax. 1995 Public Act 5 repeals the intangibles tax effective January 1, 1998. Distributions by the Fund are not subject to the Michigan Single Business Tax to the extent that such distributions are derived from interest on obligations of Michigan or its political subdivisions, or obligations of the United States government that are exempt from state taxation by a law of the United States. Certain municipalities in Michigan also impose an income tax on individuals and corporations. However, to the extent that the dividends from the Funds are exempt from federal regular income taxes, such dividends also will be exempt from Michigan municipal income taxes. OTHER CLASSES OF SHARES The Fund also offers another class of shares called Institutional Shares. Institutional Shares are sold at net asset value primarily to financial institutions and are subject to a minimum initial investment of $25,000 within a 90-day period. Both classes are subject to certain of the same expenses. Institutional Shares are distributed with no 12b-1 Plan, but are subject to shareholder services fees. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. MICHIGAN MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Reference is made to the Report of Independent Public Accountants on page 26.
PERIOD ENDED OCTOBER 31, 1996(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.02 LESS DISTRIBUTIONS Distributions from net investment income (0.02) NET ASSET VALUE, END OF PERIOD $ 1.00 TOTAL RETURN(b) 2.19% RATIOS TO AVERAGE NET ASSETS Expenses 0.37%* Net investment income 3.40%* Expense waiver/reimbursement(c) 0.89%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $11,614
* Computed on an annualized basis. (a) Reflects operations for the period from March 2, 1996 (date of initial public investment) to October 31, 1996. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) MICHIGAN MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- 100.2% MICHIGAN -- 94.5% $ 1,000,000 Auburn Hills, MI EDC, Limited Obligation Multi-Option Revenue Bonds (Series 1995) Weekly VRDNs (Suburban Tool, Inc.)/ (Huntington National Bank, Columbus, OH LOC) $ 1,000,000 4,209,000 Battle Creek, MI Economic Development Corporation, Ltd. Obligation Economic Development Revenue Refunding Bonds (Series 1992) Weekly VRDNs (Michigan Carton & Paperboard Company)/ (American National Bank, Chicago LOC) 4,209,000 1,580,000 Bedford Township, MI Economic Development Corp., EDRB (Series 1985) Weekly VRDNs (Form-Tech Steel Inc.)/(KeyBank, N.A. LOC) 1,580,000 1,825,000 Bruce Township, MI Hospital Finance Authority, Adjustable Rate Tender Securities (Series 1988B), 3.65% TOBs (Sisters of Charity Health Care System)/(MBIA INS)/(Morgan Guaranty Trust Co., New York LIQ), Optional Tender 11/1/1996 1,825,000 750,000 Dearborn, MI Economic Development Corp., (Series 1990) Weekly VRDNs (Exhibit Productions, Inc. Project)/(First of America Bank - Illinois LOC) 750,000 2,360,000 Delta County, MI Economic Development Corp., Environmental Improvement Revenue Refunding Bonds (Series 1985 B), 3.60% CP (Mead-Escanaba Paper Co. Project)/(Union Bank of Switzerland, Zurich LOC), Mandatory Tender 1/14/1997 2,360,000 800,000 Detroit, MI Water Supply System, Water Supply System Revenue and Revenue Refunding Bonds (Series 1993) Weekly VRDNs (FGIC INS)/ (FGIC Securities Purchase, Inc. LIQ) 800,000 2,300,000 Eaton Rapids, MI Public Schools, 4.20% RANs, 4/1/1997 2,301,844 2,500,000 Fenton Area Public Schools, MI, LT GO State Aid Notes, 4.15% TANs, 5/1/1997 2,502,416 2,000,000 Garden City, MI HFA, Hospital Revenue Bonds (Series 1996A) Weekly VRDNs (Garden City Hospital, Osteopathic)/(First of America Bank - Michigan LOC) 2,000,000 3,500,000 Garden City, MI School District, State Aid Notes, 4.30% RANs (NBD Bank, Michigan LOC), 4/15/1997 3,507,622
MICHIGAN MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED MICHIGAN -- CONTINUED $ 2,800,000 Michigan Higher Education Student Loan Authority, Refunding Revenue Bonds (Series X11-B) Weekly VRDNs (AMBAC INS)/ (Kredietbank N.V., Brussels LIQ) $ 2,800,000 3,100,000 Michigan Job Development Authority, Limited Obligation Revenue Bonds Weekly VRDNs (Andersons Project)/(Morgan Guaranty Trust LOC) 3,100,000 3,000,000 Michigan State Building Authority, (Series 1), 3.65% CP (Canadian Imperial Bank of Commerce, Toronto LOC), Mandatory Tender 12/12/1996 3,000,000 310,000 Michigan State Hospital Finance Authority, (Series 1994) Weekly VRDNs (Mt. Clemens General Hospital)/(Comerica Bank, Detroit, MI LOC) 310,000 2,700,000 Michigan State Hospital Finance Authority, (Series A) Weekly VRDNs (OSF Health Care Systems) 2,700,000 2,000,000 Michigan State Hospital Finance Authority, Hospital Equipment Loan Program Bonds (Series A) Weekly VRDNs (First of America Bank - Michigan LOC) 2,000,000 2,000,000 Michigan State Housing Development Authority, (Series 1990 B) CR-71, 3.70% TOBs, (Citibank N.A., New York LIQ) Optional Tender 12/1/1996 2,000,000 4,870,000 Michigan State Housing Development Authority, Revenue Bonds (Series A), 3.60% CP (Credit Suisse, Zurich LOC), Mandatory Tender 11/21/1996 4,870,000 1,500,000 Michigan State Trunk Line, Refunding Bonds (Series B), 4.00% Bonds (FGIC INS), 11/15/1996 1,500,138 1,445,000 Michigan State, Recreation Program (Series 1992), 4.85% Bonds, 11/1/1996 1,445,000 2,000,000 Michigan Strategic Fund Weekly VRDNs (Tesco Engineering)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 2,000,000 4,000,000 Michigan Strategic Fund, (Series 1989) Weekly VRDNs (Hi-Lex Controls Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 4,000,000 5,620,000 Michigan Strategic Fund, (Series 1991) Weekly VRDNs (AGA Gas, Inc.)/(Svenska Handelsbanken, Stockholm LOC) 5,620,000 900,000 Michigan Strategic Fund, (Series 1995) Weekly VRDNs (Rood Industries, Inc. Project)/(NBD Bank, Michigan LOC) 900,000
MICHIGAN MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED MICHIGAN -- CONTINUED $ 1,500,000 Michigan Strategic Fund, Adjustable Rate Limited Obligation Revenue and Revenue Refunding Bonds (Series 1996) Weekly VRDNs (C-Tec, Inc.)/(SunTrust Bank, Atlanta LOC) $ 1,500,000 6,000,000 Michigan Strategic Fund, Limited Obligation PCR (Series 1993) Weekly VRDNs (Allied-Signal, Inc.) 6,000,000 995,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1995) Weekly VRDNs (Rowe Thomas Company Project)/(Comerica Bank, Detroit, MI LOC) 995,000 1,100,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1991) Weekly VRDNs (Martin Luther Memorial Home, Inc.)/(National Australia Bank, Ltd., Melbourne LOC) 1,100,000 3,860,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1995) Weekly VRDNs (Bear Lake Associates Project)/(Old Kent Bank & Trust Co., Grand Rapids LOC) 3,860,000 1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1995) Weekly VRDNs (Hercules Drawn Steel Corporation Project)/ (KeyBank, N.A. LOC) 1,000,000 2,870,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1995) Weekly VRDNs (J.R. Automation Technologies Project)/(Old Kent Bank & Trust Co., Grand Rapids LOC) 2,870,000 1,020,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1995) Weekly VRDNs (RSR Project)/(Old Kent Bank & Trust Co., Grand Rapids LOC) 1,020,000 3,800,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1995) Weekly VRDNs (Wayne Disposal-Oakland, Inc. Project)/ (Comerica Bank, Detroit, MI LOC) 3,800,000 1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1996) Weekly VRDNs (ACI Properties, L.L.C. Project)/(Comerica Bank, Detroit, MI LOC) 1,000,000 2,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1996) Weekly VRDNs (AVL North America, Inc. Project)/(NBD Bank, Michigan LOC) 2,000,000 1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1996) Weekly VRDNs (Akemi, Inc.)/(Comerica Bank, Detroit, MI LOC) 1,000,000
MICHIGAN MUNICIPAL CASH TRUST
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED MICHIGAN -- CONTINUED $ 1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1996) Weekly VRDNs (Echo Properties, L.L.C. Project)/(Comerica Bank, Detroit, MI LOC) $ 1,000,000 2,700,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1996) Weekly VRDNs (G & T Real Estate Investments Co., L.L.C.)/ (NBD Bank, Michigan LOC) 2,700,000 1,000,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds (Series 1996) Weekly VRDNs (Inalfa-Hollandia, Inc.)/(Comerica Bank, Detroit, MI LOC) 1,000,000 3,300,000 Michigan Strategic Fund, Limited Obligation Revenue Bonds Weekly VRDNs (Hess Industries, Inc.)/(Norwest Bank Minnesota, Minneapolis LOC) 3,300,000 1,900,000 Wayne County, MI, Airport Revenue Refunding Bonds (Series 1996A) Weekly VRDNs (Detroit Metropolitan Wayne County Airport)/ (Bayerische Landesbank Girozentrale LOC) 1,900,000 3,000,000 Woodhaven, MI School District, State Aid Notes, 4.125% TRANs, 4/30/1997 3,003,194 Total 98,129,214 PUERTO RICO -- 3.8% 4,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory Tender 2/14/1997 4,000,000 VIRGIN ISLANDS -- 1.9% 2,000,000 Virgin Islands HFA, Single Family Mortgage Revenue Refunding Bonds (1995 Series B), 3.50% TOBs (Trinity Funding Company INV), Mandatory Tender 11/1/1996 2,000,000 TOTAL INVESTMENTS (AT AMORTIZED COST)(b) $104,129,214
Securities that are subject to the alternative minimum tax represent 53.3% of the portfolio as calculated based upon total portfolio market value. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. are all considered rated in one of the two highest short-term rating categories. Securities rated in the highest short-term rating category (and unrated securities of comparable quality) are identified as First Tier securities. Securities rated in the second highest short-term rating category (and unrated securities of comparable quality) are identified as Second Tier securities. The Fund follows applicable regulations in determining whether a security is rated and whether a security rated by multiple NRSRO's in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED) FIRST TIER SECOND TIER 100.00% 0.00% (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($103,889,129) at October 31, 1996. The following acronyms are used throughout this portfolio: AMBAC -- American Municipal Bond Assurance Corporation CP -- Commercial Paper EDC -- Economic Development Commission EDRB -- Economic Development Revenue Bond FGIC -- Financial Guaranty Insurance Company GO -- General Obligation HFA -- Housing Finance Authority INS -- Insured INV -- Investment Agreement LIQ -- Liquidity Agreement LOC -- Letter of Credit LT -- Limited Tax MBIA -- Municipal Bond Investors Assurance PCR -- Pollution Control Revenue RANs -- Revenue Anticipation Notes TANs -- Tax Anticipation Notes TOBs -- Tender Option Bonds TRANs -- Tax and Revenue Anticipation Notes VRDNs -- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) MICHIGAN MUNICIPAL CASH TRUST Statement of Assets and Liabilities OCTOBER 31, 1996 ASSETS: Total investments in securities, at amortized cost and value $ 104,129,214 Income receivable 615,979 Receivable for shares sold 92 Deferred expenses 6,160 Total assets 104,751,445 LIABILITIES: Income distribution payable $ 59,587 Payable to Bank 759,097 Accrued expenses 43,632 Total liabilities 862,316 Net Assets for 103,889,129 shares outstanding $ 103,889,129 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: INSTITUTIONAL SERVICE SHARES: $92,275,457 / 92,275,457 shares outstanding $1.00 INSTITUTIONAL SHARES: $11,613,672 / 11,613,672 shares outstanding $1.00
(See Notes which are an integral part of the Financial Statements) MICHIGAN MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 INVESTMENT INCOME: Interest $ 2,505,244 EXPENSES: Investment advisory fee $ 337,325 Administrative personnel and services fee 145,082 Custodian fees 19,809 Transfer and dividend disbursing agent fees and expenses 48,098 Directors'/Trustees' fees 1,352 Auditing fees 8,396 Legal fees 3,893 Portfolio accounting fees 49,950 Shareholder services fee -- Institutional Service Shares 152,832 Shareholder services fee -- Institutional Shares 15,830 Share registration costs 46,293 Printing and postage 14,277 Insurance premiums 6,540 Miscellaneous 2,435 Total expenses 852,112 Waivers and reimbursements -- Waiver of investment advisory fee $ (337,325) Waiver of shareholder services fee -- Institutional Service Shares (73,359) Waiver of shareholder services fee -- Institutional Shares (15,830) Reimbursement of other operating expenses (94,212) Total waivers and reimbursements (520,726) Net expenses 331,386 Net investment income $ 2,173,858
(See Notes which are an integral part of the Financial Statements) MICHIGAN MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS
YEAR PERIOD ENDED ENDED OCTOBER 31, OCTOBER 31, 1996 1995(a) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS -- Net investment income $ 2,173,858 $ 235,600 DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income Institutional Service Shares (1,958,685) (235,600) Institutional Shares (215,173) -- Change in net assets resulting from distributions to shareholders (2,173,858) (235,600) SHARE TRANSACTIONS -- Proceeds from sale of shares 318,706,288 41,468,554 Net asset value of shares issued to shareholders in payment of distributions declared 1,590,062 229,562 Cost of shares redeemed (246,540,494) (11,564,843) Change in net assets resulting from share transactions 73,755,856 30,133,273 Change in net assets 73,755,856 30,133,273 NET ASSETS: Beginning of period 30,133,273 -- End of period $ 103,889,129 $ 30,133,273
(a) For the period from June 20, 1995 (date of initial public investment) to October 31, 1995. (See Notes which are an integral part of the Financial Statements) MICHIGAN MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 1. ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of Michigan Municipal Cash Trust (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 Fund offers two classes of shares: Institutional Service Shares and Institutional Shares. The investment objective of the Fund is current income exempt from federal regular income tax and the personal income tax imposed by the State of Michigan consistent with the stability of principal and liquidity. Effective March 2, 1996 the Fund added Institutional Shares. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. DEFERRED EXPENSES -- The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized over a period not to exceed five years from the Fund's commencement date. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER -- Investment transactions are accounted for on the trade date. 3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1996, capital paid-in aggregated $103,889,129. Transactions in shares were as follows:
YEAR PERIOD ENDED ENDED OCTOBER 31, OCTOBER 31, 1996 1995(a) INSTITUTIONAL SERVICE SHARES SHARES SHARES Shares sold 286,548,847 41,468,554 Shares issued to shareholders in payment of distributions declared 1,585,481 229,562 Shares redeemed (225,992,144) (11,564,843) Net change resulting from Institutional Service Shares transactions 62,142,184 30,133,273 PERIOD ENDED OCTOBER 31, 1996(b) 1995 INSTITUTIONAL SHARES SHARES SHARES Shares sold 32,157,441 -- Shares issued to shareholders in payment of distributions 4,581 -- declared Shares redeemed (20,548,350) -- Net change resulting from Institutional Shares transactions 11,613,672 -- Net change resulting from Fund share transactions 73,755,856 30,133,273
(a) For the period from June 20, 1995 (date of initial public investment) to October 31, 1995. (b) For the period from March 2, 1996 (date of initial public investment) to October 31, 1996. 4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.50% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expense of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimburse 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 for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES -- Organizational expenses of $18,618 were borne initially by Adviser. The Fund has agreed to reimburse Adviser for the organizational expenses during the five-year period following effective date. For the period ended October 31, 1996, the Fund paid $1,655 pursuant to this agreement. INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, 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 $155,639,000 and $143,539,000, respectively. GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 5. CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 75.1% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 8.7% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (MICHIGAN MUNICIPAL CASH TRUST): We have audited the accompanying statement of assets and liabilities of Michigan Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio investments, as of October 31, 1996, the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see pages 2 and 15 of the prospectus) for the periods presented. 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 October 31, 1996, 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 Michigan Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania December 13, 1996 ADDRESSES Michigan Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, PA 15222-3779 Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 Transfer Agent and Dividend Disbursing Agent Federated Shareholder P.O. Box 8600 Services Company Boston, MA 02266-8600 Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 MICHIGAN MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 [Graphic] Federated Investors Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. Cusip 314229725 G01212-01 (12/96) MICHIGAN MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES INSTITUTIONAL SERVICE SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectuses of Michigan Municipal Cash Trust (the ``Fund'), a portfolio of Federated Municipal Trust (the ``Trust') dated December 31, 1996. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-341-7400. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1996 [logo] Federated Securities Corp. is the distributor of the Funds and is a subsidiary of Federated Investors. Cusip 314229667 Cusip 314229725 G01212 02 (12/96) INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1 Repurchase Agreements 2 Credit Enhancement 2 INVESTMENT LIMITATIONS 2 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 Share Ownership 8 Trustees Compensation 9 Trustee Liability 9 INVESTMENT ADVISORY SERVICES 10 Investment Adviser 10 Advisory Fees 10 BROKERAGE TRANSACTIONS 10 OTHER SERVICES 10 Fund Administration 10 Custodian and Portfolio Accountant 11 Transfer Agent 11 Independent Public Accountants 11 SHAREHOLDER SERVICES 11 DETERMINING NET ASSET VALUE 11 REDEMPTION IN KIND 12 MASSACHUSETTS PARTNERSHIP LAW 12 THE FUND'S TAX STATUS 12 PERFORMANCE INFORMATION 12 Yield 12 Effective Yield 12 Tax-Equivalent Yield 13 Tax-Equivalency Table 13 Total Return 14 Performance Comparisons 14 Economic and Market Information 14 ABOUT FEDERATED INVESTORS 14 Mutual Fund Market 15 Institutional Clients 15 Trust Organizations 15 Broker/Dealers and Bank Broker/Dealer Subsidiaries 15 APPENDIX 16 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security; the issuer of any demand feature applicable to the security; or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an `event of non-appropriation''); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations (`NRSROs'') or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group (`S&P''), MIG-1 or MIG-2 by Moody's Investors Service, Inc. (`Moody's''), or F-1+, F-1, or F-2 by Fitch Investors Service, Inc. (`Fitch'') are all considered rated in one of the two highest short-term rating categories. The Fund will follow applicable regulations in determining whether a security rated by more than one NRSRO can be treated as being in one of the two highest short-term rating categories; currently, such securities must be rated by two NRSROs in one of their two highest rating categories. See `Regulatory Compliance.'' WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund in a dollar amount sufficient to make payment for the securities to be purchased are: segregated on the Fund`s records at the trade date; marked to market daily; and maintained until the transaction is settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the `credit enhancer''), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. MICHIGAN INVESTMENT RISKS Michigan's economy continues to be among the most cyclical of states, remaining heavily dependent on domestic auto production and durable goods consumption. While manufacturing comprises 23% of the total jobs in the state, relative to 17% nationally, it comprises a lesser share than in the 1970s when it was 35%. The automobile industry has reduced its share of employment to 6.9% of total employment, compared with 10.8% in 1979. In fact, Michigan's economy continues to shift away from durable goods manufacturing to a more diversified base reliant on services and trade. This shift to jobs in service and trade industries has, however, resulted in declines in per capita income relative to the nation. As of June 1995, unemployment stood at 6.2%, still above the national level of 5.6%. However, the economic recovery from the early 1990s recession has proved hearty in Michigan as employment levels reached an all-time high, attracting more workers into the labor force. On August 19, 1993, the Governor of Michigan signed into law Act 145, Public Acts of Michigan, 1993 (Act 145), a measure which significantly impacted financing of primary and secondary school operations and which has resulted in additional property tax and school reform legislation. Michigan's school finance reform shifts the responsibility of funding schools away from the local district and their real property tax bases to the state and an earmarked portion of sales taxes. Moreover, the state government is also subject to a revenue raising cap which is tied to the annual state personal income growth. The margin between existing revenue and the constitutional cap is greatly narrowed now that the state absorbs the costs of funding the local schools. Over the long term the cap may reduce the state's flexibility to deal with adverse financial developments. Concerning Michigan's fiscal policy, the state has proven that it can maintain a balanced budget, low debt levels and high reserves. While the state's Rainy Day Fund was drawn down substantially during fiscal years 1990-92 in order to meet budget needs of the state during fiscal stress, spending restraint and an improved economy enabled the state to begin to restore balances in fiscal 1993. By the end of fiscal 1995, the Budget Stabilization Fund reached an historically high level with a continuation of this position currently projected for the year ending September 30, 1996. While Michigan's economy is in good standing now because of conservative budgeting practices and the improved economy, the enduring effectiveness of the state's financial management will continue to be tested by economic cycles. INVESTMENT LIMITATIONS 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. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous.The Fund will not purchase any securities while borrowings in excess of 5% of the value of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may purchase or hold portfolio securities permitted by its investment objective, policies, and limitations or the Trust's Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, including limited partnership interests, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not invest 25% or more of the value of its total assets in any one industry, or in industrial development bonds or other securities the interest upon which is paid from revenues of similar types of projects, except that the Fund may invest 25% or more of the value of its total assets in cash, cash items, or securities issued or guaranteed by the government of the United States or its agencies, or instrumentalities and repurchase agreements collateralized by such U.S. government securities. The above limitations cannot be changed without shareholder approval. The following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities including certain restricted securities not determined to be liquid under criteria established by the Trustees and repurchase agreements providing for settlement in more than seven days after notice. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be `cash items.'' Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments , as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director or Trustee of the Funds. Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee, University of Pittsburgh; Director or Trustee of the Funds. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest Florida; formerly, President, Naples Property Management, Inc. and Northgate Village Development Corporation; Director or Trustee of the Funds. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds. Edward L. Flaherty, Jr.@ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region; Director or Trustee of the Funds. Glen R. Johnson* Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. Peter E. Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16, 1942 Trustee Consultant; Former State Representative, Commonwealth of Massachusetts; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation; Director or Trustee of the Funds. Gregor F. Meyer Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director or Trustee of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics; Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., National Defense University, U.S. Space Foundation and Czech Management Center; President Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council for Environmental Policy and Technology, Federal Emergency Management Advisory Board and Czech Management Center; Director or Trustee of the Funds. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/Marketing/Conference Planning, Manchester Craftsmen's Guild; Restaurant Consultant, Frick Art & History Center; Conference Coordinator, University of Pittsburgh Art History Department; Director or Trustee of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated Shareholder Services; Director, Federated Services Company; President or Executive Vice President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Shareholder Services Company; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President , Secretary and Treasurer Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. *This Trustee is deemed to be an ``interested person'' as defined in the Investment Company Act of 1940. @Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board between meetings of the Board. As referred to in the list of Trustees and Officers, `Funds'' includes the following investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated Investment Portfolios; Federated Investment Trust; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding Shares. As of December 2, 1996, the following shareholder(s) of record owned 5% or more of the outstanding shares of the Michigan Municipal Cash Trust - Institutional Shares: Sunatco Partnership, Hancock, MI, ( 11.51%); and First Mar & Co., Marquette, MI, ( 71.16%). As of December 2, 1996, the following shareholder(s) of record owned 5% or more of the outstanding shares of the Michigan Municipal Cash Trust - Institutional Service Shares: Enbanco, Traverse City, MI, ( 5.80%); McDonald & Co. Securities, Inc., Cincinnati, OH, (37.98%); Walbridge-White, Detroit, MI, (6.20%); and Metamora Products Corporation, ( 5.05%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 54 other investment companies in the Fund Complex Thomas G. Bigley++ $3,611 $86,331 for the Trust and Trustee 54 other investment companies in the Fund Complex John T. Conroy, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex William J. Copeland $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Peter E. Madden $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Gregor F. Meyer $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex John E. Murray, Jr., $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Wesley W. Posvar $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Marjorie P. Smuts $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1996. #The aggregate compensation is provided for the Trust which is comprised of 16 portfolios. +The information is provided for the last calendar year. ++ Mr. Bigley served on 39 investment companies in the Federated Funds complex from January 1 through September 30, 1995. On October 1, 1995, he was appointed a Trustee on 15 additional Federated Funds. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Michigan Municipal Cash Trust, the Fund,or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Michigan Municipal Cash Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal year ended October 31, 1996, and for the period from June 20, 1995 (date of initial public investment) to October 31, 1995, the adviser earned $337,325, and $32,107, respectively, of which $337,325 and $32,107 respectively, were waived. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the period from March 2, 1996 (date of initial public investment) to October 31, 1996, Institutional Shares of the Fund paid no brokerage commissions. During the fiscal year ended October 31, 1996, Institutional Service Shares of the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative Services served as the Fund's Administrator. Prior to March 1, 1994, Federated Administrative Services, Inc. served as the Fund's Administrator. Both former Administrators are subsidiaries of Federated Investors. For purposes of this Statement of Additional Information, Federated Services Company, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the `Administrators.'' For the fiscal years ended October 31, 1996, and for the period from June 20, 1995 (date of initial public investment) to October 31, 1995, the Administrators earned $145,082,and $45,548, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. The fee paid for this service is based upon the level of the Fund's average net assets for the period plus out-of- pocket expenses. TRANSFER AGENT Federated Services Company, through its registered transfer agent, Federated Shareholder Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on the size, type and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. SHAREHOLDER SERVICES This arrangement permits the payment of fees to Federated Shareholder Services to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Agreement, the Trustees expect that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the period from March 2,1996 (date of initial public investment) to October 31, 1996, the Fund paid shareholder service fees in the amount of $15,830 on behalf of Institutional Shares, all of which were waived. For the fiscal year ended October 31, 1996, the Fund paid shareholder service fees in the amount of $152,832 on behalf of Institutional Service Shares, of which $73,359 were waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the `Rule'') promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the `base period.'' This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. For the seven-day period ended October 31, 1996, the yield for Institutional Shares and Institutional Service Shares was 3.35% and 3.22%, respectively. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. For the seven-day period ended October 31, 1996, the effective yield for Institutional Shares and Institutional Service Shares was 3.41%, and 3.27%, respectively. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming 44% tax rate (the maximum combined effective federal and state rate for individuals) and assuming that the income is 100% tax exempt. For the seven-day period ended October 31, 1996, the tax-equivalent yield for Institutional Shares and Institutional Service Shares was 5.98%,and 5.75%, respectively. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a `tax- free''investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1996 STATE OF MICHIGAN COMBINED FEDERAL AND STATE INCOME TAX BRACKET: 19.40% 32.40% 35.40% 40.40% 44.00% JOINT $1- $40,101- $96,901- $147,701- OVER RETURN 40,100 96,900 147,700 263,750 $263,750 SINGLE $1- $24,001- $58,151- $121,301- OVER RETURN 24,000 58,150 121,300 263,750 $263,750 TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT 1.50% 1.86% 2.22% 2.32% 2.52% 2.68% 2.00% 2.48% 2.96% 3.10% 3.36% 3.57% 2.50% 3.10% 3.70% 3.87% 4.19% 4.46% 3.00% 3.72% 4.44% 4.64% 5.03% 5.36% 3.50% 4.34% 5.18% 5.42% 5.87% 6.25% 4.00% 4.96% 5.92% 6.19% 6.71% 7.14% 4.50% 5.58% 6.66% 6.97% 7.55% 8.04% 5.00% 6.20% 7.40% 7.74% 8.39% 8.93% 5.50% 6.82% 8.14% 8.51% 9.23% 9.82% 6.00% 7.44% 8.88% 9.29% 10.07% 10.71% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. Cumulative total return reflects the total performance over a specific period of time. For the period from March 2, 1996 (date of initial public investment) through October 31, 1996, the cumulative total return for Institutional Shares was 2.19%. This total return is representative of only eight months of activity since the date of initial public investment. For the one- year period ended October 31, 1996 and for the period from June 20, 1995 (date of initial public investment) through October 31, 1996 the average annual total returns were 3.26% and 3.38%, respectively, for Institutional Service Shares. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. oMONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. Advertising and other promotional literature may include charts, graphs and other illustrations using the Fund`s returns, or returns in general, that demonstrate basic investment concepts such as tax-deferred compounding, dollar-cost averaging and systematic investment. In addition, the Fund can compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, such as bank savings accounts, certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION Advertising and sales literature for the Fund may include discussions of economic, financial and political developments and their effect on the securities market. Such discussions may take the form of commentary on these developments by the Fund portfolio mangers and their views and analysis on how such developments could affect the Funds. In addition, advertising and sales literature may quote statistics and give general information about the mutual fund industry, including growth of the industry, from sources such as the Investment Company Institute. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. These traders handle trillions of dollars in annual trading volume. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1995, Federated Investors managed more than $40.2 billion in assets across approximately 47 money market funds, including 17 government, 10 prime and 20 municipal with assets approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $3 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. Federated's service to financial professionals and institutions has earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for service quality measurement. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (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 rate `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. MOODYS 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 SERVICES, INC. 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. GEORGIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) PROSPECTUS The Shares of Georgia Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Georgia municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Georgia, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and the income tax imposed by the State of Georgia consistent with stability of principal and liquidity. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact your financial institution. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Georgia Municipal Securities 5 Investment Risks 6 Investment Limitations 6 FUND INFORMATION 7 - ------------------------------------------------------ Management of the Fund 7 Distribution of Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 - ------------------------------------------------------ HOW TO PURCHASE SHARES 9 - ------------------------------------------------------ Special Purchase Features 10 HOW TO REDEEM SHARES 10 - ------------------------------------------------------ Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 11 - ------------------------------------------------------ TAX INFORMATION 12 - ------------------------------------------------------ Federal Income Tax 12 State and Local Taxes 13 PERFORMANCE INFORMATION 13 - ------------------------------------------------------ FINANCIAL STATEMENTS 14 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 26 - ------------------------------------------------------ ADDRESSES 27 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)........................................ None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)........................................ None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)...................... None Redemption Fee (as a percentage of amount redeemed, if applicable)........... None Exchange Fee................................................................. None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)............................................. 0.10% 12b-1 Fee.................................................................... None Total Other Expenses......................................................... 0.49% Shareholder Services Fee................................................ 0.25% Total Operating Expenses(2)........................................ 0.59%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The Total Operating Expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1997. The Total Operating Expenses were 0.46% for fiscal year ended October 31, 1996 and would have been 0.98% absent the voluntary waiver of a portion of the management fee. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Fund will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information". Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ---------------------------------------------------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period........... $6 $19 $33 $ 74
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. GEORGIA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of Independent Public Accountants on page 26.
