-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, rg1f9tjaIue0hy2A7r+CW9hQJLbPJw3GjLE3w9ykfeBrEke/ZzufIkZY2wYepc/U KuJZdXTQlk3NUEjfRdMc1g== 0000855108-94-000001.txt : 19940112 ACCESSION NUMBER: 0000855108-94-000001 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19940104 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: 33 SEC FILE NUMBER: 033-31259 FILM NUMBER: 94500174 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS TOWER CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122887496 497 1 FORM DOCUMENT 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 non-diversified portfolio of securities which is one of a series of investment portfolios in Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The investment objective of the Fund is to provide current income exempt from federal regular income tax and the Connecticut Personal Income Tax consistent with stability of principal. The Fund invests primarily in short-term Connecticut municipal securities, including securities of states, territories, and possessions of the United States, which are not insured by or on behalf of Connecticut or its political subdivisions and financing authorities, which are exempt from the federal regular income tax and Connecticut Personal Income Tax. Institutional Service Shares are sold at net asset value, without a sales load. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. 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. THE INSTITUTIONAL SERVICE 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 BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. This prospectus contains the information you should read and know before you invest in Institutional Service Shares. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information for Institutional Service Shares dated December 31, 1993, with the Securities and Exchange Commission. 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 free of charge by calling 1-800-235-4669. To obtain other information or to make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1993 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Acceptable Investments 3 Variable Rate Demand Notes 4 Participation Interests 4 Municipal Leases 4 Ratings 4 Credit Enhancement 5 Demand Features 5 Restricted and Illiquid Securities 5 When-Issued and Delayed Delivery Transactions 5 Temporary Investments 5 Connecticut Municipal Securities 6 Standby Commitments 6 Connecticut Investment Risks 6 Non-Diversification 7 Investment Limitations 7 Regulatory Compliance 7 FEDERATED MUNICIPAL TRUST INFORMATION 8 - ------------------------------------------------------ Management of Federated Municipal Trust 8 Board of Trustees 8 Investment Adviser 8 Advisory Fees 8 Adviser's Background 8 Distribution of Institutional Service Shares 9 Administrative Arrangements 9 Administration of the Fund 9 Administrative Services 9 Custodian 9 Transfer Agent and Dividend Disbursing Agent 9 Legal Counsel 9 Independent Public Accountants 9 NET ASSET VALUE 10 - ------------------------------------------------------ INVESTING IN INSTITUTIONAL SERVICE SHARES 10 - ------------------------------------------------------ Share Purchases 10 By Wire 10 By Mail 10 Minimum Investment Required 10 What Shares Cost 11 Subaccounting Services 11 Certificates and Confirmations 11 Dividends 11 Capital Gains 11 REDEEMING INSTITUTIONAL SERVICE SHARES 12 - ------------------------------------------------------ Telephone Redemption 12 Written Requests 12 Signatures 12 Receiving Payment 13 Checkwriting 13 Redemption Before Purchase Instruments Clear 13 Accounts with Low Balances 13 SHAREHOLDER INFORMATION 13 - ------------------------------------------------------ Voting Rights 13 Massachusetts Partnership Law 14 TAX INFORMATION 14 - ------------------------------------------------------ Federal Income Tax 14 Connecticut Tax Considerations 15 Other State and Local Taxes 15 PERFORMANCE INFORMATION 16 - ------------------------------------------------------ FINANCIAL STATEMENTS 17 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 33 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)........................................ None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)........................................ None Deferred Sales Load (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 INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)............................................. 0.27% 12b-1 Fee.................................................................... None Other Expenses............................................................... 0.32% Total Institutional Service Shares 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 Institutional Service Shares Operating Expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1994. The Total Institutional Service Shares Operating Expenses were 0.57% for the fiscal year ended October 31, 1993, and were 0.82% absent the voluntary waiver of a portion of the management fee. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "FEDERATED MUNICIPAL TRUST INFORMATION" AND "INVESTING IN INSTITUTIONAL SERVICE SHARES." 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. As noted in the table above, the Fund charges no redemption fee for Institutional Service Shares............................ $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. CONNECTICUT 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, ------------------------------------------------ 1993 1992 1991 1990* ------ ------ ------ ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------ Net investment income 0.02 0.03 0.04 0.05 - ------------------------------------------------ ------ ------ ------ ------ LESS DISTRIBUTIONS - ------------------------------------------------ Dividends to shareholders from net investment income (0.02) (0.03) (0.04) (0.05) - ------------------------------------------------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------ ------ ------ ------ ------ TOTAL RETURN** 1.96% 2.68% 4.04% 5.54%(a) - ------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------ Expenses 0.57% 0.56% 0.56% 0.48%(b) - ------------------------------------------------ Net investment income 1.95% 2.66% 3.94% 5.32%(b) - ------------------------------------------------ Expense waiver/reimbursement (c) 0.25% 0.30% 0.21% 0.28%(b) - ------------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------------ Net assets, end of period (000s omitted) $140,446 $140,118 $140,113 $138,378 - ------------------------------------------------
* Reflects operations for the period from November 1, 1989 (date of initial public investment), to October 31, 1990. The financial highlights presented are historical information for the Fund, prior to the creation of separate classes of shares. ** Based on net asset value which does not reflect sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (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 of beneficial interest 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") have established one class of shares, known as Institutional Service Shares. This prospectus relates only to the Institutional Service Shares of the Fund. Institutional Service Shares ("Shares") of the Fund are designed for the investment of moneys held by financial institutions in an agency capacity. A minimum initial investment of $25,000 over a 90-day period is required. The Fund may not be a suitable investment for non-Connecticut taxpayers or retirement plans since it invests primarily in Connecticut municipal securities. The Fund attempts to stabilize the value of a Share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to provide current income exempt from federal regular income tax and the Connecticut Personal 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 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 Connecticut. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in a portfolio of Connecticut municipal securities with remaining maturities of 13 months or less at the time of purchase by the Fund. As a matter of investment policy, which cannot be changed without approval of shareholders, the Fund invests its assets so that at least 80% of its annual interest income is exempt from federal regular income tax and Connecticut Personal Income Tax. 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 the approval of shareholders. 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 the State 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 both federal regular income tax and Connecticut Personal Income Tax imposed upon non-corporate taxpayers. Examples of Connecticut municipal securities include, but are not limited to: - tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; - bond anticipating notes ("BANs") that are intended to be refinanced through a later issuance of longer-term notes; - 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 municipal securities 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 adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in municipal securities from financial institutions such as commercial and investment banks, savings and loan associations and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying municipal securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities and may be considered to be illiquid. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation certificate on any of the above. RATINGS. The Connecticut municipal securities in which the Fund invests must either 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 Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1 and FIN-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 categories. See "Regulatory Compliance." CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been credit enhanced by a guaranty, letter of credit or insurance. 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. The bankruptcy, receivership or default of the credit enhancer will adversely affect the quality and marketability of the underlying security. 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. 