YEAR ENDED OCTOBER 31, ------------------------ 1996 1995(a) -------- ----------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 - ---------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ---------------------------------------------------------------- Net investment income 0.03 0.01 - ---------------------------------------------------------------- LESS DISTRIBUTIONS - ---------------------------------------------------------------- Distributions from net investment income (0.03) (0.01) - ---------------------------------------------------------------- ----- NET ASSET VALUE, END OF PERIOD $1.00 $1.00 - ---------------------------------------------------------------- ----- ----- TOTAL RETURN(b) 3.37% 0.73% - ---------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------------------------------------- Expenses 0.46% 0.25%* - ---------------------------------------------------------------- Net investment income 3.31% 3.81%* - ---------------------------------------------------------------- Expense waiver/reimbursement (c) 0.52% 0.75%* - ---------------------------------------------------------------- SUPPLEMENTAL DATA - ---------------------------------------------------------------- Net assets, end of period (000 omitted) $122,940 $111,278 - ----------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from August 22, 1995 (date of initial public investment) to October 31, 1995. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The Fund is designed for financial institutions acting in an agency or fiduciary capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Georgia taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the income tax imposed by the State of Georgia consistent with stability of principal and liquidity. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and the income taxes imposed by the State of Georgia. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Georgia and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and the income taxes imposed by the State of Georgia ("Georgia Municipal Securities"). Examples of Georgia Municipal Securities include, but are not limited to: - tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; - bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; - municipal commercial paper and other short-term notes; - variable rate demand notes; - municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and - participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Georgia Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Georgia Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other depository institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Georgia Municipal Securities is subject to the federal alternative minimum tax. GEORGIA MUNICIPAL SECURITIES Georgia Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Georgia Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Georgia Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Georgia Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Georgia Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Georgia Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Georgia Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Georgia Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Georgia Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations, the Fund's concentration in Georgia Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. FUND INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to 0.50% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to 0.25% of the average daily net asset value of Fund shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature, and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
AVERAGE AGGREGATE MAXIMUM FEE DAILY NET ASSETS - ------------ ------------------------------------ 0.15% on the first $250 million 0.125% on the next $250 million 0.10% on the next $250 million 0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of its shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting total liabilities from total assets and dividing the remainder by the number of shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more over a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Georgia Municipal Cash Trust; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Georgia Municipal Cash Trust. 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. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Shareholder Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company, or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION - -------------------------------------------------------------------------------- DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of each portfolio in the Trust have equal voting rights; except that in matters affecting only a particular portfolio, only shareholders of that portfolio are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Georgia. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. GEORGIA TAXES. Under existing Georgia law, shareholders of the Fund will not be subject to individual or corporate Georgia income taxes on distributions from the Fund to the extent that such distributions represent exempt-interest dividends for federal income tax purposes that are attributable to (1) interest-bearing obligations issued by or on behalf of the State of Georgia or its political subdivisions, or (2) interest on obligations of the United States or of any other issuer whose obligations are exempt from state income taxes under federal law. Distributions, if any, derived from capital gains or other sources generally will be taxable for Georgia income tax purposes to shareholders of the Fund who are subject to the Georgia income tax. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the Fund after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. GEORGIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- --------------------------------------------------------------- ------------ (a)SHORT-TERM MUNICIPALS--98.8% - ------------------------------------------------------------------------------- GEORGIA--96.4% --------------------------------------------------------------- $ 1,000,000 Athens, GA Water & Sewer District, (Series A), 7.60% Bonds $ 1,026,895 (United States Treasury PRF), 1/1/1997 (@102) --------------------------------------------------------------- 5,000,000 Athens-Clarke County, GA IDA, (Series 1988), 3.70% CP (Rhone 5,000,000 Merieux, Inc. Project)/(Societe Generale, Paris LOC), Mandatory Tender 11/18/1996 --------------------------------------------------------------- 1,600,000 Atlanta, GA, Urban Residential Finance Authority, Multifamily 1,600,000 Housing Revenue Bonds (Series 1995) Weekly VRDNs (West End Housing Development Project)/(First Union National Bank, Charlotte, NC LOC) --------------------------------------------------------------- 4,800,000 Atlanta, GA, Urban Residential Finance Authority, Multifamily 4,800,000 Rental Housing Revenue Refunding Bonds (Series 1988A), 3.90% TOBs (West Paces Club Towers Project)/(Sanwa Bank Ltd, Osaka LOC), Optional Tender 11/1/1996 --------------------------------------------------------------- 2,500,000 Brunswick and Glynn County, GA Development Authority, Multi- 2,500,000 Mode Variable Rate IDRB (Series 1996) Weekly VRDNs (Daewoo Equipment Corp.)/(KeyBank, N.A. LOC) --------------------------------------------------------------- 3,925,000 Brunswick, GA, Housing Authority, (Series S93) Weekly VRDNs 3,925,000 (Island Square Apartments)/(Columbus Bank and Trust Co., GA LOC) --------------------------------------------------------------- 3,400,000 Burke County, GA Development Authority, (Series 1992A), 3.65% 3,400,000 CP (Oglethorpe Power Corp.)/(Credit Suisse, Zurich LOC), Mandatory Tender 1/23/1997 --------------------------------------------------------------- 1,950,000 Carrolton, GA Payroll Development Authority, (Series 1993) 1,950,000 Weekly VRDNs (Sunox, Inc. Project)/(First Union National Bank, Charlotte, NC LOC) --------------------------------------------------------------- 1,885,000 Cherokee County, GA Development Authority, IDRB Weekly VRDNs 1,885,000 (Morrison Products, GA)/(KeyBank, N.A. LOC) --------------------------------------------------------------- 2,300,000 Clayton County, GA Development Authority, (Series 1994) Weekly 2,300,000 VRDNs (Lear Seating Corp.)/(Chase Manhattan Bank N.A., New York LOC) ---------------------------------------------------------------
GEORGIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- --------------------------------------------------------------- ------------ SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------- GEORGIA--CONTINUED --------------------------------------------------------------- $ 1,800,000 Cobb County, GA IDA, IDRB (Series 1995) Weekly VRDNs $ 1,800,000 (Consolidated Engineering Company, Inc. Project)/(NationsBank, South LOC) --------------------------------------------------------------- 1,365,000 Cobb County, GA, Water & Sewer, 5.00% Bonds, 7/1/1997 1,374,656 --------------------------------------------------------------- 1,170,000 Columbia County, GA Development Authority, (Series 1991) Weekly 1,170,000 VRDNs (Augusta Sportswear, Inc.)/(Wachovia Bank of Georgia N.A., Atlanta LOC) --------------------------------------------------------------- 1,330,000 Columbus, GA IDA, (Series 90B) Weekly VRDNs (R. P. Real Estate, 1,330,000 Inc.)/(Columbus Bank and Trust Co., GA LOC) --------------------------------------------------------------- 3,000,000 Coweta County, GA IDA, (Series 1995) Weekly VRDNs (Lanelco 3,000,000 L.L.C. Project)/(NBD Bank, Michigan LOC) --------------------------------------------------------------- 6,000,000 Crisp County, GA Development Authority, (Series B), 4.10% TOBs 6,000,000 (Masonite Corporation)/(International Paper Co. GTD), Optional Tender 9/1/1997 --------------------------------------------------------------- 3,250,000 Dalton, GA, 3.98% TANs, 12/31/1996 3,250,931 --------------------------------------------------------------- 1,580,000 De Kalb County, GA Development Authority, (Series 1992) Weekly 1,580,000 VRDNs (House of Cheatham, Inc. Project)/(NationsBank, South LOC) --------------------------------------------------------------- 600,000 De Kalb County, GA Development Authority, (Series 1993) Weekly 600,000 VRDNs (Pet, Inc.)/(PNC Bank, N.A. LOC) --------------------------------------------------------------- 2,950,000 Douglas County, GA School District, 3.75% TANs, 12/31/1996 2,952,356 --------------------------------------------------------------- 1,000,000 Floyd County, GA, (Series 1996), 3.49% TANs, 12/31/1996 1,000,142 --------------------------------------------------------------- 1,000,000 Forsythe County, GA Development Authority, IDRB (Series 1995) 1,000,000 Weekly VRDNs (American BOA, Inc. Project)/(Dresdner Bank Ag, Frankfurt LOC) --------------------------------------------------------------- 1,000,000 Fulton County, GA Building Authority, 8.20% Bonds (United 1,027,513 States Treasury PRF), 1/1/1997 (@102) --------------------------------------------------------------- 2,335,000 Fulton County, GA Housing Authority, Multifamily Housing 2,335,000 Revenue Bonds (Series 1993) Weekly VRDNs (Provence North Apartments Project)/(Federal Home Loan Bank of Atlanta LOC) ---------------------------------------------------------------
GEORGIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- --------------------------------------------------------------- ------------ SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------- GEORGIA--CONTINUED --------------------------------------------------------------- $ 3,655,000 Fulton County, GA IDA Weekly VRDNs (C.K.S. Packaging, Inc.)/ $ 3,655,000 (SouthTrust Bank of Georgia, Atlanta LOC) --------------------------------------------------------------- 1,000,000 Fulton County, GA School District, 7.625% Bonds (United States 1,047,552 Treasury PRF), 5/1/1997 (@103) --------------------------------------------------------------- 2,000,000 Georgia State Port Authority, (Series 1996A) Weekly VRDNs 2,000,000 (Colonel's Island Terminal)/(SunTrust Bank, Atlanta LOC) --------------------------------------------------------------- 4,585,000 Georgia State HFA, (Series 1990C), 3.75% TOBs (First National 4,585,000 Bank of Chicago LIQ), Optional Tender 12/1/1996 --------------------------------------------------------------- 4,000,000 Georgia State Municipal Gas Authority, Gas Revenue Bonds 4,000,000 (Series D), 3.60% CP (Wachovia Bank of NC, N.A., Winston-Salem LOC), Mandatory Tender 11/21/1996 --------------------------------------------------------------- 2,000,000 Georgia State Municipal Gas Authority, Gas Revenue Bonds 2,000,000 (Series D), 3.65% CP (Wachovia Bank of NC, N.A., Winston-Salem LOC), Mandatory Tender 11/19/1996 --------------------------------------------------------------- 1,000,000 Glynn County, GA, 3.60% TANs, 12/31/1996 1,000,318 --------------------------------------------------------------- 1,000,000 Gwinnett County, GA School District, UT GO (Series B), 5.45% 1,004,756 Bonds, 2/1/1997 --------------------------------------------------------------- 3,375,000 Jackson County, GA IDA, (Series 1996) Weekly VRDNs (Buhler 3,375,000 Quality Yarns Corporation Project)/(Union Bank of Switzerland, Zurich LOC) --------------------------------------------------------------- 3,180,000 La Grange, GA, Multifamily Housing Authority, Revenue Bonds, 3,180,000 4.25% TOBs (Lee's Crossing Project Phase II)/(Barnett Bank, N.A. LOC), Optional Tender 11/1/1996 --------------------------------------------------------------- 3,000,000 La Grange, GA, Multifamily Housing Authority, Revenue Bonds, 3,000,000 4.25% TOBs (Lee's Crossing Project Phase I)/(Barnett Bank, N.A. LOC), Optional Tender 11/1/1996 --------------------------------------------------------------- 660,000 Macon-Bibb County, GA Industrial Authority, IDRB (Series 1990) 660,000 Weekly VRDNs (Diamond Plastics Corporation Project)/ (Nationsbank, N.A. LOC) ---------------------------------------------------------------
GEORGIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- --------------------------------------------------------------- ------------ SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------- GEORGIA--CONTINUED --------------------------------------------------------------- $ 5,000,000(b) Marietta, GA Housing Authority, Multifamily Housing Revenue $ 5,000,000 Bonds (Series 1995) Weekly VRDNs (Chalet Apartments Project)/ (General Electric Capital Corp. LOC) --------------------------------------------------------------- 1,600,000 Municipal Electric Authority of Georgia, (Series 1985A), 3.50% 1,600,000 CP (Bayerische Landesbank Girozentrale, Credit Suisse, Zurich and Morgan Guaranty Trust Co., New York LOCs), Mandatory Tender 12/10/1996 --------------------------------------------------------------- 3,000,000 Municipal Electric Authority of Georgia, (Series 1994B), 3.50% 3,000,000 CP (ABN AMRO Bank N.V., Amsterdam LOC), Mandatory Tender 12/10/1996 --------------------------------------------------------------- 2,000,000 Municipal Electric Authority of Georgia, (Series 1994B), 3.80% 2,000,000 CP (ABN AMRO Bank N.V., Amsterdam LOC), Mandatory Tender 1/15/1997 --------------------------------------------------------------- 4,000,000 Municipal Electric Authority of Georgia, (Series 1996A), 4.75% 4,006,574 Bonds (AMBAC INS), 1/1/1997 --------------------------------------------------------------- 1,000,000 Richmond County, GA Development Authority, Solid Waste Disposal 1,000,000 Revenue Bonds, (Series 1995) Weekly VRDNs (Federal Paper Board Co., Inc.)/(Wachovia Bank of Georgia N.A., Atlanta LOC) --------------------------------------------------------------- 1,000,000 Rockdale County, GA Development Authority, (Series 1995) Weekly 1,000,000 VRDNs (Great Southern Wood Preserving Co.)/(SunTrust Bank, Central Florida LOC) --------------------------------------------------------------- 4,600,000 Roswell, GA Housing Authority, Multifamily Housing Refunding 4,600,000 Revenue Bonds (Series 1988A) Weekly VRDNs (Belcourt Ltd. Project)/(Northern Trust Co., Chicago, IL LOC) --------------------------------------------------------------- 1,000,000 Screven County, GA IDA, (Series 1995) Weekly VRDNs (Sylvania 1,000,000 Yarn Systems, Inc. Project)/(SunTrust Bank, Atlanta LOC) --------------------------------------------------------------- 1,000,000 Wayne County, GA, IDA, Revenue Bonds, (Series 1995) Weekly 1,000,000 VRDNs (Harsco Corp.)/(NationsBank, N.A. LOC) --------------------------------------------------------------- 4,000,000 Whitfield County, GA Development Authority Weekly VRDNs 4,000,000 (Franklin Industries Inc., Project)/(NationsBank, N.A. LOC) ---------------------------------------------------------------
GEORGIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- --------------------------------------------------------------- ------------ SHORT-TERM MUNICIPALS--CONTINUED - ------------------------------------------------------------------------------- GEORGIA--CONTINUED --------------------------------------------------------------- $ 2,350,000 Whitfield County, GA Development Authority, (Series 1996) $ 2,350,000 Weekly VRDNs (AMC International, Inc. Project)/(SouthTrust Bank of Alabama, Birmingham LOC) --------------------------------------------------------------- 1,565,000 Winder-Barrow Industrial Building Authority, (Series 1996) 1,565,000 Weekly VRDNs (Windor Builders Supply, Inc. Project)/(National Bank of Canada, Montreal LOC) --------------------------------------------------------------- ------------ Total 118,436,693 --------------------------------------------------------------- ------------ PUERTO RICO--2.4% --------------------------------------------------------------- 3,000,000 Puerto Rico Government Development Bank, 3.65% CP, Mandatory 3,000,000 Tender 2/14/1997 --------------------------------------------------------------- ------------ TOTAL INVESTMENTS (AT AMORTIZED COST)(c) $121,436,693 --------------------------------------------------------------- ------------
Securities that are subject to Alternative Minimum Tax represent 57.0% of the portfolio as calculated based upon total market value. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by Fitch Investors Service, Inc. Are all considered rated in one of the two highest short-term rating categories. Securities rated in the highest short-term rating category (and unrated securities of comparable quality) are identified as First Tier securities. Securities rated in the second highest short-term rating category (and unrated securities of comparable quality) are identified as Second Tier securities. The Fund follows application regulations in determining whether a security is rated and whether a security rated by multiple NRSRO's in different rating categories should be identified as a First or Second Tier security. At October 31, 1996, the portfolio securities were rated as follows: TIER RATING PERCENTAGE BASED ON TOTAL MARKET VALUE (UNAUDITED)
FIRST TIER SECOND TIER - ----------- ------------ 95.06% 4.94%
(b) Denotes a restricted security which is subject to restrictions on resale under Federal Securities laws. At the end of the period, these securities amounted to $5,000,000, which represents 4.1% of net assets. (c) Also represents cost for federal tax purposes. GEORGIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- Note: The categories of investments are shown as a percentage of net assets ($122,940,033) at October 31, 1996. The following acronyms are used throughout this portfolio: AMBAC --American Municipal Bond Assurance Corporation CP --Commercial Paper GO --General Obligation GTD --Guaranty HFA --Housing Finance Authority IDA --Industrial Development Authority IDRB --Industrial Development Revenue Bond INS --Insured LIQ --Liquidity Agreement LOC(s) --Letter of Credit(s) PRF --Prerefunded TANs --Tax Anticipation Notes TOBs --Tender Option Bonds UT --Unlimited Tax VRDNs --Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements) GEORGIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $121,436,693 - ------------------------------------------------------------------------------- Cash 697,216 - ------------------------------------------------------------------------------- Income receivable 964,697 - ------------------------------------------------------------------------------- Receivable for shares sold 1,403 - ------------------------------------------------------------------------------- Deferred expenses 22,800 - ------------------------------------------------------------------------------- ------------ Total assets 123,122,809 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable for shares redeemed $ 2,297 - -------------------------------------------------------------------- Income distribution payable 128,766 - -------------------------------------------------------------------- Accrued expenses 51,713 - -------------------------------------------------------------------- -------- Total liabilities 182,776 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 122,940,033 shares outstanding $122,940,033 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------- $122,940,033 / 122,940,033 shares outstanding $1.00 - ------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) GEORGIA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ----------------------------------------------------------------------------------- Interest $4,425,034 - ----------------------------------------------------------------------------------- EXPENSES: - ----------------------------------------------------------------------------------- Investment advisory fee $ 586,560 - ---------------------------------------------------------------------- Administrative personnel and services fee 125,000 - ---------------------------------------------------------------------- Custodian fees 25,024 - ---------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 20,430 - ---------------------------------------------------------------------- Directors'/Trustees' fees 1,425 - ---------------------------------------------------------------------- Auditing fees 8,396 - ---------------------------------------------------------------------- Legal fees 2,470 - ---------------------------------------------------------------------- Portfolio accounting fees 41,104 - ---------------------------------------------------------------------- Shareholder services fee 293,280 - ---------------------------------------------------------------------- Share registration costs 32,351 - ---------------------------------------------------------------------- Printing and postage 6,374 - ---------------------------------------------------------------------- Insurance premiums 6,189 - ---------------------------------------------------------------------- Miscellaneous 7,225 - ---------------------------------------------------------------------- --------- Total expenses 1,155,828 - ---------------------------------------------------------------------- Waivers-- - ---------------------------------------------------------------------- Waiver of investment advisory fee $(559,762) - ---------------------------------------------------------- Waiver of shareholder services fee (54,088) - ---------------------------------------------------------- --------- Total waivers (613,850) - ---------------------------------------------------------------------- --------- Net expenses 541,978 - ----------------------------------------------------------------------------------- ---------- Net investment income $3,883,056 - ----------------------------------------------------------------------------------- ----------
(See Notes which are an integral part of the Financial Statements) GEORGIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED OCTOBER 31, 1996 OCTOBER 31, 1995(a) ---------------- ------------------- INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------------ OPERATIONS-- - ------------------------------------------------------ Net investment income $ 3,883,056 $ 663,846 - ------------------------------------------------------ --------------- ----------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ------------------------------------------------------ Distributions from net investment income (3,883,056) (663,846) - ------------------------------------------------------ --------------- ----------------- SHARE TRANSACTIONS-- - ------------------------------------------------------ Proceeds from sale of shares 594,865,591 276,631,071 - ------------------------------------------------------ Net asset value of shares issued to shareholders in payment of distributions declared 2,027,740 363,049 - ------------------------------------------------------ Cost of shares redeemed (585,230,921) (165,716,497) - ------------------------------------------------------ --------------- ----------------- Change in net assets resulting from share transactions 11,662,410 111,277,623 - ------------------------------------------------------ --------------- ----------------- Change in net assets 11,662,410 111,277,623 - ------------------------------------------------------ NET ASSETS: - ------------------------------------------------------ Beginning of period 111,277,623 -- - ------------------------------------------------------ --------------- ----------------- End of period $ 122,940,033 $ 111,277,623 - ------------------------------------------------------ --------------- -----------------
(a) For the period from August 22, 1995 (date of initial public investment) to October 31, 1995. (See Notes which are an integral part of the Financial Statements) GEORGIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of Georgia Municipal Cash Trust (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 current income exempt from federal regular income tax and the income tax imposed by the State of Georgia consistent with stability of principal and liquidity. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized over a period not to exceed five years from the Fund's commencement 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. GEORGIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). At October 31, 1996, capital paid-in aggregated $122,940,033. Transactions in shares were as follows:
YEAR ENDED PERIOD ENDED OCTOBER 31, OCTOBER 31, 1996 1995(a) - ---------------------------------------------------------------- ------------ ------------ Shares sold 594,865,591 276,631,071 - ---------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 2,027,740 363,049 - ---------------------------------------------------------------- Shares redeemed (585,230,921) (165,716,497) - ---------------------------------------------------------------- ------------ ----------- Net change resulting from share transactions 11,662,410 111,277,623 - ---------------------------------------------------------------- ------------ -----------