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 laws. Under criteria established by the Trustees, certain restricted securities are considered liquid. To the extent restricted securities are deemed to be illiquid, the Fund will limit their purchase, together with other securities considered to be illiquid, to 10% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Connecticut municipal securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in short-term non-Connecticut municipal tax-exempt obligations or other taxable temporary investments. All temporary investments will satisfy the same credit quality standards as the Fund's acceptable investments. See "Ratings" above. Temporary investments include: notes issued by or on behalf of municipal or corporate issuers; marketable obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; other debt securities; commercial paper; certificates of deposit of banks; and repurchase agreements (arrangements in which banks, broker/dealers, and other recognized financial institutions sell the Fund a temporary investment and agree 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 of generating income subject to federal regular income tax or the Connecticut Personal Income 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 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. STANDBY COMMITMENTS Some securities dealers are willing to sell municipal securities to the Fund accompanied by their commitments to repurchase the municipal securities prior to maturity, at the Fund's option, for the amortized cost of the municipal securities at the time of repurchase. These arrangements are not used to protect against changes in the market value of municipal securities. They permit the Fund, however, to remain fully invested and still provide liquidity to satisfy redemptions. The cost of municipal securities accompanied by these "standby" commitments could be greater than the cost of municipal securities without such commitments. Standby commitments are not marketable or otherwise assignable and have value only to the Fund. The default or bankruptcy of a securities dealer giving such a commitment would not affect the quality of the municipal securities purchased. However, without a standby commitment, these securities could be more difficult to sell. The Fund enters into standby commitments only with those dealers whose credit the investment adviser believes to be of high quality. CONNECTICUT 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 and maturity of the particular offering; the maturity of the obligations; and the rating of the issue. Further, any adverse economic conditions or developments affecting the State of Connecticut or its municipalities could impact the Fund's portfolio. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Connecticut municipal securities and demand features for such securities, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. Investing in Connecticut municipal securities which meet the Fund's quality standards may not be possible if the State of Connecticut or its municipalities do not maintain their high quality, short-term credit ratings. In addition, certain Connecticut constitutional amendments, legislative measures, executive orders, administrative regulations, and voter initiatives could result in adverse consequences affecting Connecticut municipal securities. An expanded discussion of the current economic risks associated with the purchase of Connecticut municipal securities is contained in the Statement of Additional Information. NON-DIVERSIFICATION The Fund is a non-diversified investment portfolio. As such, there is no limit on the percentage of assets which can be invested in any single issuer. An investment in the Fund, therefore, will entail greater risk than would exist in a diversified investment portfolio because the higher percentage of investments among fewer issuers may result in greater fluctuation in the total market value of the Fund's portfolio. Any economic, political, or regulatory developments affecting the value of the securities in the Fund's portfolio will have a greater impact on the total value of the portfolio than would be the case if the portfolio were diversified among more issuers. The Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that at the end of each quarter of the taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer; beyond that, no more than 25% of its total assets are invested in the securities of a single issuer. 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 above investment limitation cannot be changed without shareholder approval. The following investment limitation, however, can be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in this limitation becomes effective. The Fund will not invest more than 5% of its total assets in industrial development bonds or other municipal securities when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in this prospectus and its 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, as amended. 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 INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF FEDERATED MUNICIPAL TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of Trustees is 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. The Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, 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, for which it receives an annual fee from the Fund. ADVISORY FEES. The Fund's adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. Under the advisory contract, which provides for the voluntary waiver of the advisory fee by the adviser, the adviser may voluntarily waive some or all of the advisory fee. This does not include reimbursement to the Fund of any expenses incurred by shareholders who use the transfer agent's subaccounting facilities. The adviser can terminate this voluntary waiver of expenses at any time at its sole discretion. The adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. 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. Total assets under management or administration by these and other subsidiaries of Federated Investors are approximately $70 billion. Federated Investors, which was founded in 1956 as Federated Investors, Inc., develops and manages mutual funds primarily for the financial industry. Federated Investors' track record of competitive performance and its disciplined, risk-averse investment philosophy serve approximately 3,500 client institutions nationwide. Through these same client institutions, individual shareholders also have access to this same level of investment expertise. 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. ADMINISTRATIVE ARRANGEMENTS. The distributor may select brokers and dealers to provide distribution and administrative services. The distributor may also select administrators (including depository institutions such as commercial banks and savings and loan associations) to provide administrative services. These administrative services include, but are not limited to, distributing prospectuses and other information, providing accounting assistance, and communicating or facilitating purchases and redemptions of Shares. Brokers, dealers, and administrators will receive fees from the distributor based upon Shares owned by their clients or customers. The fees are calculated as a percentage of the average aggregate net asset value of shareholder accounts during the period for which the brokers, dealers, and administrators provide services. Any fees paid for these services by the distributor will be reimbursed by the adviser. The Glass-Steagall Act limits the ability of a depository institution (such as a commercial bank or a savings and loan association) to become an underwriter or distributor of securities. In the event the Glass-Steagall Act is deemed to prohibit depository institutions from acting in the capacities described above or should Congress relax current restrictions on depository institutions, the Board of Trustees will consider appropriate changes in the administrative services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state law. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services, Inc., provides these at approximate cost. CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and dividend disbursing agent for the Fund. LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania. 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 adding the interest of the Shares in the value of all securities and other assets of the Fund, subtracting the interest of the Shares in the liabilities of the Fund and those attributable to Shares, and dividing the remainder by the number of Shares outstanding. The Fund, of course, cannot guarantee that its net asset value will always remain at $1.00 per Share. INVESTING IN INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- SHARE PURCHASES Shares are sold on days on which the New York Stock Exchange and the Federal Reserve wire system are open for business. Shares may be purchased either by wire or by mail. The Fund reserves the right to reject any purchase request. To purchase Shares, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken over the telephone. BY WIRE. To purchase Shares by Federal Reserve wire, call 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 same day. Federal funds should be wired as follows: State Street Bank and Trust Company, Boston, Massachusetts; 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 days on which the New York Stock Exchange is closed and on federal holidays restricting wire transfers. BY MAIL. To purchase Shares by mail, send a check made payable to Connecticut Municipal Cash Trust--Institutional Service Shares to the Trust's transfer agent, Federated Services Company, c/o State Street Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are considered received when payment by check is converted by State Street Bank into federal funds. This is normally the next business day after State Street Bank receives the check. MINIMUM INVESTMENT REQUIRED The minimum initial investment in Shares is $25,000. However, an account may be opened with a smaller amount as long as the $25,000 minimum is reached within 90 days. An institutional investor's minimum investment will be calculated by combining all accounts it maintains with the Fund. Individual accounts established through a bank or broker may be subject to a different minimum investment requirement. WHAT SHARES COST Shares are sold at their net asset value next determined after an order is received. There is no sales charge imposed by the Fund. Investors who purchase Shares through a bank or broker may be charged an additional service fee by that bank or broker. The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m. (Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no Shares are tendered for redemption and no orders to purchase Shares are received; and (iii) the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. SUBACCOUNTING SERVICES Institutions are encouraged to open single master accounts. However, certain institutions may wish to use the transfer agent's subaccounting system to minimize their internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Financial institutions holding Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Shares. This prospectus should, therefore, be read together with any agreement between the customer and the financial institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Monthly confirmations are sent to report transactions such as purchases and redemptions as well as dividends paid during the month. DIVIDENDS Dividends are declared daily and paid monthly. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends on the day after the check is converted, upon instruction of the transfer agent, into federal funds. Dividends are automatically reinvested on payment dates in additional Shares unless cash payments are requested on an application or by contacting the Fund. CAPITAL GAINS Capital gains, if any, could result in an increase in dividends. Capital losses, if any, could result in a decrease in dividends. If, for some extraordinary reason, the Fund realizes net long-term or short-term capital gains, it will distribute them at least once every 12 months. REDEEMING INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares 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 by telephone request or by written request. TELEPHONE REDEMPTION Shareholders may redeem their Shares by telephoning the Fund. Redemption requests received before 12:00 noon (Eastern time) are not entitled to that day's dividend. A daily dividend will be paid on Shares redeemed if the redemption request is received after 12:00 noon (Eastern time). However, the proceeds are not wired until the following business day. If at any time the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders will be promptly notified. An authorization form permitting the Fund to accept redemption requests by telephone must first be completed. Authorization forms and information on this service are available from Federated Securities Corp. Telephone redemption instructions may be recorded. 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, shareholders may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption, such as Written Requests, should be considered. WRITTEN REQUESTS Shares may also be redeemed by sending a written request to the Fund. Call the Fund for specific instructions before redeeming by letter. The shareholder will be asked to provide in the request his name, the Fund name and class of shares, his account number, and the Share or dollar amount requested. If Share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, 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 signatures on written redemption requests guaranteed by: - a trust company or commercial bank whose deposits are insured by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance Corporation ("FDIC"); - a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; - a savings bank or savings and loan association whose deposits are insured by the Savings Association Insurance Fund ("SAIF"), which is administered by the FDIC; 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. The Fund and its transfer agent have 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 and its transfer agent reserve the right to amend these standards at any time without notice. RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request provided that the transfer agent has received payment for the Shares from the shareholder. CHECKWRITING. At the shareholder's request, State Street Bank will establish a checking account for redeeming Shares. For further information, contact Federated Securities Corp. A fee may be charged for this service. With a Fund checking account, Shares may be redeemed simply by writing a check. The redemption will be made at the net asset value on the date that State Street Bank presents the check to the Fund. A check may not be written to close an account. If a shareholder wishes to redeem Shares and have the proceeds available, a check may be written and negotiated through the shareholder's bank. Checks should never be sent to State Street Bank to redeem Shares. Cancelled checks are returned to the shareholder each month. REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR When Shares are purchased by check, the proceeds from the redemption of those Shares are not available, and the Shares may not be exchanged, until the Fund or its agents are reasonably certain that the purchase check has cleared, which could take up to ten calendar days. 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. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only shares of that Fund or class are entitled to vote. As of November 29, 1993, Putnam Trust Company, Greenwich, Connecticut, owned 26.18% of the voting securities of the Institutional Service Shares of the Fund, and, therefore, may, for certain purposes, be deemed to control the Institutional Service Shares of the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. As a Massachusetts business trust, 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 for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of all series in the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders of the Fund, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such 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 of the Fund is held personally liable for the Trust's obligations, the Trust is required 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 cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. 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 some municipal bonds may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The alternative minimum tax, currently equal to up to 28% of alternative minimum taxable income for individuals and 20% for corporations, 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. The Tax Reform Act of 1986 treats interest on certain "private activity" bonds issued after August 7, 1986, as a tax preference item for both individuals and corporations. Unlike traditional governmental purpose municipal bonds, which finance roads, schools, libraries, prisons and other public facilities, private activity bonds provide benefits to private parties. The Fund may purchase all types of municipal bonds, including private activity bonds. Thus, should it purchase any such bonds, a portion of the Fund's dividends may be treated as a tax preference item. In addition, in the case of a corporate shareholder, dividends of the Fund which represent interest on municipal bonds may be subject to the 20% corporate alternative minimum tax because the dividends are included in a corporation's "adjusted current earnings." The corporate alternative minimum tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's alternative minimum taxable income as a tax preference item. "Adjusted current earnings" is based upon the concept of a corporation's "earnings and profits." Since "earnings and profits" generally includes the full amount of any Fund dividend, and alternative minimum taxable income does not include the portion of the Fund's dividend attributable to municipal bonds which are not private activity bonds, 75% of the difference will be included in the calculation of the corporation's alternative minimum 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. Information on the tax status of dividends and distributions is provided annually. CONNECTICUT TAX CONSIDERATIONS Under existing Connecticut law, dividends paid by the Fund will be exempt from Connecticut state income tax on individuals, estates and trusts to the extent that such dividends represent exempt-interest dividends as defined in the Internal Revenue Code, and are derived from (i) obligations issued by or on behalf of 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) 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 distributions by the Fund are derived from other types of obligations, such distributions will not be exempt from the Connecticut state income tax. 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. OTHER STATE AND LOCAL TAXES Income from the Fund is not necessarily free from regular state income taxes in states other than Connecticut or from personal property taxes. State laws differ on this issue and 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 the Fund advertises its yield, effective yield, and tax-equivalent yield for Institutional Service Shares. The yield of Institutional Service Shares represents the annualized rate of income earned on an investment in Institutional Service Shares 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 in Institutional Service Shares 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 of Institutional Service Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the Institutional Service Shares would have had to earn to equal their actual yield, assuming a specific tax rate. Advertisements and other sales literature may also refer to total return. Total return represents the change, over a specified period of time, in the value of an investment in Institutional Service 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, the Fund may advertise the performance of Institutional Service Shares using certain reporting services and/or compare the performance of Institutional Service Shares to certain indices. CONNECTICUT MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1993 - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ----------- ------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES--102.0% - ------------------------------------------------------------------------ CONNECTICUT--91.4% ------------------------------------------------------- $11,000,000 Connecticut Development Authority Solid Waste Disposal Facility Weekly VRDNs (Series A)/(Exeter Energy)/ (Sanwa Bank Ltd. LOC)/(Subject to AMT) A-1+ $ 11,000,000 ------------------------------------------------------- 1,000,000 Connecticut Development Authority Solid Waste Disposal Facility Weekly VRDNs (Series B)/(Exeter Energy)/ (Sanwa Bank Ltd. LOC)/(Subject to AMT) A-1+ 1,000,000 ------------------------------------------------------- 7,499,000 Connecticut Development Authority Solid Waste Disposal Facility Weekly VRDNs (Series C)/(Exeter Energy)/ (Sanwa Bank Ltd. LOC)/(Subject to AMT) A-1+ 7,499,000 ------------------------------------------------------- 2,250,000 Connecticut Development Authority Weekly VRDNs (C.E.M. Corp.)/(Barclays Bank PLC LOC)/ (Subject to AMT) P-1 2,250,000 ------------------------------------------------------- 5,200,000 Connecticut Development Authority Weekly VRDNs (Capital District Energy Center)/(Canadian Imperial Bank of Commerce LOC)/(Subject to AMT) P-1 5,200,000 ------------------------------------------------------- 5,200,000 Connecticut Development Authority Weekly VRDNs (Connecticut Light & Power Co.)/(Deutsche Bank AG LOC) VMIG1 5,200,000 ------------------------------------------------------- 500,000 Connecticut Development Authority Weekly VRDNs (Connecticut Light & Power Co.)/(Deutsche Bank AG LOC)/(Subject to AMT) VMIG1 500,000 ------------------------------------------------------- 4,700,000 Connecticut Development Authority Weekly VRDNs (Independence Living, Inc.)/(Credit Commercial de France LOC) VMIG1 4,700,000 -------------------------------------------------------