(a) Reflects operations for the period from August 22, 1995 (date of initial public investment) to October 31, 1995. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.50% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent GEORGIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- 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. ORGANIZATIONAL EXPENSES--Organizational expenses of $13,648 were borne initially by Adviser. The Fund has agreed to reimburse Adviser for the organizational expenses during the five year period following effective date. For the period ended October 31, 1996, the Fund paid $1,062 pursuant to this agreement. INTERFUND TRANSACTIONS--During the period ended October 31, 1996, 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 $337,190,000 and $392,439,429, respectively. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. (5) CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 82.5% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 7.4% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Georgia Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Georgia Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996 and the related statement of operations for the year then ended and the statement of changes in net assets and the financial highlights (see page 2 of the prospectus) for the periods presented. 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 October 31, 1996, 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 Georgia Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania November 20, 1996 ADDRESSES - -------------------------------------------------------------------------------- Georgia Municipal Cash Trust Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ----------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ----------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ----------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, Massachusetts 02266-8600 - ----------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Shareholder Services Company P.O. Box 8600 Boston, Massachusetts 02266-8600 - ----------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, Pennsylvania 15222 - -----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GEORGIA MUNICIPAL CASH TRUST PROSPECTUS A Portfolio of Federated Municipal Trust, an Open-End Management Investment Company Prospectus dated December 31, 1996 LOGO FEDERATED INVESTORS Federated Investors Tower Pittsburgh, PA 1522-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. Cusip 3142229691 G01204-01 (12/96) GEORGIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus of Georgia Municipal Cash Trust (the ``Fund'), a portfolio of Federated Municipal Trust (the ``Trust') dated December 31, 1996. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-341-7400. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1996 [logo] Federated Securities Corp. is the distributor of the Fund and is a subsidiary of Federated Investors. Cusip 314229691 G01204-02 (12/96) INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1 Repurchase Agreements 2 Credit Enhancement 2 GEORGIA INVESTMENT RISKS 2 INVESTMENT LIMITATIONS 2 FEDERATED MUNICIPAL TRUST MANAGEMENT 4 Share Ownership 8 Trustees Compensation 9 Trustee Liability 9 INVESTMENT ADVISORY SERVICES 10 Investment Adviser 10 Advisory Fees 10 BROKERAGE TRANSACTIONS 10 OTHER SERVICES 10 Fund Administration 10 Custodian and Portfolio Accountant 11 Transfer Agent 11 Independent Public Accountants 11 DETERMINING NET ASSET VALUE 11 REDEMPTION IN KIND 12 MASSACHUSETTS PARTNERSHIP LAW 12 THE FUND'S TAX STATUS 12 PERFORMANCE INFORMATION 12 Yield 12 Effective Yield 12 Tax-Equivalent Yield 12 Tax-Equivalency Table 13 Total Return 14 Performance Comparisons 14 Economic and Market Information 14 ABOUT FEDERATED INVESTORS 14 Mutual Fund Market 15 Institutional Clients 15 Trust Organizations 15 Broker/Dealers and Bank Broker/Dealer Subsidiaries 15 APPENDIX 16 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security; the issuer of any demand feature applicable to the security; or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an `event of non-appropriation''); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations (`NRSROs'') or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group (`S&P''), MIG-1 or MIG-2 by Moody's Investors Service, Inc. (`Moody's''), or F-1+, F-1, or F-2 by Fitch Investors Service, Inc. (`Fitch'') are all considered rated in one of the two highest short-term rating categories. The Fund will follow applicable regulations in determining whether a security rated by more than one NRSRO can be treated as being in one of the two highest short-term rating categories; currently, such securities must be rated by two NRSROs in one of their two highest rating categories. See `Regulatory Compliance.'' WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund in a dollar amount sufficient to make payment for the securities to be purchased are: segregated on the Fund`s records at the trade date; marked to market daily; and maintained until the transaction is settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the `credit enhancer''), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. GEORGIA INVESTMENT RISKS Georgia's AAA rating by Fitch, Aaa rating by Moody's, and AA+ rating by S&P reflect the state's positive economic trends, conservative financial management, improved financial position, and low debt burden. While the state's economy was affected by the early 1990s recession, Georgia's economy has grown rapidly for the past two years with steady gains in employment and personal income per capita versus the national figure. Georgia ranks among the top five states in the nation in employment and total population growth reflecting the state's strong economic expansion. Job growth has been mainly centered in business and health services. Manufacturing employment grew slightly. Total non-farm employment grew 4.2% in 1995, well above the U.S. rate of 1.8%. As of April 1996, the state's unemployment rate was 4.2% while the national rate stood at 5.4%. The state's economy received a boost from the economic activity associated with the 1996 Olympic Games. The economic benefit of the games spawned considerable construction activity as well as additional revenue from the events. The state closed fiscal 1995 with positive financial results, and the revenue shortfall reserve fully funded at $288 million (3.0% of revenues). The state expects to end fiscal 1996 with strong year-end balances. Lottery Reserves will be increased to $128.8 million and the state has appropriated $103 million of fiscal 1996 surplus to pre-fund fiscal year 1997 debt service. The fund's concentration in securities issued by Georgia and its political subdivisions provide a greater level of risk than a fund whose assets are diversified across numerous states and municipal issuers. The ability of Georgia or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political and demographic conditions within Georgia; and the underlying fiscal condition of the state, its counties, and its municipalities. INVESTMENT LIMITATIONS 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. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money for investment leverage, but rather as a temporary, extraordinary, or emergency when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of the measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests value of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may purchase or hold portfolio securities permitted by its investment objective, policies, and limitations, or the Trust's Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, including limited partnership interests, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not invest 25% or more of the value of its total assets in any one industry, or in industrial development bonds or other securities the interest upon which is paid from revenues of similar types of projects, except that the Fund may invest 25% or more of the value of its total assets in cash, cash items, or securities issued or guaranteed by the government of the United States or its agencies, or instrumentalities and repurchase agreements collateralized by such U.S. government securities. The above limitations cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities including certain restricted securities not determined to be liquid under criteria established by the Trustees and repurchase agreements providing for settlement in more than seven days notice. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be `cash items.'' Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments , as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director or Trustee of the Funds. Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee, University of Pittsburgh; Director or Trustee of the Funds. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest Florida; formerly, President, Naples Property Management, Inc. and Northgate Village Development Corporation; Director or Trustee of the Funds. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds. Edward L. Flaherty, Jr.@ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region; Director or Trustee of the Funds. Glen R. Johnson* Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. Peter E. Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16, 1942 Trustee Consultant; Former State Representative, Commonwealth of Massachusetts; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation; Director or Trustee of the Funds. Gregor F. Meyer Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director or Trustee of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics; Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., National Defense University, U.S. Space Foundation and Czech Management Center; President Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council for Environmental Policy and Technology, Federal Emergency Management Advisory Board and Czech Management Center; Director or Trustee of the Funds. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/Marketing/Conference Planning, Manchester Craftsmen's Guild; Restaurant Consultant, Frick Art & History Center; Conference Coordinator, University of Pittsburgh Art History Department; Director or Trustee of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated Shareholder Services; Director, Federated Services Company; President or Executive Vice President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Shareholder Services Company; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President , Secretary and Treasurer Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. *This Trustee is deemed to be an ``interested person'' as defined in the Investment Company Act of 1940. @Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board between meetings of the Board. As referred to in the list of Trustees and Officers, `Funds'' includes the following investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated Investment Portfolios; Federated Investment Trust; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 2, 1996, the following shareholders of record owned 5% or more of the outstanding shares of the Georgia Municipal Cash Trust: Apps Dental, Inc. owned approximately 10,026,565 shares (8.25%); Cobatco owned approximately 21,019,708 shares (17.29%); Wachovia Bank of North Carolina owned approximately 26,515,367 shares (21.81%); Column Financial, Inc. owned approximately 7,854,640 shares (6.46%); and BHC Securities, Inc. owned approximately 12,596,222 shares (10.36%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 54 other investment companies in the Fund Complex Thomas G. Bigley++ $3,611 $86,331 for the Trust and Trustee 54 other investment companies in the Fund Complex John T. Conroy, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex William J. Copeland $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Peter E. Madden $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Gregor F. Meyer $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex John E. Murray, Jr., $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Wesley W. Posvar $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Marjorie P. Smuts $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1996. #The aggregate compensation is provided for the Trust which is comprised of 16 portfolios. +The information is provided for the last calendar year. ++ Mr. Bigley served on 39 investment companies in the Federated Funds complex from January 1 through September 30, 1995. On October 1, 1995, he was appointed a Trustee on 15 additional Federated Funds. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended October 31, 1996, and for the period from August 22, 1995 (date of initial public investment) through October 31, 1995, the adviser earned $586,560, and $87,222, respectively, of which $559,762, and $87,222, respectively, were waived. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. During the fiscal years ended October 31, 1996, and for the period from August 22, 1995 (date of initial public investment) through October 31,1995, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative Services served as the Fund's Administrator. Prior to March 1, 1994, Federated Administrative Services, Inc. served as the Fund's Administrator. Both former Administrators are subsidiaries of Federated Investors. For purposes of this Statement of Additional Information, Federated Services Company, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the `Administrators.'' For the fiscal years ended October 31,1996, and for the period from August 22, 1995 (date of initial public investment) through October 31, 1995, the Administrators earned $125,000, and $23,973, respectively. CUSTODIAN AND PORTFOLIO ACCOUNTANT State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. The fee paid for this service is based upon the level of the Fund's average net assets for the period plus out-of- pocket expenses. TRANSFER AGENT Federated Services Company, through its registered transfer agent, Federated Shareholder Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on the size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. SHAREHOLDER SERVICES This arrangement permits the payment of fees to Federated Shareholder Services to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Agreement, the Trustees expect that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal year ending October 31, 1996, the Fund paid shareholder services fees in the amount of $293,280, of which $54,088 was waived. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the `Rule'') promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the `base period.'' This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. The Fund's yield for the seven-day period ended October 31, 1996, was 3.18%. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. The Fund's effective yield for the seven-day period ended October 31, 1996, was 3.23%. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming 45.60% tax rate (the maximum combined effective federal and state rate for individuals) and assuming that the income is 100% tax exempt. The Fund's tax-equivalent yield for the seven-day period ended October 31, 1996, was 5.85%. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a `tax- free''investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1996 STATE OF GEORGIA COMBINED FEDERAL AND STATE:21.000% 34.000% 37.000% 42.000% 45.600% JOINT $1- $40,101- $96,901- $147,701- OVER RETURN 40,100 96,900 147,700 263,750 $263,750 SINGLE $1- $24,001- $58,151- $121,301- OVER RETURN 24,000 58,150 121,300 263,750 $263,750 Tax-Exempt Yield Taxable Yield Equivalent 1.50% 1.90% 2.27% 2.38% 2.59% 2.76% 2.00% 2.53% 3.03% 3.17% 3.45% 3.68% 2.50% 3.16% 3.79% 3.97% 4.31% 4.60% 3.00% 3.80% 4.55% 4.76% 5.17% 5.51% 3.50% 4.43% 5.30% 5.56% 6.03% 6.43% 4.00% 5.06% 6.06% 6.35% 6.90% 7.35% 4.50% 5.70% 6.82% 7.14% 7.76% 8.27% 5.00% 6.33% 7.58% 7.94% 8.62% 9.19% 5.50% 6.96% 8.33% 8.73% 9.48% 10.11% 6.00% 7.59% 9.09% 9.52% 10.34% 11.03% 6.50% 8.23% 9.85% 10.32% 11.21% 11.95% 7.00% 8.86% 10.61% 11.11% 12.07% 12.87% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. The Fund's average annual total returns for the one-year period ended October 31, 1996, and for the period from August 22, 1995 (date of initial public investment) through October 31, 1996, were 3.37% and 3.44%, respectively. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. oMONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. Advertising and other promotional literature may include charts, graphs and other illustrations using the Fund`s returns, or returns in general, that demonstrate basic investment concepts such as tax-deferred compounding, dollar-cost averaging and systematic investment. In addition, the Fund can compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, such as bank savings accounts, certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION Advertising and sales literature for the Fund may include discussions of economic, financial and political developments and their effect on the securities market. Such discussions may take the form of commentary on these developments by the Fund portfolio mangers and their views and analysis on how such developments could affect the Funds. In addition, advertising and sales literature may quote statistics and give general information about the mutual fund industry, including growth of the industry, from sources such as the Investment Company Institute. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. These traders handle trillions of dollars in annual trading volume. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1995, Federated Investors managed more than $40.2 billion in assets across approximately 47 money market funds, including 17 government, 10 prime and 20 municipal with assets approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $3 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. Federated's service to financial professionals and institutions has earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for service quality measurement. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (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 rate `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. MOODYS 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 SERVICES, INC. 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. TENNESSEE MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL CASH TRUST) INSTITUTIONAL SHARES PROSPECTUS The Institutional Shares of Tennessee Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Tennessee municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Tennessee, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and the personal income tax imposed by the State of Tennessee consistent with stability of principal and liquidity. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS SUMMARY OF FUND EXPENSES 1 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES 2 GENERAL INFORMATION 3 INVESTMENT INFORMATION 3 Investment Objective 3 Investment Policies 3 Tennessee Municipal Securities 6 Investment Risks 6 Investment Limitations 7 Hub and Spoke(R) Option 7 FUND INFORMATION 7 Management of the Fund 7 Distribution of Institutional Shares 8 Administration of the Fund 8 NET ASSET VALUE 9 HOW TO PURCHASE SHARES 9 HOW TO REDEEM SHARES 10 ACCOUNT AND SHARE INFORMATION 11 TAX INFORMATION 12 Federal Income Tax 12 State and Local Taxes 12 OTHER CLASSES OF SHARES 13 PERFORMANCE INFORMATION 13 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES 14 FINANCIAL STATEMENTS 15 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 25 ADDRESSES 26
SUMMARY OF FUND EXPENSES INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable) None Redemption Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None
ANNUAL OPERATING EXPENSES (As a percentage of projected average net assets) Management Fee (after waiver)(1) 0.00% 12b-1 Fee None Total Other Expenses (after expense reimbursement) 0.35% Shareholder Services Fee (after waiver)(2) 0.00% Total Operating Expenses(3) 0.35%
(1) The estimated management fee has been reduced to reflect the anticipated voluntary waiver of the management fee. The adviser can terminate this anticipated voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The shareholder services fee has been reduced to reflect the voluntary waiver of the shareholder services fee. The shareholder service provider can terminate this voluntary waiver at any time at its sole discretion. The maximum shareholder services fee is 0.25%. (3) The Total Operating Expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1997. The Total Operating Expenses were 0.10% for fiscal year ended October 31, 1996 and would have been 1.72% absent the voluntary waivers of the management fee and the shareholder services fee and the voluntary reimbursement of certain other operating expenses. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Institutional Shares of the Trust will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period $4 $11 $20 $44
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. TENNESSEE MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Reference is made to the Report of Independent Public Accountants on page 25.
PERIOD ENDED OCTOBER 31, 1996(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.01 LESS DISTRIBUTIONS Distributions from net investment income (0.01) NET ASSET VALUE, END OF PERIOD $ 1.00 TOTAL RETURN(b) 1.59% RATIOS TO AVERAGE NET ASSETS Expenses 0.10%* Net investment income 3.57%* Expense waiver/reimbursement(c) 1.62%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $17,824
* Computed on an annualized basis. (a) Reflects operations for the period from May 22, 1996 (date of initial public investment) to October 31, 1996. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees have established two classes of shares known as Institutional Shares and Institutional Service Shares. This prospectus relates only to Institutional Shares of the Fund, which are designed primarily for financial institutions acting in a fiduciary capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Tennessee taxpayers because it invests in municipal securities of that state. A minimum initial investment of $25,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the State of Tennessee consistent with stability of principal and liquidity. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and the personal income taxes imposed by the State of Tennessee. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Tennessee and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and the personal income taxes imposed by the State of Tennessee ("Tennessee Municipal Securities"). Examples of Tennessee Municipal Securities include, but are not limited to: * tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; * bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; * municipal commercial paper and other short-term notes; * variable rate demand notes; * municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and * participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Tennessee Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Tennessee Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other depository institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Tennessee Municipal Securities is subject to the federal alternative minimum tax. TENNESSEE MUNICIPAL SECURITIES Tennessee Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Tennessee Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Tennessee Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Tennessee Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Tennessee Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Tennessee Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Tennessee Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Tennessee Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Tennessee Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations, the Fund's concentration in Tennessee Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. HUB AND SPOKE* OPTION If the Trustees determine it to be in the best interest of the Fund and its shareholders, the Fund may in the future seek to achieve its objective by investing all of its assets in another investment company having the same investment objective and substantially the same investment policies and restrictions as those applicable to the Fund. It is expected that any such investment company would be managed in substantially the same manner as the Fund. The initial shareholder of the Fund voted to vest authority to use this investment structure in the sole discretion of the Trustees. No further approval of shareholders is required. Shareholders will receive at least 30 days notice prior to any such investment. In making its determination, the Trustees will consider, among other things, the benefits to shareholders and/or the opportunity to reduce costs and achieve operational efficiencies. Although it is expected that the Trustees will not approve an arrangement that is likely to result in higher costs, no assurance is given that costs will remain the same or be materially reduced if this investment structure is implemented. FUND INFORMATION MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) Shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SHARES Federated Securities Corp. is the principal distributor for Institutional Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of the Institutional Shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE ADMINISTRATIVE FEE DAILY NET ASSETS .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Institutional Shares from the value of Fund assets attributable to Institutional Shares, and dividing the remainder by the number of Institutional Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days on which the New York Stock Exchange is open for business. Shares may be purchased either by wire or by check. The Fund reserves the right to reject any purchase request. To make a purchase, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken by telephone. The minimum initial investment is $25,000. However, an account may be opened with a smaller amount as long as the minimum is reached within 90 days. Minimum investments will be calculated by combining all accounts maintained with the Fund. Financial institutions may impose different minimum investment requirements on their customers. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Tennessee Municipal Cash Trust -- Institutional Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Tennessee Municipal Cash Trust -- Institutional Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. HOW TO REDEEM SHARES Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company, or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. ACCOUNT AND SHARE INFORMATION DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights; except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of November 5, 1996, Trust Company of Knoxville, organized in the State of Tennessee owned 34.10% of the voting securities of the Institutional Shares of the Fund, and Berman Family Investment LP owned 37.52% of the voting securities of the Institutional Service Shares of the Fund. Therefore, they may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Tennessee. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. TENNESSEE TAXES. Under existing Tennessee law, distributions made by the Fund will not be subject to Tennessee personal income taxes to the extent that such distributions qualify as "exempt-interest dividends" under the Internal Revenue Code, and represent (i) interest on obligations of the state of Tennessee or its political subdivisions; or (ii) interest on certain obligations of the United States, or any agency or instrumentality thereof. To the extent that distributions by the Fund are derived from distributions on other types of obligations, such distributions will be subject to Tennessee personal income taxes. Distributions made by the Fund will be subject to the excise taxes imposed on corporations. OTHER CLASSES OF SHARES The Fund also offers another class of shares called Institutional Service Shares. Institutional Service Shares are sold primarily to financial institutions acting in an agency capacity. Institutional Service Shares are sold at net asset value and are subject to a Shareholder Services Agreement. Investments in Institutional Service Shares are subject to a minimum initial investment of $10,000 over a 90-day period. Institutional Shares and Institutional Service Shares are subject to certain of the same expenses. Expense differences between classes may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. TENNESSEE MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Reference is made to the Report of Independent Public Accountants on page 25.