CONNECTICUT MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ----------- ------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ CONNECTICUT--CONTINUED ------------------------------------------------------- $ 3,225,000 Connecticut Development Authority Weekly VRDNs (Jewish Community Center of Greater New Haven)/ (Fleet National Bank LOC) P-1 $ 3,225,000 ------------------------------------------------------- 1,759,600 Connecticut Development Authority Weekly VRDNs (RSA Corp.)/(Barclays Bank PLC LOC)/(Subject to AMT) P-1 1,759,600 ------------------------------------------------------- 2,000,000 Connecticut Development Authority Weekly VRDNs (Series 1985)/(Airport Hotel)/(RK Bradley Associates Ltd. Partnership)/(Daiwa Bank Ltd. and Royal Bank of Canada LOCs) VMIG1 2,000,000 ------------------------------------------------------- 4,330,000 Connecticut Development Authority 3.00% CP (Connecticut Light & Power Co.)/(Long Term Credit Bank of Japan Ltd. LOC)/(Subject to AMT), Mandatory Tender 11/1/93 P-2 4,330,000 ------------------------------------------------------- 2,400,000 Connecticut State Development Authority Weekly VRDNs (Banta Associates)/(Marine Midland Bank N.A. and Hong Kong Shang Hai Banking Corp. LOCs)/(Subject to AMT) P-1 2,400,000 ------------------------------------------------------- 7,000,000 Connecticut State Development Authority, PCR Weekly VRDNs (Series 1993A)/(Western Massachusetts Electrical Co.)/(Union Bank of Switzerland LOC) A-1+ 7,000,000 ------------------------------------------------------- 5,000,000 Connecticut State Development Authority, Solid Waste Disposal Weekly VRDNs (Series 1993)/(Rand-Whitney Containerboard Ltd. Partnership)/(Chase Manhattan Bank N.A. LOC)/(Subject to AMT) A-1 5,000,000 ------------------------------------------------------- 2,000,000 Connecticut State Development Health Care Facilities Weekly VRDNs (Independence Living, Inc.)/ (Daiwa Bank Ltd. LOC) VMIG1 2,000,000 ------------------------------------------------------- 1,800,000 Connecticut State HEFA Weekly VRDNs (Charlotte Hungerfield Hospital)/(Mitsubishi Bank Ltd. LOC) VMIG1 1,800,000 -------------------------------------------------------
CONNECTICUT MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ----------- ------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ CONNECTICUT--CONTINUED ------------------------------------------------------- $ 5,300,000 Connecticut State HEFA, 2.35% CP (Windham Community Memorial Hospital)/(Banque Paribas LOC), Mandatory Tender 11/17/93 A-1+ $ 5,300,000 ------------------------------------------------------- 3,025,000 Connecticut State HEFA, 2.40% CP (Series L)/ (Yale University), Mandatory Tender 11/10/93 A-1+ 3,025,000 ------------------------------------------------------- 2,300,000 Connecticut State HEFA, 2.60% CP (Series N)/ (Yale University Guaranty), Mandatory Tender 2/15/94 A-1+ 2,300,000 ------------------------------------------------------- 3,200,000 Connecticut State HFA, 2.45% CP (Series 1990D)/ (Subject to AMT), Mandatory Tender 11/16/93 A-1+ 3,200,000 ------------------------------------------------------- 1,600,000 Connecticut State HFA, 2.50% CP (Series 1990D)/ (Subject to AMT), Mandatory Tender 11/12/93 A-1+ 1,600,000 ------------------------------------------------------- 3,305,000 Connecticut State HFA, 2.50% CP (Series 1990D)/ (Subject to AMT), Mandatory Tender 11/22/93 A-1+ 3,305,000 ------------------------------------------------------- 4,750,000 Connecticut State HFA, 2.60% CP (Series 1990C)/ (Subject to AMT), Mandatory Tender 12/14/93 A-1+ 4,750,000 ------------------------------------------------------- 5,600,000 Connecticut State Resource Recovery Authority, 2.85% RANs (Fleet National Bank LOC), 6/23/94 P-1 5,608,748 ------------------------------------------------------- 3,500,000 Connecticut State Special Assessment Unemployment Compensation Advance Fund, 3.00% Revenue Bond (Series 1993C)/(FGIC Insured), Mandatory Tender 7/1/94 A-1+ 3,504,491 ------------------------------------------------------- 2,200,000 Connecticut State Transportation Infrastructure Authority Weekly VRDNs (Industrial Bank of Japan, Ltd. LOC) A-1+ 2,200,000 ------------------------------------------------------- 4,000,000 Connecticut State, 5.25% Economic Recovery Bonds, 6/15/94 AA- 4,062,912 ------------------------------------------------------- 4,000,000 ** East Hampton, CT, 2.55% BANs, 7/15/94 NR(3) 4,001,360 ------------------------------------------------------- 1,500,000 East Lyme, CT, 2.56% BANs, 8/5/94 NR(3) 1,500,652 ------------------------------------------------------- 5,500,000 Hartford, CT, Redevelopment Authority Weekly VRDNs (Underwood Towers)/(FSA Insured) A-2 5,500,000 -------------------------------------------------------
CONNECTICUT MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ----------- ------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------ CONNECTICUT--CONTINUED ------------------------------------------------------- $ 3,000,000 Meriden, CT, 2.53% BANs, 2/17/94 NR(3) $ 3,000,258 ------------------------------------------------------- 1,963,000 Meriden, CT, 2.60% BANs, 2/17/94 NR(3) 1,963,565 ------------------------------------------------------- 1,900,000 New Haven, CT, Weekly VRDNs (Starter Sportswear)/ (National Westminster Bank PLC LOC)/(Subject to AMT) P-1 1,900,000 ------------------------------------------------------- 3,000,000 Plainfield, CT, 3.35% TANs, 5/10/94 NR 3,008,470 ------------------------------------------------------- 1,805,000 Waterbury, CT, 3.70% BANs (Fleet National Bank LOC), 12/2/93 P-1 1,806,947 ------------------------------------------------------- ------------ Total 128,401,003 ------------------------------------------------------- ------------ PUERTO RICO--10.6% ------------------------------------------------------- 5,400,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit Suisse and Sumitomo Bank Ltd. LOCs) A-1+ 5,400,000 ------------------------------------------------------- 5,000,000 Puerto Rico Industrial, Medical and Environmental PCA, 2.90% Annual TOBs (Series 1983A)/(Reynolds Metals Co.)/(ABN AMRO Bank N.V. LOC), Optional Tender 9/1/94 A-1+ 5,004,039 ------------------------------------------------------- 4,495,000 Puerto Rico Maritime Shipping Authority, 2.35% CP (Credit Suisse LOC), Mandatory Tender 1/13/94 A-1+ 4,495,000 ------------------------------------------------------- ------------ Total 14,899,039 ------------------------------------------------------- ------------ TOTAL INVESTMENTS (AT AMORTIZED COST) $143,300,042+ ------------------------------------------------------- ------------
* See Notes to Portfolio of Investments. ** When-issued security (Note 2D). + Also represents cost for federal tax purposes. CONNECTICUT MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following abbreviations are used in this portfolio: AMT -- Alternative Minimum Tax BANs -- Bond Anticipation Notes CP -- Commercial Paper FGIC -- Financial Guaranty Insurance Company FSA -- Financial Security Assurance HEFA -- Health and Education Facilities Authority HFA -- Housing Finance Authority/Agency LOC -- Letter of Credit LOCs -- Letters of Credit PCA -- Pollution Control Authority PCR -- Pollution Control Revenue RANs -- Revenue Anticipation Notes TANs -- Tax Anticipation Notes TOBs -- Tender Option Bonds VRDNs -- Variable Rate Demand Notes
Note: The categories of investments are shown as a percentage of net assets ($140,446,211) at October 31, 1993. (See Notes which are an integral part of the Financial Statements) CONNECTICUT MUNICIPAL CASH TRUST NOTES TO PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL OBLIGATION RATINGS S&P A Standard & Poor's 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 (+) designation. SP-2 Satisfactory capacity to pay principal and interest. MOODY'S 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. FITCH Fitch's short-term ratings place greater emphasis on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. F-1 Strongest degree of assurance for timely payment. Those issues determined to provide exceptionally strong credit quality are given a plus (+) designation. F-2 Notes reflecting a degree of assurance for timely payment only slightly less in degree than the highest category. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P Standard & Poor's 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-1+, AA/A-1+, and A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) MOODY'S 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. FITCH Fitch usually assigns two ratings to long-term debt issues that include provisions for a variable rate demand feature. The long-term rating addresses the ability of the obligor to pay debt service and the short-term rating addresses the timely payment of the demand feature. Examples of rating designations are as follows: AAA/F-1+, AA/F-1+, and A/F-1. (The definitions for the long-term and short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS S&P A Standard & Poor's 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 designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign designation. A-2 Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated "A-1." MOODY'S P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. The following is an explanation of the Fitch ratings. These ratings are not referenced in the Portfolio of Investments. FITCH F-1 Issues assigned this rating reflect a strong degree of assurance for timely payment. Those issuers determined to possess the strongest degree of assurance for timely payment are denoted with a plus (+) sign designation. F-2 Issuers carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as the "F-1+" and "F-1" categories. LONG-TERM DEBT RATINGS (INVESTMENT GRADE) S&P AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the 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. BBB Debt rated "BBB" is regarding as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest than debt rated in higher ratings categories. MOODY'S AAA Bonds that 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 edge." Interest payments are protected by a large margin and principal is secure. While the various protective elements are likely to change, such changes which can be foreseen are most unlikely to impair the fundamentally strong position of such issues. AA Bonds that 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 that 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 that suggest a susceptibility to impairment some time in the future. BAA Bonds which are rated BAA are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. FITCH AAA Bonds that are rated AAA are of the highest credit quality. The obligor has an exceptionally strong ability to pay debt service. AA Bonds that are rated AA are of very high quality. The obligor has a very strong ability to pay debt service. Debt rated in this category may also have a (+) or (-) sign with a rating to indicate the relative position within the rating category. A Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. NR indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P, Moody's, or Fitch with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated in one of the two highest short-term ratings categories by a nationally recognized statistical rating organization. NR (1) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by Fitch. NR (2) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AA" by Standard & Poor's, "Aa" Moody's or "AA" by Fitch. NR (3) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "A" by Standard & Poor's, Moody's or Fitch. NR (4) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by Fitch. CONNECTICUT MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1993 - -------------------------------------------------------------------------------- ASSETS: - -------------------------------------------------------------------------------- Investments, at amortized cost and value (Note 2A) $143,300,042 - -------------------------------------------------------------------------------- Cash 725,383 - -------------------------------------------------------------------------------- Interest receivable 624,352 - -------------------------------------------------------------------------------- Receivable for Fund shares sold 2,936 - -------------------------------------------------------------------------------- Deferred expenses (Note 2E) 9,489 - -------------------------------------------------------------------------------- ------------ Total assets 144,662,202 - -------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------------------- Payable for investments purchased $4,001,360 - ------------------------------------------------------------------- Dividends payable 158,306 - ------------------------------------------------------------------- Payable for Fund shares redeemed 4,485 - ------------------------------------------------------------------- Accrued expenses and other liabilities 51,840 - ------------------------------------------------------------------- ---------- Total liabilities 4,215,991 - -------------------------------------------------------------------------------- ------------ NET ASSETS for 140,446,211 shares of beneficial interest outstanding $140,446,211 - -------------------------------------------------------------------------------- ------------ NET ASSET VALUE, Offering Price, and Redemption Price Per Share: ($140,446,211 / 140,446,211 shares of beneficial interest 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, 1993 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------- Interest Income (Note 2B) $3,349,553 - ---------------------------------------------------------------------------------- EXPENSES-- - ---------------------------------------------------------------------------------- Investment advisory fee (Note 5) $ 666,093 - --------------------------------------------------------------------- Administrative personnel and services fees (Note 5) 268,954 - --------------------------------------------------------------------- Custodian, transfer and dividend disbursing agent fees and expenses 62,368 - --------------------------------------------------------------------- Trustees' fees 3,185 - --------------------------------------------------------------------- Auditing fees 15,663 - --------------------------------------------------------------------- Legal fees 17,367 - --------------------------------------------------------------------- Printing and postage 12,175 - --------------------------------------------------------------------- Fund share registration costs 23,708 - --------------------------------------------------------------------- Taxes 523 - --------------------------------------------------------------------- Insurance premiums 15,755 - --------------------------------------------------------------------- Miscellaneous 8,366 - --------------------------------------------------------------------- ---------- Total expenses 1,094,157 - --------------------------------------------------------------------- DEDUCT--Waiver of investment advisory fee (Note 5) 337,400 - --------------------------------------------------------------------- ---------- Net Expenses 756,757 - ---------------------------------------------------------------------------------- ---------- Net investment income $2,592,796 - ---------------------------------------------------------------------------------- ----------
(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, ------------------------------ 1993 1992 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: - -------------------------------------------------------------- OPERATIONS-- - -------------------------------------------------------------- Net investment income $ 2,592,796 $ 3,446,798 - -------------------------------------------------------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - -------------------------------------------------------------- Dividends to shareholders from net investment income: - -------------------------------------------------------------- Institutional Service Shares (2,592,796) (3,439,076) - -------------------------------------------------------------- Cash Series Shares -- (7,722) - -------------------------------------------------------------- ------------- ------------- Change in net assets from distributions to shareholders (2,592,796) (3,446,798) - -------------------------------------------------------------- ------------- ------------- FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - -------------------------------------------------------------- Proceeds from sale of shares 299,253,615 236,618,493 - -------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of dividends declared 931,684 941,296 - -------------------------------------------------------------- Cost of shares redeemed (300,063,512) (237,484,656) - -------------------------------------------------------------- ------------- ------------- Change in net assets from Fund share transactions 121,787 75,133 - -------------------------------------------------------------- ------------- ------------- Change in net assets 121,787 75,133 - -------------------------------------------------------------- NET ASSETS: - -------------------------------------------------------------- Beginning of period 140,324,424 140,249,291 - -------------------------------------------------------------- ------------- ------------- End of period $ 140,446,211 $ 140,324,424 - -------------------------------------------------------------- ------------- -------------
(See Notes which are an integral part of the Financial Statements) CONNECTICUT MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1993 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company with several 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. From December 31, 1990, until November 6, 1992, the Fund provided two classes of shares ("Institutional Service Shares" and "Cash Series Shares"). Cash Series Shares were identical in all respects to Institutional Service Shares except that Cash Series Shares were sold pursuant to a distribution plan ("Plan") adopted in accordance with Investment Company Act Rule 12b-1. Under the Plan, the Fund paid Federated Securities Corp. (the "Distributor") a fee at an annual rate up to .40 of 1% of the average daily net asset value of the Cash Series Shares to finance any activity which was principally intended to result in the sale of Cash Series Shares. As of November 6, 1992, the Plan was terminated by the Trustees of the Trust. As a result of the termination of the Plan, fee accruals under the Plan have been discontinued. (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. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that the best method currently available for valuing portfolio securities is amortized cost. The Fund's use of the amortized cost method to value its portfolio securities is conditioned on its compliance with Rule 2a-7 under the Investment Company Act of 1940. Since the Fund may invest 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 general tax-exempt mutual fund. In order to reduce the risk associated with such factors, at October 31, 1993, 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 institutions. The aggregate percentages by financial and assurance institutions ranged from 1.3% to 13.6% of total investments. B. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest earned net of premium, and original issue discount as required by the Internal Revenue Code.
CONNECTICUT MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal Revenue Code (the "Code") applicable to investment companies and distribute to shareholders each year all of its net income. Accordingly, no provision for federal tax is necessary. Dividends paid by the Fund representing net interest received on tax-exempt municipal securities are not includable by shareholders as gross income for federal income tax purposes because the Fund intends to meet certain requirements of the Code applicable to regulated investment companies which will enable the Fund to pay exempt-interest dividends. The portion of such interest, if any, earned on private activity bonds issued after August 7, 1986 may be considered a tax preference item to shareholders for the purpose of computing the alterative minimum tax. D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objective and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain 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. E. 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 the shares have been deferred and are being amortized using the straight-line method through November, 1994. F. OTHER--Investment transactions are accounted for on the date of the transaction.