PERIOD ENDED OCTOBER 31, 1996(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.01 LESS DISTRIBUTIONS Distributions from net investment income (0.01) NET ASSET VALUE, END OF PERIOD $ 1.00 TOTAL RETURN(b) 1.48% RATIOS TO AVERAGE NET ASSETS Expenses 0.39%* Net investment income 3.26%* Expense waiver/reimbursement(c) 1.33%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $29,824
* Computed on an annualized basis. (a) Reflects operations for the period from May 22, 1996 (date of initial public investment) to October 31, 1996. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) TENNESSEE MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- 103.0% TENNESSEE -- 98.8% $ 2,200,000 Benton County, TN IDB, (Series 1996) Weekly VRDNs (Jones Plastic and Engineering Corp.)/(National City Bank, Kentucky LOC) $ 2,200,000 1,300,000 Chattanooga, TN HEFA Weekly VRDNs (Mccallie School)/(SunTrust Bank, Atlanta LOC) 1,300,000 1,100,000 Chattanooga, TN HEFA Weekly VRDNs (Sisken Hospital)/(Sumitomo Bank Ltd., Osaka LOC) 1,100,000 1,000,000 Cocke County, TN IDB Weekly VRDNs (GLI, Inc.)/(Great Lakes Chemical Corp. GTD) 1,000,000 510,000 Cocke County, TN IDB, (Series 1988) Weekly VRDNs (GLI, Inc.)/ (Great Lakes Chemical Corp. GTD) 510,000 2,000,000 Dickson County, TN IDB, (Series 1996) Weekly VRDNs (Tennessee Bun Company, LLC Project)/(PNC Bank, Ohio, N.A. LOC) 2,000,000 1,550,000 Greenfield, TN IDB, IDRB, (Series 1995) Weekly VRDNs (Plastic Products Company Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,550,000 4,200,000 Hawkins County, TN IDB, (Series 1995) Weekly VRDNs (Sekisui Ta Industries, Inc. Project)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 4,200,000 2,900,000 Hendersonville, TN IDB, (Series 1996) Weekly VRDNs (Betty Machine Co. Project)/(First Union National Bank, Charlotte, N.C. LOC) 2,900,000 1,800,000 Jackson County, TN IDB, (Series B) Daily VRDNs (Esselte AB)/(Bank of America, Illinois LOC) 1,800,000 1,000,000 Jackson, TN IDB , Solid Waste Facility Bonds (Series 1995) Weekly VRDNs (Florida Steel Corp.)/(NationsBank, South LOC) 1,000,000 1,325,000 Knox County, TN IDB, (Series 1996) Weekly VRDNs (Health Ventures, Inc. Project)/(SunTrust Bank, Nashville LOC) 1,325,000 400,000 Maury County, TN HEFA, (Series 1996E) Weekly VRDNs (Southern Healthcare Systems, Inc.)/(Bank One, Texas, N.A. LOC) 400,000 2,400,000 McMinn County, TN IDB, Industrial Development Bonds, (Series 1995) Weekly VRDNs (Creative Fabrication Corp.)/(NBD Bank, Michigan LOC) 2,400,000
TENNESSEE MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED TENNESSEE -- CONTINUED $ 770,000 Memphis, TN, (Series 1996), 5.00% Bonds, 7/1/1997 $ 775,446 1,000,000 Metropolitan Government Nashville & Davidson County, TN HEFA, (Series 1989 A), 3.65% CP (Vanderbilt University), Mandatory Tender 1/10/1997 1,000,000 2,500,000 Metropolitan Government Nashville & Davidson County, TN HEFA, Hospital Revenue Bonds, (Series 1992), 3.60% CP (Baptist Hospital, Inc. (TN)/(NationsBank, South LIQ), Mandatory Tender 1/21/1997 2,500,000 1,000,000 Metropolitan Government Nashville & Davidson County, TN HEFA, Hospital Revenue Bonds, (Series 1992), 3.65% CP (Baptist Hospital, Inc. (TN)/(NationsBank, South LIQ), Mandatory Tender 1/8/1997 1,000,000 2,300,000 Metropolitan Government Nashville & Davidson County, TN IDB, Metropolitan Government Revenue Bonds, (Series 1995) Weekly VRDNs (YMCA Projects)/(Nationsbank of Tennessee LOC) 2,300,000 1,700,000 Oak Ridge, TN IDB, Solid Waste Facility Bonds, (Series 1996) Weekly VRDNs (M4 Environmental L.P. Project)/(SunTrust Bank, Atlanta LOC) 1,700,000 300,000 Paris, TN IDB Weekly VRDNs (Plumley - Marugo Limited)/(PNC Bank, Kentucky LOC) 300,000 700,000 Roane, TN IDB, (Series 1982), 3.50% (Fortafil Fibers, Inc. Project)/(ABN AMRO Bank N.V., Amsterdam LOC), 11/15/96 700,000 1,000,000 Shelby County, TN Health Education & Housing Facilities Board, 4.05% TOBs (Methodist Health System, Inc.)/(MBIA INS)/(Sanwa Bank Ltd, Osaka LIQ), Optional Tender 8/1/1997 1,000,000 1,130,000 Shelby County, TN Health Education & Housing Facilities Board, 9.625% Bonds, (Lebonheur Children's Medical Center)/(United States Treasury PRF), 7/1/1997 (@100) 1,173,395 1,000,000 Shelby County, TN Health Education & Housing Facilities Board, Multifamily Housing Revenue Bonds, (Series 1988) Weekly VRDNs (Arbor Lake Project)/(PNC Bank, N.A. LOC) 1,000,000 800,000 South Pittsburg, TN IDB, (Series 1996) Weekly VRDNs (Lodge Manufacturing Co. Project)/(SunTrust Bank, Nashville LOC) 800,000 1,000,000 Tennessee Housing Development Agency, (Series 1996-5), 4.00% TOBs, Mandatory Tender 8/21/1997 1,000,000
TENNESSEE MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED TENNESSEE -- CONTINUED $ 1,500,000 Tennessee Housing Development Agency, Homeownership Program Bonds (Issue 1996-3), 3.85% TOBs, Optional Tender 5/29/1997 $ 1,500,000 2,385,000 Tennessee State School Board Authority, (Series 1996 B), 5.00% Bonds, 5/1/1997 2,398,419 2,000,000 Union City, TN IDB, (Series 1995) Weekly VRDNs (Kohler Co.)/ (Wachovia Bank of Georgia NA, Atlanta LOC) 2,000,000 1,500,000 Union County, TN IDB, (Series 1995) Weekly VRDNs (Cooper Container Corporation Project)/(SunTrust Bank, Nashville LOC) 1,500,000 735,000 Williamson County, TN, General Obligation Capital Outlay Notes (Series 1996), 4.60% Bonds, 10/1/1997 740,432 Total 47,072,692 PUERTO RICO -- 2.1% 1,000,000 Puerto Rico Industrial, Tourist, Education, Medical & Environmental Control Finance Authority, (Series 1994A), 3.80% CP (Inter American University of Puerto Rico)/(Banque Paribas, Paris LOC), Mandatory Tender 1/14/1997 1,000,000 GUAM -- 2.1% 1,000,000 Guam Water System Revenue Bonds, (Series 1989), 6.70% Bonds (Capital Guaranty Corp. INS), 7/1/1997 1,018,234 TOTAL INVESTMENTS (AT AMORTIZED COST)(b) $ 49,090,926
Securities that are subject to Alternative Minimum Tax represent 58.8% of the portfolio as calculated based upon total market value. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities, rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1 or MIG-2 by Moody's Investors Service, Inc., or FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service, Inc. are all considered rated one of the two highest short-term rating securities. 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 application 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 October 31, 1996, the portfolio securities were rated as follows:
FIRST TIER SECOND TIER Tier rating percentage based on total market value (unaudited) 100% 0.00%
(b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($47,647,706) at October 31, 1996. The following acronyms are used throughout this portfolio: CP -- Commercial Paper GTD -- Guaranty HEFA -- Health and Education Facilities Authority IDB -- Industrial Development Bond IDRB -- Industrial Development Revenue Bond INS -- Insured LIQ -- Liquidity Agreement LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance PRF -- Prerefunded TOBs -- Tender Option Bonds VRDNs -- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) TENNESSEE MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 ASSETS: Total investments in securities, at amortized cost and value $49,090,926 Cash 169,351 Income receivable 260,093 Total assets 49,520,370 LIABILITIES: Payable for investments purchased $ 1,743,907 Payable for shares redeemed 29,682 Income distribution payable 61,845 Accrued expenses 37,230 Total liabilities 1,872,664 NET ASSETS for 47,647,706 shares outstanding $47,647,706 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: INSTITUTIONAL SHARES: $17,823,803 / 17,823,803 shares outstanding $1.00 INSTITUTIONAL SERVICE SHARES: $29,823,903 / 29,823,903 shares outstanding $1.00
(See Notes which are an integral part of the Financial Statements) TENNESSEE MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS PERIOD ENDED OCTOBER 31, 1996* INVESTMENT INCOME: Interest $525,612 EXPENSES: Investment advisory fee $ 71,830 Administrative personnel and services fee 71,571 Custodian fees 10,324 Transfer and dividend disbursing agent fees and expenses 6,199 Directors'/Trustees' fees 1,379 Legal fees 200 Portfolio accounting fees 26,665 Shareholder services fee -- Institutional Shares 15,852 Shareholder services fee -- Institutional Service Shares 20,063 Share registration costs 14,119 Printing and postage 5,000 Insurance premiums 3,265 Miscellaneous 686 Total expenses 247,153 Waivers and reimbursements -- Waiver of investment advisory fee $ (71,830) Waiver of shareholder services fee -- Institutional Shares (15,852) Reimbursement of other operating expenses (121,760) Total waivers and reimbursements (209,442) Net expenses 37,711 Net investment income $487,901
* For the period from May 22, 1996 (date of initial investment) to October 31, 1996. (See Notes which are an integral part of the Financial Statements) TENNESSEE MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED OCTOBER 31, 1996* INCREASE (DECREASE) IN NET ASSETS: OPERATIONS-- Net investment income $ 487,901 DISTRIBUTIONS TO SHAREHOLDERS-- Distributions from net investment income Institutional Shares (226,076) Institutional Service Shares (261,825) Change in net assets resulting from distributions to shareholders (487,901) SHARE TRANSACTIONS-- Proceeds from sale of shares 165,734,867 Net asset value of shares issued to shareholders in payment of distributions declared 209,339 Cost of shares redeemed 118,296,500) Change in net assets resulting from share transactions 47,647,706 Change in net assets 47,647,706 NET ASSETS: Beginning of period - End of period $ 47,647,706
* For the period from May 22, 1996 (date of initial public investment) to October 31, 1996. (See Notes which are an integral part of the Financial Statements) TENNESSEE MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 1. ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of Tennessee Municipal Cash Trust (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 Fund offers two classes of shares: Institutional Shares and Institutional Service Shares. The investment objective of the Fund is current income exempt from federal regular income tax and the personal income tax imposed by the State of Tennessee consistent with stability of principal and liquidity. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses, and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER -- Investment transactions are accounted for on the trade date. 3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1996, capital paid-in aggregated $47,647,706. Transactions in shares were as follows:
PERIOD ENDED OCTOBER 31, 1996 INSTITUTIONAL SHARES SHARES Shares sold 34,644,791 Shares issued to shareholders in payment of distributions declared 3,455 Shares redeemed (16,824,443) Net change resulting from Institutional Share transactions 17,823,803
For the period from May 22, 1996 (date of initial public investment) to October 31, 1996.
PERIOD ENDED OCTOBER 31, 1996 INSTITUTIONAL SERVICE SHARES SHARES Shares sold 131,090,076 Shares issued to shareholders in payment of distributions declared 205,884 Shares redeemed (101,472,057) Net change resulting from Institutional Service Share transactions 29,823,903 Net change resulting from share transactions 47,647,706
For the period from May 22, 1996 (date of initial public investment) to October 31, 1996. 4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.50% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement 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 for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund shares for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, 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 $142,770,000 and $116,525,000, respectively. GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 5. CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 16% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 14% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Tennessee Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Tennessee Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996 and the related statements of operations and changes in net assets and the financial highlights (see pages 2 and 14 of the prospectus) for the period from May 22, 1996 to October 31, 1996. 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 audit. We conducted our audit 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 October 31, 1996, by correspondence with the custodian and broker. 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 audit provides 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 Tennessee Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996 and the results of its operations, changes in its net assets, and the financial highlights for the period, from May 22, 1996 to October 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania November 20, 1996 ADDRESSES Tennessee Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, PA 15222-3779 Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 Transfer Agent and Dividend Disbursing Agent Federated Shareholder P.O. Box 8600 Services Company Boston, MA 02266-8600 Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 Tennessee Municipal Cash Trust (A Portfolio of Federated Municipal Cash Trust) Institutional Shares Prospectus A Portfolio of Federated Municipal Trust, an Open-End, Management Investment Company Prospectus dated December 31, 1996 Federated Investors [Graphic] Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. [Graphic] Cusip 314229642 G01682-01 (12/96) TENNESSEE MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL CASH TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS The Institutional Service Shares of Tennessee Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The Fund invests primarily in short-term Tennessee municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Tennessee, or its political subdivisions and financing authorities, but which provide current income exempt from federal regular income tax and the personal income taxes imposed by the State of Tennessee consistent with stability of principal and liquidity. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. BECAUSE THE FUND MAY INVEST A SIGNIFICANT PORTION OF ITS ASSETS IN SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THE FUND MAY INVOLVE ADDITIONAL RISKS COMPARED TO A FULLY DIVERSIFIED MONEY MARKET FUND. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 31, 1996, with the Securities and Exchange Commission ("SEC"). The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information or a paper copy of this prospectus, if you have received your prospectus electronically, free of charge by calling 1-800-341-7400. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. The Statement of Additional Information, material incorporated by reference into this document, and other information regarding the Fund is maintained electronically with the SEC at Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1996 TABLE OF CONTENTS SUMMARY OF FUND EXPENSES 1 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES 2 GENERAL INFORMATION 3 INVESTMENT INFORMATION 3 Investment Objective 3 Investment Policies 3 Tennessee Municipal Securities 6 Investment Risks 6 Investment Limitations 7 Hub and Spoke* Option 7 FUND INFORMATION 7 Management of the Fund 7 Distribution of Institutional Service Shares 8 Administration of the Fund 9 NET ASSET VALUE 9 HOW TO PURCHASE SHARES 9 Special Purchase Features 10 HOW TO REDEEM SHARES 10 Special Redemption Features 11 ACCOUNT AND SHARE INFORMATION 12 TAX INFORMATION 13 Federal Income Tax 13 State and Local Taxes 13 OTHER CLASSES OF SHARES 14 PERFORMANCE INFORMATION 14 FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES 15 FINANCIAL STATEMENTS 16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 26 ADDRESSES 27
SUMMARY OF FUND EXPENSES INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable) None Redemption Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None
ANNUAL OPERATING EXPENSES (As a percentage of projected average net assets) Management Fee (after waiver)(1) 0.00% 12b-1 Fee None Total Other Expenses (after expense reimbursement) 0.60% Shareholder Services Fee 0.25% Total Operating Expenses(2) 0.60%
(1) The estimated management fee has been reduced to reflect the anticipated voluntary waiver of the management fee. The adviser can terminate this anticipated voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The Total Operating Expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1997. The Total Operating Expenses were 0.39% for fiscal year ended October 31, 1996 and would have been 1.72% absent the voluntary waiver of the management fee and the voluntary reimbursement of certain other operating expenses. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of the Institutional Service Shares of the Trust will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "Fund Information." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period $6 $19 $33 $75
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. TENNESSEE MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Reference is made to the Report of Independent Public Accountants on page 26.