(3) DIVIDENDS The Fund computes its net income daily and, immediately prior to the calculation of its net asset value at the close of business, declares and records dividends to shareholders of record at the time of the previous computation of the Fund's net asset value. Payment of dividends is made monthly in cash, or in additional shares at the net asset value on the payable date. CONNECTICUT MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- (4) 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, 1993, capital paid-in aggregated $140,446,211. Transactions in Fund shares were as follows:
YEAR ENDED OCTOBER 31, ------------------------------ 1993 1992 ------------ ------------ INSTITUTIONAL SERVICE SHARES* - -------------------------------------------------------------- Shares outstanding, beginning of period 140,117,793 140,112,250 - -------------------------------------------------------------- Shares sold 299,251,726 235,989,190 - -------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 931,684 933,686 - -------------------------------------------------------------- Shares redeemed (299,854,992) (236,917,333) - -------------------------------------------------------------- ------------ ------------ Shares outstanding, end of period 140,446,211 140,117,793 - -------------------------------------------------------------- ------------ ------------
YEAR ENDED OCTOBER 31, ------------------------------ 1993 1992 ------------ ------------ CASH SERIES SHARES* - -------------------------------------------------------------- Shares outstanding, beginning of period 206,631 137,041 - -------------------------------------------------------------- Shares sold 1,889 629,303 - -------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared -- 7,610 - -------------------------------------------------------------- Shares redeemed (208,520) (567,323) - -------------------------------------------------------------- ------------ ------------ Shares outstanding, end of period -- 206,631 - -------------------------------------------------------------- ------------ ------------
* Beginning November 7, 1992, shares of the Fund were sold without class designation. (5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Federated Management, the Fund's investment adviser ("Adviser"), receives for its services an annual investment advisory fee equal to 0.50 of 1% of the Fund's average daily net assets. Adviser has voluntarily agreed to waive a portion of its fee. Adviser can modify or terminate this voluntary waiver of expense at any time at its sole discretion. For the year ended October 31, 1993, the investment advisory fee amounted to $666,093, of which $337,400 was waived in accordance with such undertaking. Organizational expenses ($41,950) were borne initially by the Adviser. The Fund has agreed to pay the Adviser, at an annual rate of .005 of 1% of average daily net assets, until the organization expenses initially borne by the Adviser are reimbursed, or the expiration of five years after November 1, 1989, the CONNECTICUT MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- date the Trust's portfolio became effective, whichever occurs earlier. During the year ended October 31, 1993, the Fund paid the Adviser $6,658 pursuant to the agreement. During the year ended October 31, 1993, the Fund engaged in purchase and sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7 of the Investment Company Act of 1940 amounting to $146,919,000 and $155,600,000, respectively. These purchases and sales were conducted on an arms-length basis insofar as they were transacted for cash consideration only, at independent current market prices and without brokerage commissions, fees or other remuneration. Administrative personnel and services were provided at approximate cost by Federated Administrative Services, Inc. Certain Officers and Trustees of the Trust are Officers and Directors of the above corporations. (6) CURRENT CREDIT RATINGS Current credit ratings and related notes are unaudited. 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 investments, as of October 31, 1993, 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 the securities owned as of October 31, 1993, 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 Connecticut Municipal Cash Trust, an investment portfolio of Federated Municipal Trust, as of October 31, 1993, 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 & CO. Pittsburgh, Pennsylvania December 13, 1993 ADDRESSES - -------------------------------------------------------------------------------- Connecticut Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ---------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ---------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ---------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8602 Trust Company Boston, Massachusetts 02266-8602 - ---------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ---------------------------------------------------------------------------------------------------- Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - ---------------------------------------------------------------------------------------------------- Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, D.C. 20037 - ---------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen & Co. 2100 One PPG Place Pittsburgh, Pennsylvania 15222 - ----------------------------------------------------------------------------------------------------
CONNECTICUT MUNICIPAL CASH TRUST INSTITUTIONAL SERVICE SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company December 31, 1993 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 9101004A-ISS (12/93) 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 Institutional Service Shares of Connecticut Municipal Cash Trust (the "Fund") dated December 31, 1993. This Statement is not a prospectus itself. To receive a copy of the prospectus, write or call Federated Municipal Trust. FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 Statement dated December 31, 1993 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS TABLE OF CONTENTS - -------------------------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND 1 - --------------------------------------------------------------- INVESTMENT OBJECTIVE AND POLICIES 1 - --------------------------------------------------------------- Acceptable Investments 1 When-Issued and Delayed Delivery Transactions 1 Temporary Investments 2 Investment Limitations 2 Connecticut Investment Risks 4 FEDERATED MUNICIPAL TRUST MANAGEMENT 4 - --------------------------------------------------------------- Officers and Trustees 4 The Funds 6 Fund Ownership 7 Trustee Liability 7 INVESTMENT ADVISORY SERVICES 7 - --------------------------------------------------------------- Adviser to the Fund 7 Advisory Fees 7 ADMINISTRATIVE SERVICES 8 - --------------------------------------------------------------- BROKERAGE TRANSACTIONS 8 - --------------------------------------------------------------- PURCHASING SHARES 8 - --------------------------------------------------------------- Conversion to Federal Funds 8 DETERMINING NET ASSET VALUE 9 - --------------------------------------------------------------- Use of the Amortized Cost Method 9 REDEEMING SHARES 10 - --------------------------------------------------------------- Redemption in Kind 10 TAX STATUS 10 - --------------------------------------------------------------- The Fund's Tax Status 10 YIELD 10 - --------------------------------------------------------------- EFFECTIVE YIELD 10 - --------------------------------------------------------------- TAX-EQUIVALENT YIELD 11 - --------------------------------------------------------------- Tax-Equivalency Table 11 PERFORMANCE COMPARISONS 11 - --------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND - -------------------------------------------------------------------------------- The Fund is a portfolio in Federated Municipal Trust (the "Trust"), which was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. Shares of the Fund are offered in one class, known as Institutional Service Shares ("Shares"). This Statement of Additional Information relates to the Institutional Service Shares of the Fund. INVESTMENT OBJECTIVE AND POLICIES - -------------------------------------------------------------------------------- The Fund's investment objective is to provide current income exempt from federal regular income tax and the Connecticut Personal Income Tax consistent with stability of principal. The investment objective cannot be changed without approval of shareholders. ACCEPTABLE INVESTMENTS The Fund invests primarily in debt obligations issued by or on behalf of Connecticut and 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 both federal regular income tax and Connecticut Personal Income Tax imposed upon non-corporate taxpayers. When determining whether a Connecticut municipal security presents minimal credit risks, the investment adviser considers the creditworthiness of the issuer of the security, the issuer of a demand feature if the Fund has the unconditional right to demand payment for the security, or the guarantor of payment by either of those issuers. If a security loses its rating or the security's rating is reduced below the required minimum after the Fund purchased it, the Fund is not required to sell the security. The investment adviser considers this event, however, in its determination of whether the Fund should continue to hold the security in its portfolio. If ratings made by Moody's Investors Services, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") change because of changes in those organizations or in their rating systems, the Fund will try to use comparable ratings as standards in accordance with the investment policies described in the Fund's prospectus. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests which represent undivided proportional interests in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure the payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. In particular, lease obligations may be subject to periodic appropriation. If the entity does not appropriate funds for future lease payments, the entity cannot be compelled to make such payments. 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. Under the criteria currently established by the Board of Trustees ("Trustees"), the Fund's investment adviser must consider the following factors in determining the liquidity of municipal lease securities: (1) the frequency of trades and quotes for the security; (2) the volatility of quotations and trade prices for the security; (3) the number of dealers willing to purchase or sell the security and the number of potential purchasers; (4) dealer undertakings to make a market in the security; (5) the nature of the security and the nature of the marketplace trades; (6) the rating of the security and the financial condition and prospects of the issuer of the security; (7) such other factors as may be relevant to the Fund's ability to dispose of the security; (8) whether the lease can be terminated by the lessee; (9) the potential recovery, if any, from a sale of the leased property upon termination of the lease; (10) the lessee's general credit strength; (11) the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations; and (12) any credit enhancement or legal recourse provided upon an event of nonappropriation or other termination of the lease. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The Fund engages in when-issued and delayed delivery transactions only for the purpose of acquiring portfolio securities consistent with the Fund's investment objective and policies, not for investment leverage. These transactions are made to secure what is considered to be an advantageous price and yield for the Fund. 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. - -------------------------------------------------------------------------------- No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. The Fund may engage in these transactions to an extent that would cause the segregation of an amount up to 20% of the total value of its assets. TEMPORARY INVESTMENTS The Fund may also invest in high quality temporary investments during times of unusual market conditions for defensive purposes and to maintain liquidity. REPURCHASE AGREEMENTS Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities or other securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price within one year from the date of acquisition. 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 investment adviser to be creditworthy pursuant to guidelines established by the Trustees. From time to time, such as when suitable Connecticut municipal securities are not available, the Fund may maintain a portion of its assets in cash. Any portion of the Fund's assets maintained in cash will reduce the amount of assets in Connecticut municipal securities and thereby reduce the Fund's yield. 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 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 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, instrumentalities, 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 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. 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 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. 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. 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. 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 (including instruments issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment), 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 Fund does not consider the issuance of separate classes of shares to involve the issuance of "senior securities" within the meaning of the investment limitation set forth above. 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 IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in industrial development bonds or other municipal securities where the principal and interest are the responsibility of companies (or guarantors, where applicable) with 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 the Fund's investment adviser, owning individually more than 1/2 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. DEALING IN PUTS AND CALLS The Fund will not purchase or sell 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 MINERALS The Fund will not purchase or sell oil, gas, or other mineral exploration or development programs, or leases. 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, certain restricted securities not determined by the Trustees to be liquid, and non-negotiable fixed time deposits with maturities over seven days. 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 does not expect to borrow money or pledge securities in excess of 5% of the value of its net assets during the coming fiscal year. 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 relating 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. The State has maintained relative fiscal balance for the last few fiscal years after several years of deficits in the late 1980's when the State and national economy entered a recession. The State enacted an individual income tax while decreasing the sales tax in 1991 in an attempt to provide better stability to the State's revenue sources. The State also benefits from a level of per capital income that is about the highest in the country and a highly educated and skilled population. The Connecticut economy is largely composed of manufacturing (concentrated in defense and aircraft) and service industries (such as insurance and finance) that were robust and growing for much of the past two decades. Beginning in the late 1980's, the national economy slowed down and entered a recession that has affected several areas of the State's economy. Specifically, the cutbacks in the defense and insurance industries and general corporate restructuring have resulted in the loss of over 9% of the labor force. The overall financial condition of the State can also be illustrated by changes of its debt ratings. During the period in which the State has experienced financial difficulties in the late 1980's, its general obligation long-term debt ratings as determined by Moody's and S&P decreased from Aa1 and AA+, respectively, to Aa and AA-. 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. FEDERATED MUNICIPAL TRUST MANAGEMENT - -------------------------------------------------------------------------------- OFFICERS AND TRUSTEES Officers and Trustees are listed with their addresses, principal occupations, and present positions, including any affiliation with Federated Management, Federated Investors, Federated Securities Corp., Federated Services Company, Federated Administrative Services, Inc., and the Funds (as defined below).
POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------------------------------- John F. Donahue+* Chairman and Trustee Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated Investors Federated Advisers, Federated Management, and Federated Research; Tower Director, AEtna Life and Casualty Company; Chief Executive Officer and Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds; formerly, Director, The Standard Fire Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice President of the Trust. - --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------------------------------- John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President, Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate Department Village Development Corporation; General Partner or Trustee in private John R. Wood and real estate ventures in Southwest Florida; Director, Trustee, or Associates, Inc., Realtors Managing General Partner of the Funds; formerly, President, Naples 3255 Tamiami Trail North Property Management, Inc. Naples, FL - -------------------------------------------------------------------------------------------------------------------------------- William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; One PNC Plaza-- Director, Trustee, or Managing General Partner of the Funds; formerly, 23rd Floor Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Pittsburgh, PA Director, Ryan Homes, Inc. - -------------------------------------------------------------------------------------------------------------------------------- James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, 571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Concord, MA Blue Cross of Massachusetts, Inc. - -------------------------------------------------------------------------------------------------------------------------------- Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore 3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds. Pittsburgh, PA - -------------------------------------------------------------------------------------------------------------------------------- Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park 5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. - -------------------------------------------------------------------------------------------------------------------------------- Glen R. Johnson* President Trustee, Federated Investors; President and/or Trustee of some of the Federated Investors and Trustee Funds; staff member, Federated Securities Corp. and Federated Tower Administrative Services, Inc. Pittsburgh, PA - -------------------------------------------------------------------------------------------------------------------------------- Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; 225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly, Boston, MA President, State Street Bank and Trust Company and State Street Boston Corporation and Trustee, Lahey Clinic Foundation, Inc. - -------------------------------------------------------------------------------------------------------------------------------- Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.; 5916 Penn Mall Director Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A. - -------------------------------------------------------------------------------------------------------------------------------- Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie 1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer Learning Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak University of Pittsburgh Management Center; Director, Trustee, or Managing General Partner of the Pittsburgh, PA Funds; President Emeritus, University of Pittsburgh; formerly, Chairman, National Advisory Council for Environmental Policy and Technology. - -------------------------------------------------------------------------------------------------------------------------------- Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing 4905 Bayard Street General Partner of the Funds. Pittsburgh, PA - --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------------------------------- J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Investors Federated Management, and Federated Research; President and Director, Tower Federated Administrative Services, Inc.; Trustee, Federated Services Pittsburgh, PA Company; President or Vice President of the Funds; Director, Trustee, or Managing General Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Trust. - -------------------------------------------------------------------------------------------------------------------------------- Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Federated Investors Director, Federated Securities Corp.; President or Vice President of the Tower Funds; Director or Trustee of some of the Funds. Pittsburgh, PA - -------------------------------------------------------------------------------------------------------------------------------- Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated Investors; Vice Federated Investors and Treasurer President and Treasurer, Federated Advisers, Federated Management, and Tower Federated Research; Trustee, Federated Services Company; Executive Vice Pittsburgh, PA President, Treasurer, and Director, Federated Securities Corp.; Chairman, Treasurer, and Director, Federated Administrative Services, Inc.; Trustee or Director of some of the Funds; Vice President and Treasurer of the Funds. - -------------------------------------------------------------------------------------------------------------------------------- John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated Federated Investors and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers, Tower Federated Management, and Federated Research; Trustee, Federated Pittsburgh, PA Services Company; Executive Vice President, Secretary, and Director, Federated Administrative Services, Inc.; Director and Executive Vice President, Federated Securities Corp.; Vice President and Secretary of the Funds. - -------------------------------------------------------------------------------------------------------------------------------- John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice Federated Investors President, Federated Securities Corp.; President and Trustee, Federated Tower Advisers, Federated Management, and Federated Research; Vice President Pittsburgh, PA of the Funds; Director, Trustee, or Managing General Partner of some of the Funds; formerly, Vice President, The Standard Fire Insurance Company and President of its Federated Research Division. - --------------------------------------------------------------------------------------------------------------------------------