PERIOD ENDED OCTOBER 31, 1996(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.01 LESS DISTRIBUTIONS Distributions from net investment income (0.01) NET ASSET VALUE, END OF PERIOD $ 1.00 TOTAL RETURN(b) 1.48% RATIOS TO AVERAGE NET ASSETS Expenses 0.39%* Net investment income 3.26%* Expense waiver/reimbursement(c) 1.33%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $29,824
* Computed on an annualized basis. (a) Reflects operations for the period from May 22, 1996 (date of initial public investment) to October 31, 1996. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. The Declaration of Trust permits the Trust to offer separate series of shares representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees has established two classes of shares known as Institutional Service Shares and Institutional Shares. This prospectus relates only to Institutional Service Shares of the Fund, which are designed primarily for financial institutions acting in an agency capacity as a convenient means of accumulating an interest in a professionally managed portfolio investing in short-term municipal securities. The Fund may not be a suitable investment for retirement plans or for non-Tennessee taxpayers because it invests in municipal securities of that state. A minimum initial investment of $10,000 over a 90-day period is required. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION INVESTMENT OBJECTIVE The investment objective of the Fund is current income exempt from federal regular income tax and the personal income taxes imposed by the State of Tennessee consistent with stability of principal and liquidity. This investment objective cannot be changed without shareholder approval. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by complying with the diversification and other requirements of Rule 2a-7 under the Investment Company Act of 1940 which regulates money market mutual funds and by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of municipal securities maturing in 13 months or less. The average maturity of the securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less. As a matter of investment policy, which cannot be changed without shareholder approval, at least 80% of the Fund's annual interest income will be exempt from federal regular income tax and the personal income taxes imposed by the State of Tennessee. (Federal regular income tax does not include the federal individual alternative minimum tax or the federal alternative minimum tax for corporations.) Unless indicated otherwise, the investment policies may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of Tennessee and its political subdivisions and financing authorities, and obligations of other states, territories, and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and the personal income taxes imposed by the State of Tennessee ("Tennessee Municipal Securities"). Examples of Tennessee Municipal Securities include, but are not limited to: * tax and revenue anticipation notes issued to finance working capital needs in anticipation of receiving taxes or other revenues; * bond anticipation notes that are intended to be refinanced through a later issuance of longer-term bonds; * municipal commercial paper and other short-term notes; * variable rate demand notes; * municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and * participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt instruments that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest rate adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in Tennessee Municipal Securities from financial institutions such as commercial and investment banks, savings associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying Tennessee Municipal Securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Lease obligations may be subject to periodic appropriation. Municipal leases are subject to certain specific risks in the event of default or failure of appropriation. CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit-enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy, receivership, default, or change in the credit quality of the party providing the credit enhancement will adversely affect the quality and marketability of the underlying security and could cause losses to the Fund and affect its share price. The Fund may have more than 25% of its total assets invested in securities credit-enhanced by banks. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. Under criteria established by the Trustees, certain restricted securities are determined to be liquid. To the extent that restricted securities are not determined to be liquid the Fund will limit their purchase, together with other illiquid securities, to 10% of its net assets. TEMPORARY INVESTMENTS. From time to time, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in tax-exempt or taxable securities, all of comparable quality to other securities in which the Fund invests, such as: obligations issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or other depository institutions having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; and repurchase agreements (arrangements in which the organization selling the Fund a temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable, temporary investments, there is no current intention to do so. However, the interest from certain Tennessee Municipal Securities is subject to the federal alternative minimum tax. TENNESSEE MUNICIPAL SECURITIES Tennessee Municipal Securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Tennessee Municipal Securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of Tennessee Municipal Securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on Tennessee Municipal Securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Tennessee Municipal Securities and participation interests, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. In addition, from time to time, the supply of Tennessee Municipal Securities acceptable for purchase by the Fund could become limited. The Fund may invest in Tennessee Municipal Securities which are repayable out of revenue streams generated from economically related projects or facilities and/or whose issuers are located in the same state. Sizable investments in these Tennessee Municipal Securities could involve an increased risk to the Fund should any of these related projects or facilities experience financial difficulties. Obligations of issuers of Tennessee Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon the ability of states or municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially affected. Due to these risk considerations, the Fund's concentration in Tennessee Municipal Securities may entail a greater level of risk than other types of money market funds. INVESTMENT LIMITATIONS The Fund will not borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge assets to secure such borrowings. These investment limitations cannot be changed without shareholder approval. HUB AND SPOKE(R) OPTION If the Trustees determine it to be in the best interest of the Fund and its shareholders, the Fund may in the future seek to achieve its objective by investing all of its assets in another investment company having the same investment objective and substantially the same investment policies and restrictions as those applicable to the Fund. It is expected that any such investment company would be managed in substantially the same manner as the Fund. The initial shareholder of the Fund voted to vest authority to use this investment structure in the sole discretion of the Trustees. No further approval of shareholders is required. Shareholders will receive at least 30 days notice prior to any such investment. In making its determination, the Trustees will consider, among other things, the benefits to shareholders and/or the opportunity to reduce costs and achieve operational efficiencies. Although it is expected that the Trustees will not approve an arrangement that is likely to result in higher costs, no assurance is given that costs will remain the same or be materially reduced if this investment structure is implemented. FUND INFORMATION MANAGEMENT OF THE FUND BOARD OF TRUSTEES. The Fund is managed by a Board of Trustees. The Trustees are responsible for managing the Fund's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. An Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated Management, the Fund's investment adviser, subject to direction by the Trustees. The adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The adviser receives an annual investment advisory fee equal to .50% of the Fund's average daily net assets. The adviser may voluntarily choose to waive a portion of its fee or reimburse other expenses of the Fund, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust, organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) Shares of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. With over $80 billion invested across more than 250 funds under management and/or administration by its subsidiaries, as of December 31, 1995, Federated Investors is one of the largest mutual fund investment managers in the United States. With more than 1,800 employees, Federated continues to be led by the management who founded the company in 1955. Federated funds are presently at work in and through 4,000 financial institutions nationwide. More than 100,000 investment professionals have selected Federated funds for their clients. Both the Trust and the adviser have adopted strict codes of ethics governing the conduct of all employees who manage the Fund and its portfolio securities. These codes recognize that such persons owe a fiduciary duty to the Fund's shareholders and must place the interests of shareholders ahead of the employees' own interests. Among other things, the codes: require preclearance and periodic reporting of personal securities transactions; prohibit personal transactions in securities being purchased or sold, or being considered for purchase or sale, by the Fund; prohibit purchasing securities in initial public offerings; and prohibit taking profits on securities held for less than sixty days. Violations of the codes are subject to review by the Trustees, and could result in severe penalties. DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES Federated Securities Corp. is the principal distributor for Institutional Service Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which the Fund may make payments up to .25% of the average daily net asset value of the Institutional Shares, computed at an annual rate, to obtain certain personal services for shareholders and to maintain shareholder accounts. From time to time and for such periods as deemed appropriate, the amount stated above may be reduced voluntarily. Under the Shareholder Services Agreement, Federated Shareholder Services will either perform shareholder services directly or will select financial institutions to perform shareholder services. Financial institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made pursuant to the Shareholder Services Agreement, Federated Securities Corp. and Federated Shareholder Services, from their own assets, may pay financial institutions supplemental fees for the performance of substantial sales services, distribution-related support services, or shareholder services. The support may include sponsoring sales, educational and training seminars for their employees, providing sales literature and engineering computer software programs that emphasize the attributes of the Fund. Such assistance may be predicated upon the amount of shares the financial institution sells or may sell, and/or upon the type and nature of sales or marketing support furnished by the financial institution. Any payments made by the distributor may be reimbursed by the Fund's investment adviser or its affiliates. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund at an annual rate which relates to the average aggregate daily net assets of all funds advised by affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE ADMINISTRATIVE FEE DAILY NET ASSETS .15% on the first $250 million .125% on the next $250 million .10% on the next $250 million .075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Services Company may choose voluntarily to waive a portion of its fee. NET ASSET VALUE The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting liabilities attributable to Institutional Service Shares from the value of Fund assets attributable to Institutional Service Shares, and dividing the remainder by the number of Institutional Service Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per share. The net asset value is determined at 12:00 noon, 1:00 p.m. (Eastern time), and as of the close of trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, except on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. HOW TO PURCHASE SHARES Shares are sold at their net asset value, without a sales charge, next determined after an order is received, on days which the New York Stock Exchange is open for business. Shares may be purchased as described below, either through a financial institution (such as a bank or broker/dealer) or by wire or by check directly from the Fund, with a minimum initial investment of $10,000 or more over a 90-day period. Financial institutions may impose different minimum investment requirements on their customers. In connection with any sale, Federated Securities Corp. may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. An account must be established at a financial institution or by completing, signing, and returning the new account form available from the Fund before shares can be purchased. PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. Investors may purchase shares through a financial institution which has a sales agreement with the distributor. Orders are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. Financial institutions may charge additional fees for their services. PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by calling the Fund before 1:00 p.m. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as follows: Federated Shareholder Services Company, c/o State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Tennessee Municipal Cash Trust -- Institutional Service Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire transfers are restricted. Questions on wire purchases should be directed to your shareholder services representative at the telephone number listed on your account statement. PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable to: Tennessee Municipal Cash Trust -- Institutional Service Shares. Orders by mail are considered received when payment by check is converted into federal funds (normally the business day after the check is received), and shares begin earning dividends the next day. SPECIAL PURCHASE FEATURES SYSTEMATIC INVESTMENT PROGRAM. A minimum of $100 can be automatically withdrawn periodically from the shareholder's checking account at an Automated Clearing House ("ACH") member and invested in Fund shares. Shareholders should contact their financial institution or the Fund to participate in this program. HOW TO REDEEM SHARES Shares are redeemed at their net asset value next determined after Federated Shareholder Services Company receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made as described below. REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the shareholder's financial institution. Shares will be redeemed at the net asset value next determined after Federated Shareholder Services Company receives the redemption request. According to the shareholder's instructions, redemption proceeds can be sent to the financial institution or to the shareholder by check or by wire. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions. Customary fees and commissions may be charged by the financial institution for this service. REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling the Fund provided the Fund has a properly completed authorization form. These forms can be obtained from Federated Securities Corp. Proceeds from redemption requests before 12:00 noon (Eastern time) will be wired the same day to the shareholder's account at a domestic commercial bank which is a member of the Federal Reserve System, but will not include that day's dividend. Proceeds from redemption requests received after that time include that day's dividend but will be wired the following business day. Under limited circumstances, arrangements may be made with the distributor for same-day payment of proceeds, without that day's dividend, for redemption requests received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares purchased by check or through ACH will not be wired until that method of payment has cleared. Proceeds from redemption requests on holidays when wire transfers are restricted will be wired the following business day. Questions about telephone redemptions on days when wire transfers are restricted should be directed to your shareholder services representative at the telephone number listed on your account statement. Telephone instructions may be recorded and if reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail" should be considered. If at any time the Fund shall determine it necessary to terminate or modify the telephone redemption privilege, shareholders would be promptly notified. REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a written request to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share certificates have been issued, they should be sent unendorsed with the written request by registered or certified mail to the address noted above. The written request should state: the Fund name and the class designation; the account name as registered with the Fund; the account number; and the number of shares to be redeemed or the dollar amount requested. All owners of the account must sign the request exactly as the shares are registered. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after the receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. Shareholders requesting a redemption of any amount to be sent to an address other than that on record with the Fund or a redemption payable other than to the shareholder of record must have their signatures guaranteed by a commercial or savings bank, trust company, or savings association whose deposits are insured by an organization which is administered by the Federal Deposit Insurance Corporation; a member firm of a domestic stock exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. SPECIAL REDEMPTION FEATURES CHECK WRITING. Upon request, a checking account will be established to allow shareholders to redeem their Fund shares. Shareholder accounts will continue to receive the daily dividend declared on the shares to be redeemed until the check is presented to UMB Bank, N.A., the bank responsible for administering the check writing program, for payment. However, checks should never be made payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check may not be written to close an account. DEBIT CARD. Upon request, a debit account will be established. This account allows shareholders to redeem shares by using a debit card. A fee will be charged to the account for this service. SYSTEMATIC WITHDRAWAL PROGRAM. If a shareholder's account has a value of at least $10,000, a systematic withdrawal program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an ACH member. Shareholders may apply for participation in this program through their financial institutions or the Fund. ACCOUNT AND SHARE INFORMATION DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are automatically reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends the day after the check is converted into federal funds. CAPITAL GAINS. The Fund does not expect to realize any capital gains or losses. If capital gains or losses were to occur, they could result in an increase or decrease in dividends. The Fund will distribute in cash or additional shares any realized net long-term capital gains at least once every 12 months. CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated Shareholder Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund or Federated Shareholder Services Company in writing. Monthly confirmations are sent to report all transactions as well as dividends paid during the month. ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $10,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights; except that in matters affecting only a particular portfolio or class, only shareholders of that portfolio or class are entitled to vote. The Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or the Fund's operation and for election of Trustees under certain circumstances. Trustees may be removed by the Trustees or by shareholders at a special meeting. A special meeting shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of the Trust. As of November 5, 1996, Berman Family Investment LP owned 37.52% of the voting securities of the Institutional Service Shares of the Fund, and, Trust Company of Knoxville, organized in the State of Tennessee, owned 34.10% of the voting securities of the Institutional Shares of the Fund. Therefore, they may, for certain purposes, be deemed to control shares of the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. TAX INFORMATION FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase, within the limits of its investment policies, all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. STATE AND LOCAL TAXES Income from the Fund is not necessarily free from taxes in states other than Tennessee. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. TENNESSEE TAXES. Under existing Tennessee law, distributions made by the Fund will not be subject to Tennessee personal income taxes to the extent that such distributions qualify as "exempt-interest dividends" under the Internal Revenue Code, and represent (i) interest on obligations of the state of Tennessee or its political subdivisions; or (ii) interest on certain obligations of the United States, or any agency or instrumentality thereof. To the extent that distributions by the Fund are derived from distributions on other types of obligations, such distributions will be subject to Tennessee personal income taxes. Distributions made by the Fund will be subject to the excise taxes imposed on corporations. OTHER CLASSES OF SHARES The Fund also offers another class of shares called Institutional Shares that are sold primarily to financial institutions acting in a fiduciary capacity. Institutional Shares are sold at net asset value and are sold pursuant to a Shareholder Services Agreement. Investments in Institutional Shares are subject to a minimum initial investment of $25,000 within a 90-day period. Institutional Service Shares and Institutional Shares are subject to certain of the same expenses. Expense differences, however, between Institutional Service Shares and Institutional Shares may affect the performance of each class. To obtain more information and a prospectus for any other class, investors may call 1-800-341-7400. PERFORMANCE INFORMATION From time to time, the Fund advertises its yield, effective yield, tax-equivalent yield, and total return. The performance figures will be calculated separately for each class of shares. Yield represents the annualized rate of income earned on an investment over a seven-day period. It is the annualized dividends earned during the period on an investment shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but when annualized, the income earned by an investment is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield is calculated similarly to the yield, but is adjusted to reflect the taxable yield that would have to be earned to equal the Fund's tax-exempt yield, assuming a specific tax rate. Total return represents the change, over a specified period of time, in the value of an investment in the shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. TENNESSEE MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Reference is made to the Report of Independent Public Accountants on page 26.
PERIOD ENDED OCTOBER 31, 1996(a) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.01 LESS DISTRIBUTIONS Distributions from net investment income (0.01) NET ASSET VALUE, END OF PERIOD $ 1.00 TOTAL RETURN(b) 1.59% RATIOS TO AVERAGE NET ASSETS Expenses 0.10%* Net investment income 3.57%* Expense waiver/reimbursement(c) 1.62%* SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $17,824
* Computed on an annualized basis. (a) Reflects operations for the period from May 22, 1996 (date of initial public investment) to October 31, 1996. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) TENNESSEE MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- 103.0% TENNESSEE -- 98.8% $ 2,200,000 Benton County, TN IDB, (Series 1996) Weekly VRDNs (Jones Plastic and Engineering Corp.)/(National City Bank, Kentucky LOC) $ 2,200,000 1,300,000 Chattanooga, TN HEFA Weekly VRDNs (Mccallie School)/(SunTrust Bank, Atlanta LOC) 1,300,000 1,100,000 Chattanooga, TN HEFA Weekly VRDNs (Sisken Hospital)/(Sumitomo Bank Ltd., Osaka LOC) 1,100,000 1,000,000 Cocke County, TN IDB Weekly VRDNs (GLI, Inc.)/(Great Lakes Chemical Corp. GTD) 1,000,000 510,000 Cocke County, TN IDB, (Series 1988) Weekly VRDNs (GLI, Inc.)/ (Great Lakes Chemical Corp. GTD) 510,000 2,000,000 Dickson County, TN IDB, (Series 1996) Weekly VRDNs (Tennessee Bun Company, LLC Project)/(PNC Bank, Ohio, N.A. LOC) 2,000,000 1,550,000 Greenfield, TN IDB, IDRB, (Series 1995) Weekly VRDNs (Plastic Products Company Project)/(Norwest Bank Minnesota, Minneapolis LOC) 1,550,000 4,200,000 Hawkins County, TN IDB, (Series 1995) Weekly VRDNs (Sekisui Ta Industries, Inc. Project)/(Bank of Tokyo-Mitsubishi Ltd. LOC) 4,200,000 2,900,000 Hendersonville, TN IDB, (Series 1996) Weekly VRDNs (Betty Machine Co. Project)/(First Union National Bank, Charlotte, N.C. LOC) 2,900,000 1,800,000 Jackson County, TN IDB, (Series B) Daily VRDNs (Esselte AB)/(Bank of America, Illinois LOC) 1,800,000 1,000,000 Jackson, TN IDB , Solid Waste Facility Bonds (Series 1995) Weekly VRDNs (Florida Steel Corp.)/(NationsBank, South LOC) 1,000,000 1,325,000 Knox County, TN IDB, (Series 1996) Weekly VRDNs (Health Ventures, Inc. Project)/(SunTrust Bank, Nashville LOC) 1,325,000 400,000 Maury County, TN HEFA, (Series 1996E) Weekly VRDNs (Southern Healthcare Systems, Inc.)/(Bank One, Texas, N.A. LOC) 400,000 2,400,000 McMinn County, TN IDB, Industrial Development Bonds, (Series 1995) Weekly VRDNs (Creative Fabrication Corp.)/(NBD Bank, Michigan LOC) 2,400,000
TENNESSEE MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED TENNESSEE -- CONTINUED $ 770,000 Memphis, TN, (Series 1996), 5.00% Bonds, 7/1/1997 $ 775,446 1,000,000 Metropolitan Government Nashville & Davidson County, TN HEFA, (Series 1989 A), 3.65% CP (Vanderbilt University), Mandatory Tender 1/10/1997 1,000,000 2,500,000 Metropolitan Government Nashville & Davidson County, TN HEFA, Hospital Revenue Bonds, (Series 1992), 3.60% CP (Baptist Hospital, Inc. (TN)/(NationsBank, South LIQ), Mandatory Tender 1/21/1997 2,500,000 1,000,000 Metropolitan Government Nashville & Davidson County, TN HEFA, Hospital Revenue Bonds, (Series 1992), 3.65% CP (Baptist Hospital, Inc. (TN)/(NationsBank, South LIQ), Mandatory Tender 1/8/1997 1,000,000 2,300,000 Metropolitan Government Nashville & Davidson County, TN IDB, Metropolitan Government Revenue Bonds, (Series 1995) Weekly VRDNs (YMCA Projects)/(Nationsbank of Tennessee LOC) 2,300,000 1,700,000 Oak Ridge, TN IDB, Solid Waste Facility Bonds, (Series 1996) Weekly VRDNs (M4 Environmental L.P. Project)/(SunTrust Bank, Atlanta LOC) 1,700,000 300,000 Paris, TN IDB Weekly VRDNs (Plumley - Marugo Limited)/(PNC Bank, Kentucky LOC) 300,000 700,000 Roane, TN IDB, (Series 1982), 3.50% (Fortafil Fibers, Inc. Project)/(ABN AMRO Bank N.V., Amsterdam LOC), 11/15/96 700,000 1,000,000 Shelby County, TN Health Education & Housing Facilities Board, 4.05% TOBs (Methodist Health System, Inc.)/(MBIA INS)/(Sanwa Bank Ltd, Osaka LIQ), Optional Tender 8/1/1997 1,000,000 1,130,000 Shelby County, TN Health Education & Housing Facilities Board, 9.625% Bonds, (Lebonheur Children's Medical Center)/(United States Treasury PRF), 7/1/1997 (@100) 1,173,395 1,000,000 Shelby County, TN Health Education & Housing Facilities Board, Multifamily Housing Revenue Bonds, (Series 1988) Weekly VRDNs (Arbor Lake Project)/(PNC Bank, N.A. LOC) 1,000,000 800,000 South Pittsburg, TN IDB, (Series 1996) Weekly VRDNs (Lodge Manufacturing Co. Project)/(SunTrust Bank, Nashville LOC) 800,000 1,000,000 Tennessee Housing Development Agency, (Series 1996-5), 4.00% TOBs, Mandatory Tender 8/21/1997 1,000,000
TENNESSEE MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS
PRINCIPAL AMOUNT VALUE (a)SHORT-TERM MUNICIPALS -- CONTINUED TENNESSEE -- CONTINUED $ 1,500,000 Tennessee Housing Development Agency, Homeownership Program Bonds (Issue 1996-3), 3.85% TOBs, Optional Tender 5/29/1997 $ 1,500,000 2,385,000 Tennessee State School Board Authority, (Series 1996 B), 5.00% Bonds, 5/1/1997 2,398,419 2,000,000 Union City, TN IDB, (Series 1995) Weekly VRDNs (Kohler Co.)/ (Wachovia Bank of Georgia NA, Atlanta LOC) 2,000,000 1,500,000 Union County, TN IDB, (Series 1995) Weekly VRDNs (Cooper Container Corporation Project)/(SunTrust Bank, Nashville LOC) 1,500,000 735,000 Williamson County, TN, General Obligation Capital Outlay Notes (Series 1996), 4.60% Bonds, 10/1/1997 740,432 Total 47,072,692 PUERTO RICO -- 2.1% 1,000,000 Puerto Rico Industrial, Tourist, Education, Medical & Environmental Control Finance Authority, (Series 1994A), 3.80% CP (Inter American University of Puerto Rico)/(Banque Paribas, Paris LOC), Mandatory Tender 1/14/1997 1,000,000 GUAM -- 2.1% 1,000,000 Guam Water System Revenue Bonds, (Series 1989), 6.70% Bonds (Capital Guaranty Corp. INS), 7/1/1997 1,018,234 TOTAL INVESTMENTS (AT AMORTIZED COST)(b) $ 49,090,926
Securities that are subject to Alternative Minimum Tax represent 58.8% of the portfolio as calculated based upon total market value. (a) The Fund may only invest in securities rated in one of the two highest short-term rating categories by nationally recognized statistical rating organizations ("NRSROs") or unrated securities of comparable quality. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities, rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation, MIG-1 or MIG-2 by Moody's Investors Service, Inc., or FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service, Inc. are all considered rated one of the two highest short-term rating securities. 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 application 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 October 31, 1996, the portfolio securities were rated as follows: Tier rating percentage based on total market value (unaudited)
FIRST TIER SECOND TIER 100% 0.00%
(b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($47,647,706) at October 31, 1996. The following acronyms are used throughout this portfolio: CP -- Commercial Paper GTD -- Guaranty HEFA -- Health and Education Facilities Authority IDB -- Industrial Development Bond IDRB -- Industrial Development Revenue Bond INS -- Insured LIQ -- Liquidity Agreement LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance PRF -- Prerefunded TOBs -- Tender Option Bonds VRDNs -- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) TENNESSEE MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996 ASSETS: Total investments in securities, at amortized cost and value $49,090,926 Cash 169,351 Income receivable 260,093 Total assets 49,520,370 LIABILITIES: Payable for investments purchased $ 1,743,907 Payable for shares redeemed 29,682 Income distribution payable 61,845 Accrued expenses 37,230 Total liabilities 1,872,664 NET ASSETS for 47,647,706 shares outstanding $47,647,706 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: INSTITUTIONAL SHARES: $17,823,803 / 17,823,803 shares outstanding $1.00 INSTITUTIONAL SERVICE SHARES: $29,823,903 / 29,823,903 shares outstanding $1.00
(See Notes which are an integral part of the Financial Statements) TENNESSEE MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS PERIOD ENDED OCTOBER 31, 1996* INVESTMENT INCOME: Interest $525,612 EXPENSES: Investment advisory fee $ 71,830 Administrative personnel and services fee 71,571 Custodian fees 10,324 Transfer and dividend disbursing agent fees and expenses 6,199 Directors'/Trustees' fees 1,379 Legal fees 200 Portfolio accounting fees 26,665 Shareholder services fee -- Institutional Shares 15,852 Shareholder services fee -- Institutional Service Shares 20,063 Share registration costs 14,119 Printing and postage 5,000 Insurance premiums 3,265 Miscellaneous 686 Total expenses 247,153 Waivers and reimbursements -- Waiver of investment advisory fee $ (71,830) Waiver of shareholder services fee -- Institutional Shares (15,852) Reimbursement of other operating expenses (121,760) Total waivers and reimbursements (209,442) Net expenses 37,711 Net investment income $487,901
* For the period from May 22, 1996 (date of initial public investment) to October 31, 1996. (See Notes which are an integral part of the Financial Statements) TENNESSEE MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED OCTOBER 31, 1996* INCREASE (DECREASE) IN NET ASSETS: OPERATIONS-- Net investment income $ 487,901 DISTRIBUTIONS TO SHAREHOLDERS-- Distributions from net investment income Institutional Shares (226,076) Institutional Service Shares (261,825) Change in net assets resulting from distributions to shareholders (487,901) SHARE TRANSACTIONS-- Proceeds from sale of shares 165,734,867 Net asset value of shares issued to shareholders in payment of distributions declared 209,339 Cost of shares redeemed (118,296,500) Change in net assets resulting from share transactions 47,647,706 Change in net assets 47,647,706 NET ASSETS: Beginning of period -- End of period $ 47,647,706
* For the period from May 22, 1996 (date of initial public investment) to October 31, 1996. (See Notes which are an integral part of the Financial Statements) TENNESSEE MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 1. ORGANIZATION Federated Municipal Trust (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 sixteen portfolios. The financial statements included herein are only those of Tennessee Municipal Cash Trust (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 Fund offers two classes of shares: Institutional Shares and Institutional Service Shares. The investment objective of the Fund is current income exempt from federal regular income tax and the personal income tax imposed by the State of Tennessee consistent with stability of principal and liquidity. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses, and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER -- Investment transactions are accounted for on the trade date. 3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. At October 31, 1996, capital paid-in aggregated $47,647,706. Transactions in shares were as follows:
PERIOD ENDED OCTOBER 31, 1996 INSTITUTIONAL SHARES SHARES Shares sold 34,644,791 Shares issued to shareholders in payment of distributions declared 3,455 Shares redeemed (16,824,443) Net change resulting from Institutional Share transactions 17,823,803
For the period from May 22, 1996 (date of initial public investment) to October 31, 1996.
PERIOD ENDED OCTOBER 31, 1996 INSTITUTIONAL SERVICE SHARES SHARES Shares sold 131,090,076 Shares issued to shareholders in payment of distributions declared 205,884 Shares redeemed (101,472,057) Net change resulting from Institutional Service Share transactions 29,823,903 Net change resulting from share transactions 47,647,706
For the period from May 22, 1996 (date of initial public investment) to October 31, 1996. 4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE -- Federated Management, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.50% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement 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 for the period. The administrative fee received during the period of the Administrative Services Agreement shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets of the Fund shares for the period. The fee paid to FSS is used to finance certain services for shareholders and to maintain shareholder accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can modify or terminate this voluntary waiver at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. INTERFUND TRANSACTIONS -- During the period ended October 31, 1996, 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 $142,770,000 and $116,525,000, respectively. GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 5. CONCENTRATION OF CREDIT RISK Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state than would be a comparable tax-exempt mutual fund that invests nationally. In order to reduce the credit risk associated with such factors, at October 31, 1996, 16% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The percentage of investments insured by or supported (backed) by a letter of credit from any one institution or agency did not exceed 14% of total investments. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (Tennessee Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of Tennessee Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), including the schedule of portfolio of investments, as of October 31, 1996 and the related statements of operations and changes in net assets, and the financial highlights (see pages 2 and 15 of the prospectus) for the period from May 22, 1996 to October 31, 1996. 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 audit. We conducted our audit 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 October 31, 1996, by correspondence with the custodian and broker. 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 audit provides 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 Tennessee Municipal Cash Trust (an investment portfolio of Federated Municipal Trust) as of October 31, 1996 and the results of its operations, changes in its net assets, and the financial highlights for the period, from May 22, 1996 to October 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania November 20, 1996 ADDRESSES Tennessee Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, PA 15222-3779 Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, PA 15222-3779 Investment Adviser Federated Management Federated Investors Tower Pittsburgh, PA 15222-3779 Custodian State Street Bank and P.O. Box 8600 Trust Company Boston, MA 02266-8600 Transfer Agent and Dividend Disbursing Agent Federated Shareholder P.O. Box 8600 Services Company Boston, MA 02266-8600 Independent Public Accountants Arthur Andersen LLP 2100 One PPG Place Pittsburgh, PA 15222 Tennessee Municipal Cash Trust (A Portfolio of Federated Municipal Cash Trust) Institutional Service Shares Prospectus A Portfolio of Federated Municipal Trust, an Open-End, Management Investment Company Prospectus dated December 31, 1996 [Graphic] Federated Investors Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors. [Graphic] Cusip 314229634 G01682-02 (12/96) TENNESSEE MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES INSTITUTIONAL SERVICE SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectuses of Tennessee Municipal Cash Trust (the ``Fund'), a portfolio of Federated Municipal Trust (the ``Trust') dated December 31, 1996. This Statement is not a prospectus. You may request a copy of a prospectus or a paper copy of this Statement, if you have received it electronically, free of charge by calling 1-800-341-7400. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated December 31, 1996 [logo] Federated Securities Corp. is the distributor of the Fund and is a subsidiary of Federated Investors. Cusip 314229634 Cusip 314229642 G01682-03 (12/96) INVESTMENT POLICIES 1 Acceptable Investments 1 Participation Interests 1 Municipal Leases 1 Ratings 1 When-Issued and Delayed Delivery Transactions 1 Repurchase Agreements 2 Reverse Repurchase Agreements 2 Credit Enhancement 2 TENNESSEE INVESTMENT RISKS 2 INVESTMENT LIMITATIONS 3 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 Share Ownership 8 Trustees Compensation 9 Trustee Liability 10 INVESTMENT ADVISORY SERVICES 10 Investment Adviser 10 Advisory Fees 10 BROKERAGE TRANSACTIONS 10 OTHER SERVICES 11 Fund Administration 11 Custodian and Portfolio Accountant 11 Transfer Agent 11 Independent Public Accountants 11 DETERMINING NET ASSET VALUE 11 REDEMPTION IN KIND 12 MASSACHUSETTS PARTNERSHIP LAW 12 THE FUND'S TAX STATUS 12 PERFORMANCE INFORMATION 12 Yield 12 Effective Yield 13 Tax-Equivalent Yield 13 Tax-Equivalency Table 14 Total Return 15 Performance Comparisons 15 Economic and Market Information 15 ABOUT FEDERATED INVESTORS 15 Mutual Fund Market 16 Institutional Clients 16 Trust Organizations 16 Broker/Dealers and Bank Broker/Dealer Subsidiaries 16 APPENDIX 17 INVESTMENT POLICIES Unless indicated otherwise, the policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS When determining whether a security presents minimal credit risks, the investment adviser will consider the creditworthiness of: the issuer of the security; the issuer of any demand feature applicable to the security; or any guarantor of either the security or any demand feature. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests plus accrued interest on short notice (usually within seven days). The municipal securities subject to the participation interests are not limited to the Fund's maximum maturity requirements so long as the participation interests include the right to demand payment from the issuers of those interests. By purchasing these participation interests, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the investment adviser, under the authority delegated by the Trustees, will base its determination on the following factors: whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an `event of non-appropriation''); and any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. RATINGS The securities in which the Fund invests must be rated in one of the two highest short-term rating categories by one or more nationally recognized statistical rating organizations (`NRSROs'') or be of comparable quality to securities having such ratings. An NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group (`S&P''), MIG-1 or MIG-2 by Moody's Investors Service, Inc. (`Moody's''), or F-1+, F-1, or F-2 by Fitch Investors Service, Inc. (`Fitch'') are all considered rated in one of the two highest short-term rating categories. The Fund will follow applicable regulations in determining whether a security rated by more than one NRSRO can be treated as being in one of the two highest short-term rating categories; currently, such securities must be rated by two NRSROs in one of their two highest rating categories. See `Regulatory Compliance.'' WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are made to secure what is considered to be an advantageous price or yield for the Fund. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund in a dollar amount sufficient to make payment for the securities to be purchased are: segregated on the Fund`s records at the trade date; marked to market daily; and maintained until the transaction is settled. The Fund does not intend to engage in when-issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of its assets. REPURCHASE AGREEMENTS Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument in return for a percentage of the instrument's market value in cash and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but does not ensure this result. However, liquid assets of the Fund, in a dollar amount sufficient to make payment for the securities to be purchased, are: segregated on the Fund's records at the trade date; marked to market daily; and maintained until the transaction is settled. CREDIT ENHANCEMENT The Fund typically evaluates the credit quality and ratings of credit- enhanced securities based upon the financial condition and ratings of the party providing the credit enhancement (the `credit enhancer''), rather than the issuer. However, credit-enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The Fund may have more than 25% of its total assets invested in securities credit enhanced by banks. TENNESSEE INVESTMENT RISKS Traditionally divided into three geographic regions, the State's economy has historically been dominated by agriculture in the west, manufacturing in the east, and government in the middle region. While trade and services have replaced agriculture in terms of total output, manufacturing continues to be the largest single sector of the economy. The decision by Nissan and Daikin Drivetrain to build automobile production facilities in the state suggests that manufacturing, with its inherent susceptibility to economic downturns, will continue to dominate. The state's attention to educational reform and transportation infrastructure have led to statewide business development. Total employment in 1995 grew by 2.9% following a health 4% in 1994. Projections indicate that employment will continue to grow by 1.7% through 1997. The constitution of the state requires a balanced budget. This constrain along with relatively low debt and expenditure per capita ratios has helped the state maintain its current high quality long term bond rating of AA+ by Standard and Poor's Rating Agency and Aaa by Moody's Investors Service Inc. The Fund's concentration in securities issued by the state and its political subdivisions provide a greater level of risk than a fund which is diversified across a number of states and municipal entities. The ability of the state or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the state; and the underlying fiscal condition of the state, its counties, and its municipalities. INVESTMENT LIMITATIONS The following investment limitations are fundamental (except that no investment limitation of the Fund shall prevent the Fund from investing substantially all of its assets (except for assets which are not considered `investment securities'' under the Investment Company Act of 1940, or assets exempted by the SEC) in an open-end investment company with substantially the same investment objectives): 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. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money directly or through reverse repurchase agreements in amounts up to one-third of the value of its total assets, including the amounts borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except as necessary to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of the pledge. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may acquire publicly or nonpublicly issued Tennessee municipal securities or temporary investments or enter into repurchase agreements, in accordance with its investment objective, policies and limitations or the Trust's Declaration of Trust. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its net assets in securities subject to restrictions on resale under the Securities Act of 1933, except for certain restricted securities which meet the criteria for liquidity as established by the Board of Trustees. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, or real estate limited partnerships, although it may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry or in industrial development bonds or other securities the interest upon which is paid from revenues of similar types of projects. However, the Fund may invest as temporary investments more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The above investment limitations cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval (except that no investment limitation of the Fund shall prevent the Fund from investing substantially all of its assets (except for assets which are not considered `investment securities''under the Investment Company Act of 1940, or assets exempted by the SEC) in an open-end investment company with substantially the same investment objectives). 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 certain restricted securities not determined to be liquid under criteria established by the Trustees and repurchase agreements providing for settlement in more than seven days notice. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will not purchase securities of other investment companies, except as part of a merger, consolidation, or other acquisition. INVESTING FOR CONTROL The Fund will not invest in securities of a company for the purpose of exercising control or management. INVESTING IN OPTIONS The Fund will not invest in puts, calls, straddles, spreads, or any combination of them. For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be `cash items.'' Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation. The Fund did not borrow money or pledge securities in excess of 5% of the value of its net assets during the last fiscal year and has no present intent to do so during the coming fiscal year. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in the prospectus and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940. In particular, the Fund will comply with the various requirements of Rule 2a-7, which regulates money market mutual funds. The Fund will determine the effective maturity of its investments , as well as its ability to consider a security as having received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. FEDERATED MUNICIPAL TRUST MANAGEMENT Officers and Trustees are listed with their addresses, birthdates, present positions with Federated Municipal Trust, and principal occupations. John F. Donahue@* Federated Investors Tower Pittsburgh, PA Birthdate: July 28, 1924 Chairman and Trustee Chairman and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; Chairman and Director, Federated Research Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief Executive Officer and Director or Trustee of the Funds. Thomas G. Bigley 28th Floor, One Oxford Centre Pittsburgh, PA Birthdate: February 3, 1934 Trustee Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee, University of Pittsburgh; Director or Trustee of the Funds. John T. Conroy, Jr. Wood/IPC Commercial Department John R. Wood and Associates, Inc., Realtors 3255 Tamiami Trail North Naples, FL Birthdate: June 23, 1937 Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest Florida; formerly, President, Naples Property Management, Inc. and Northgate Village Development Corporation; Director or Trustee of the Funds. William J. Copeland One PNC Plaza - 23rd Floor Pittsburgh, PA Birthdate: July 4, 1918 Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds. James E. Dowd 571 Hayward Mill Road Concord, MA Birthdate: May 18, 1922 Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or Trustee of the Funds. Lawrence D. Ellis, M.D.* 3471 Fifth Avenue, Suite 1111 Pittsburgh, PA Birthdate: October 11, 1932 Trustee Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds. Edward L. Flaherty, Jr.@ Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: June 18, 1924 Trustee Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region; Director or Trustee of the Funds. Glen R. Johnson* Federated Investors Tower Pittsburgh, PA Birthdate: May 2, 1929 President and Trustee Trustee, Federated Investors; President and/or Trustee of some of the Funds; staff member, Federated Securities Corp. Peter E. Madden One Royal Palm Way 100 Royal Palm Way Palm Beach, FL Birthdate: March 16, 1942 Trustee Consultant; Former State Representative, Commonwealth of Massachusetts; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation; Director or Trustee of the Funds. Gregor F. Meyer Miller, Ament, Henny & Kochuba 205 Ross Street Pittsburgh, PA Birthdate: October 6, 1926 Trustee Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the Funds. John E. Murray, Jr., J.D., S.J.D. President, Duquesne University Pittsburgh, PA Birthdate: December 20, 1932 Trustee President, Law Professor, Duquesne University; Consulting Partner, Mollica, Murray and Hogue; Director or Trustee of the Funds. Wesley W. Posvar 1202 Cathedral of Learning University of Pittsburgh Pittsburgh, PA Birthdate: September 14, 1925 Trustee Professor, International Politics; Management Consultant; Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online Computer Library Center, Inc., National Defense University, U.S. Space Foundation and Czech Management Center; President Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council for Environmental Policy and Technology, Federal Emergency Management Advisory Board and Czech Management Center; Director or Trustee of the Funds. Marjorie P. Smuts 4905 Bayard Street Pittsburgh, PA Birthdate: June 21, 1935 Trustee Public relations/Marketing/Conference Planning, Manchester Craftsmen's Guild; Restaurant Consultant, Frick Art & History Center; Conference Coordinator, University of Pittsburgh Art History Department; Director or Trustee of the Funds. J. Christopher Donahue Federated Investors Tower Pittsburgh, PA Birthdate: April 11, 1949 Executive Vice President President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research; President and Director, Federated Research Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company, and Federated Shareholder Services; Director, Federated Services Company; President or Executive Vice President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Company. Edward C. Gonzales Federated Investors Tower Pittsburgh, PA Birthdate: October 22, 1930 Executive Vice President Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President, Federated Advisers, Federated Management, Federated Research, Federated Research Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive Vice President and Director, Federated Securities Corp.; Trustee, Federated Shareholder Services Company; Trustee or Director of some of the Funds; President, Executive Vice President and Treasurer of some of the Funds. John W. McGonigle Federated Investors Tower Pittsburgh, PA Birthdate: October 26, 1938 Executive Vice President , Secretary and Treasurer Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management, and Federated Research; Director, Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; President and Trustee, Federated Shareholder Services; Director, Federated Securities Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of the Funds. Richard B. Fisher Federated Investors Tower Pittsburgh, PA Birthdate: May 17, 1923 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Director, Federated Securities Corp.; President or Vice President of some of the Funds; Director or Trustee of some of the Funds. *This Trustee is deemed to be an ``interested person'' as defined in the Investment Company Act of 1940. @Member of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board between meetings of the Board. As referred to in the list of Trustees and Officers, `Funds'' includes the following investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated Investment Portfolios; Federated Investment Trust; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. SHARE OWNERSHIP Officers and Trustees as a group own less than 1% of the Fund`s outstanding shares. As of December 2, 1996, the following shareholders of record owned 5% or more of the outstanding Institutional Shares of the Tennessee Municipal Cash Trust: Union Planters National Bank owned approximately 2,823,229 shares (21.79%); Reep & Co. owned approximately 1,522,249 shares (11.75%); Senabco owned approximately 983,923 shares (7.59%); Sharp Market & Company owned approximately 2,261,800 shares (17.46%); Trust Company of Knoxville owned approximately 4,109,953 shares (31.72%); and David & Co. owned approximately 980,528 shares (7.57%). As of December 2, 1996, the following shareholders of record owned 5% or more of the outstanding Institutional Service Shares of Tennessee Municipal Cash Trust: Berman Family Investment Corp. owned approximately 11,099,683 shares (33.87%); Union Planters National Bank owned approximately 4,465,767 shares (13.63%); Okeena & Co. owned approximately 3,499,399 shares (10.68%); Dent, Thompson owned approximately 1,941,326 shares (5.92%); Derril Reeves owned approximately 2,049,945 shares (6.26%); and BHC Securities, Inc. owned approximately 2,461,400 shares (7.51%). TRUSTEES COMPENSATION AGGREGATE NAME , COMPENSATION POSITION WITH FROM TOTAL COMPENSATION PAID TRUST TRUST*# FROM FUND COMPLEX + John F. Donahue $0 $0 for the Trust and Chairman and Trustee 54 other investment companies in the Fund Complex Thomas G. Bigley++ $3,611 $86,331 for the Trust and Trustee 54 other investment companies in the Fund Complex John T. Conroy, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex William J. Copeland $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Glen R. Johnson $0 $0 for the Trust and President and Trustee 14 other investment companies in the Fund Complex James E. Dowd $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Lawrence D. Ellis, M.D. $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Edward L. Flaherty, Jr. $3,934 $115,760 for the Trust and Trustee 54 other investment companies in the Fund Complex Peter E. Madden $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Gregor F. Meyer $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex John E. Murray, Jr., $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Wesley W. Posvar $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex Marjorie P. Smuts $3,611 $104,898 for the Trust and Trustee 54 other investment companies in the Fund Complex *Information is furnished for the fiscal year ended October 31, 1996. #The aggregate compensation is provided for the Trust which is comprised of 16 portfolios. +The information is provided for the last calendar year. ++ Mr. Bigley served on 39 investment companies in the Federated Funds complex from January 1 through September 30, 1995. On October 1, 1995, he was appointed a Trustee on 15 additional Federated Funds. TRUSTEE LIABILITY The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES INVESTMENT ADVISER The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All the voting securities of Federated Investors are owned by a trust, the trustees of which are John F. Donahue, his wife and his son, J. Christopher Donahue. The adviser shall not be liable to the Trust, the Fund, or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. For the period from May 22, 1996 (date of initial public investment) through October 31, 1996, the adviser earned $71, 830 all of which was waived. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. Research services provided by brokers and dealers may be used by the adviser or its affiliates in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. For the period from May 22, 1996 (date of initial public investment) through October 31, 1996, the Fund paid no brokerage commissions. Although investment decisions for the Fund are made independently from those of the other accounts managed by the adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. OTHER SERVICES FUND ADMINISTRATION Federated Services Company, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative Services served as the Fund's Administrator. Prior to March 1, 1994, Federated Administrative Services, Inc. served as the Fund's Administrator. Both former Administrators are subsidiaries of Federated Investors. For purposes of this Statement of Additional Information, Federated Services Company, Federated Administrative Services and Federated Administrative Services, Inc. may hereinafter collectively be referred to as the `Administrators.'' For the period from May 22, 1996 (date of initial public investment) through October 31, 1996, the Administrators earned $71,571. CUSTODIAN AND PORTFOLIO ACCOUNTANT State Street Bank and Trust Company, Boston, MA, is custodian for the securities and cash of the Fund. Federated Services Company, Pittsburgh, PA, provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. The fee paid for this service is based upon the level of the Fund's average net assets for the period plus out-of- pocket expenses. TRANSFER AGENT Federated Services Company, through its registered transfer agent, Federated Shareholder Services Company, maintains all necessary shareholder records. For its services, the transfer agent receives a fee based on the size, type, and number of accounts and transactions made by shareholders. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen LLP, Pittsburgh, PA. SHAREHOLDER SERVICES This arrangement permits the payment of fees to Federated Shareholder Services to cause services to be provided which are necessary for the maintenance of shareholder accounts and to encourage personal services to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Shareholder Services Agreement, the Trustees expect that the Fund will benefit by: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal year ending October 31, 1996, payments in the amount of $15,852 and $20,063 were made pursuant to the Shareholder Services Agreement for Institutional Shares and Institutional Service Shares, respectively, of which $15,852 was waived for Institutional Shares. DETERMINING NET ASSET VALUE The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. Accordingly, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the opposite may be true. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7 (the `Rule'') promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. The procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than 0.5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that further payments should be in kind. In such cases, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders who sell these securities could receive less than the redemption value and could incur certain transaction costs. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect its shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them. THE FUND'S TAX STATUS To qualify for the special tax treatment afforded to regulated investment companies, the Fund must, among other requirements: derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; derive less than 30% of its gross income from the sale of securities held less than three months; invest in securities within certain statutory limits; and distribute to its shareholders at least 90% of its net income earned during the year. PERFORMANCE INFORMATION Performance depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates; changes in expenses; and the relative amount of cash flow. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in shares of the Fund, the performance will be reduced for those shareholders paying those fees. YIELD The yield is calculated based upon the seven days ending on the day of the calculation, called the `base period.'' This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by 365/7. For the seven-day period ended October 31, 1996, the yields for Institutional Shares and Institutional Service Shares were 3.30% and 3.05%, respectively. EFFECTIVE YIELD The effective yield is calculated by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. For the seven-day period ended October 31, 1996, the effective yield for Institutional Shares and Institutional Service Shares were 3.35% and 3.10%, respectively. TAX-EQUIVALENT YIELD The tax-equivalent yield of the Fund is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming 45.60% tax rate (the maximum combined effective federal and state rate for individuals) and assuming that the income is 100% tax exempt. For the seven-day period ended October 31, 1996, the tax-equivalent yield for Institutional Shares and Institutional Service Shares were 6.07% and 5.60%, respectively. TAX-EQUIVALENCY TABLE A tax-equivalency table may be used in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a `tax- free''investment can be an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1996 STATE OF TENNESSEE TAX BRACKET: FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60% COMBINED FEDERAL AND STATE 21.00% 34.00% 37.00% 42.00% 45.60% JOINT $1- $40,101- $96,901- $147,701- OVER RETURN 40,100 96,900 147,700 263,750 $263,750 SINGLE $1- $24,001- $58,151- $121,301- OVER RETURN 24,000 58,150 121,300 263,750 $263,750 TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT 1.50% 1.90% 2.27% 2.38% 2.59% 2.76% 2.00% 2.53% 3.03% 3.17% 3.45% 3.68% 2.50% 3.16% 3.79% 3.97% 4.31% 4.60% 3.00% 3.80% 4.55% 4.76% 5.17% 5.51% 3.50% 4.43% 5.30% 5.56% 6.03% 6.43% 4.00% 5.06% 6.06% 6.35% 6.90% 7.35% 4.50% 5.70% 6.82% 7.14% 7.76% 8.27% 5.00% 6.33% 7.58% 7.94% 8.62% 9.19% 5.50% 6.96% 8.33% 8.73% 9.48% 10.11% 6.00% 7.59% 9.09% 9.52% 10.34% 11.03% Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. TOTAL RETURN Average annual total return is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the net asset value per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, adjusted over the period by any additional shares, assuming the monthly reinvestment of all dividends and distributions. Cumulative total return reflects the total performance over a specific period of time. For the period from May 22, 1996 (date of initial public investment) through October 31, 1996, the cumulative total return for Institutional Shares was 1.59% and for Institutional Service Shares was 1.48%. These total returns are representative of only five months of activity since the date of initial public investment. PERFORMANCE COMPARISONS Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories based on total return, which assumes the reinvestment of all income dividends and capital gains distributions, if any. oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market funds weekly. Donoghue's Money Market Insight publication reports monthly and 12-month-to-date investment results for the same money funds. oMONEY, a monthly magazine, regularly ranks money market funds in various categories based on the latest available seven-day effective yield. Advertising and other promotional literature may include charts, graphs and other illustrations using the Fund`s returns, or returns in general, that demonstrate basic investment concepts such as tax-deferred compounding, dollar-cost averaging and systematic investment. In addition, the Fund can compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, such as bank savings accounts, certificates of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION Advertising and sales literature for the Fund may include discussions of economic, financial and political developments and their effect on the securities market. Such discussions may take the form of commentary on these developments by the Fund portfolio mangers and their views and analysis on how such developments could affect the Funds. In addition, advertising and sales literature may quote statistics and give general information about the mutual fund industry, including growth of the industry, from sources such as the Investment Company Institute. ABOUT FEDERATED INVESTORS Federated Investors is dedicated to meeting investor needs which is reflected in its investment decision making-structured, straightforward, and consistent. This has resulted in a history of competitive performance with a range of competitive investment products that have gained the confidence of thousands of clients and their customers. The company's disciplined security selection process is firmly rooted in sound methodologies backed by fundamental and technical research. Investment decisions are made and executed by teams of portfolio managers, analysts, and traders dedicated to specific market sectors. These traders handle trillions of dollars in annual trading volume. In the money market sector, Federated Investors gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 1995, Federated Investors managed more than $40.2 billion in assets across approximately 47 money market funds, including 17 government, 10 prime and 20 municipal with assets approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively. J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity and high yield corporate bond management while William D. Dawson, Executive Vice President, oversees Federated Investors' domestic fixed income management. Henry A. Frantzen, Executive Vice President, oversees the management of Federated Investors' international portfolios. MUTUAL FUND MARKET Twenty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $3 trillion to the more than 5,500 funds available.* Federated Investors, through its subsidiaries, distributes mutual funds for a variety of investment applications. Specific markets include: INSTITUTIONAL CLIENTS Federated Investors meets the needs of more than 4,000 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of applications, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax-exempt entities, foundations/endowments, insurance companies, and investment and financial advisors. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division. TRUST ORGANIZATIONS Other institutional clients include close relationships with more than 1,500 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated funds in their clients' portfolios. The marketing effort to trust clients is headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales. BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES Federated funds are available to consumers through major brokerage firms nationwide--including 200 New York Stock Exchange firms--supported by more wholesalers than any other mutual fund distributor. Federated's service to financial professionals and institutions has earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for service quality measurement. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Division. *Source: Investment Company Institute APPENDIX STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS A Standard & Poor's Ratings Group (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 rate `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. MOODYS 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 SERVICES, INC. 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. -----END PRIVACY-ENHANCED MESSAGE-----