* This Trustee is deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940, as amended. + Member of the Trust's Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. THE FUNDS "The Funds" and "Funds" mean the following investment companies: A.T. Ohio Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust; Automated Government Money Trust; The Boulevard Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty U.S. - -------------------------------------------------------------------------------- Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds; The Passageway Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; and Trust for U.S. Treasury Obligations. FUND OWNERSHIP Officers and Trustees own less than 1% of the Fund's outstanding Shares. As of November 29, 1993, the following shareholders of record owned 5% or more of the outstanding Institutional Service Shares of the Fund: Putnam Trust Company, Greenwich, Connecticut, owned approximately 37,820,900 Shares (26.18%); Anderson & Co., Philadelphia, Pennsylvania, owned approximately 35,482,100 Shares (24.56%); Chase Manhattan Bank, New York, New York, owned approximately 7,650,894 Shares (5.29%); and State Street Bank and Trust Company, North Quincy, Massachusetts, owned approximately 8,575,231 Shares (5.93%). 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. 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, his wife, and his son, J. Christopher Donahue. John F. Donahue is Chairman and Trustee, Federated Management; Chairman and Trustee, Federated Investors; and Chairman and Trustee of the Trust. John A. Staley, IV, is President and Trustee, Federated Management; Vice President and Trustee, Federated Investors; Executive Vice President, Federated Securities Corp.; and Vice President of the Trust. J. Christopher Donahue is Trustee, Federated Management; President and Trustee, Federated Investors; President and Director, Federated Administrative Services, Inc.; and Vice President of the Trust. John W. McGonigle is Vice President, Secretary, and Trustee, Federated Management; Trustee, Vice President, Secretary and General Counsel, Federated Investors; Executive Vice President, Secretary and Director, Federated Administrative Services, Inc.; Director and Executive Vice President, Federated Securities Corp.; and Vice President and Secretary of the Trust. 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. During the fiscal years ended October 31, 1993, 1992, and 1991, the Fund's adviser earned $666,093, $648,508, and $796,166, respectively, of which $337,400, $388,530, and $335,005, respectively, were voluntarily waived because of undertakings to limit the Fund's expenses. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2 1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1 1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this expense limitation, the investment advisory fee paid will be reduced by the amount of the excess, subject to an annual adjustment. If the expense limitation is exceeded, the amount to be reimbursed by the adviser will be limited, in any single fiscal year, by the amount of the investment advisory fee. - -------------------------------------------------------------------------------- These arrangements are not part of the advisory contract and have been established only to comply with applicable state authorities. They may be amended or rescinded in the future. ADMINISTRATIVE SERVICES - -------------------------------------------------------------------------------- Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides administrative personnel and services to the Fund at approximate cost. During the fiscal years ended October 31, 1993, 1992, and 1991, the Fund incurred costs for administrative services of $268,954, $249,818, and $229,654, respectively. John A. Staley, IV, an officer of the Trust, and Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, each hold approximately 15% and 20%, respectively, of the outstanding common stock and serve as directors of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services, Inc. For the years ended October 31, 1993, 1992, and 1991, Federated Administrative Services, Inc., paid approximately $165,431, $189,741, and $187,677, respectively, for services provided by Commercial Data Services, Inc. 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 investment 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 review 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. 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. Research services provided by brokers may be used by the adviser or by affiliates of Federated Investors in advising Federated funds 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. PURCHASING SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value without a sales charge on days the New York Stock Exchange and the Federal Reserve wire system are open for business. The procedure for purchasing Shares is explained in the prospectus under "Investing in Institutional Service Shares." CONVERSION TO FEDERAL FUNDS It is the Fund's policy to be as fully invested as possible so that maximum interest may be earned. To this end, all payments from shareholders must be in federal funds or be converted into federal funds. State Street Bank and Trust Company acts as the shareholder's agent in depositing checks and converting them to federal funds. DETERMINING NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the value of a Share at $1.00. The days on which net asset value is calculated by the Fund are described in the prospectus. USE OF THE AMORTIZED COST METHOD 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. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7, as amended (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. Under the Rule, the Fund is permitted to purchase instruments which are subject to demand features or standby commitments. As defined by the Rule, a demand feature entitles the Fund to receive the principal amount of the instrument from the issuer or a third party (1) on no more than 30 days' notice or (2) at specified intervals not exceeding one year on no more than 30 days' notice. A standby commitment entitles the Fund to achieve same-day settlement and to receive an exercise price equal to the amortized cost of the underlying instrument plus accrued interest at the time of exercise. Although demand features and standby commitments are techniques and are defined as "puts" under the Rule, the Fund does not consider them to be "puts" as that term is used in the Fund's investment limitations. Demand features and standby commitments are features which enhance an instrument's liquidity, and the investment limitation which proscribes puts is designed to prohibit the purchase and sale of put and call options and is not designed to prohibit the Fund from using techniques which enhance the liquidity of portfolio instruments. MONITORING PROCEDURES The Trustees' 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% 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. INVESTMENT RESTRICTIONS The Rule requires that the Fund limit its investments to instruments that, in the opinion of the Trustees, present minimal credit risk and have received the requisite rating from one or more nationally recognized statistical rating organizations. If the instruments are not rated, the Trustees must determine that they are of comparable quality. The Rule also requires the Fund to maintain a dollar-weighted average portfolio maturity (not more than 90 days) appropriate to the objective of maintaining a stable net asset value of $1.00 per share. In addition, no instrument with a remaining maturity of more than 397 days be purchased by the Fund. For a discussion of the treatment of variable rate municipal securities with demand features, refer to "Variable Rate Demand Notes" in the prospectus. Should the disposition of a portfolio security result in a dollar-weighted average portfolio maturity of more than 90 days, the Fund will invest its available cash to reduce the average maturity to 90 days or less as soon as possible. The Fund may attempt to increase yield by trading portfolio securities to take advantage of short-term market variations. This policy may, from time to time, result in high portfolio turnover. Under the amortized cost method of valuation, 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 indicated daily yield on Shares of the Fund computed the same way may tend to be lower than a similar computation made by using a method of calculation based upon market prices and estimates. REDEEMING SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares at the next computed net asset value after the Fund receives the redemption request. Redemption procedures are explained in the prospectus under "Redeeming Institutional Service Shares." Although State Street Bank does not charge for telephone redemptions, it reserves the right to charge a fee for the cost of wire-transferred redemptions of less than $5,000. REDEMPTION IN KIND Although the Trust intends to redeem Shares in cash, it reserves the right under certain circumstances to pay the redemption price in whole or in part by a distribution of securities from the respective Fund's portfolio. To the extent available, such securities will be readily marketable. Redemption in kind will be made in conformity with applicable Securities and Exchange Commission rules, taking such securities at the same value employed in determining net asset value and selecting the securities in a manner the Trustees determine to be fair and equitable. The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act of 1940 under which the Trust is obligated to redeem Shares for any one shareholder in cash only up to the lesser of $250,000 or 1% of the net asset value of the respective class during any 90-day period. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders receiving their securities and selling them before their maturity could receive less than the redemption value of their securities and could incur certain transaction costs. TAX STATUS - -------------------------------------------------------------------------------- THE FUND'S TAX STATUS The Fund will pay no federal income tax because it expects to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. To qualify for this treatment, 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. YIELD - -------------------------------------------------------------------------------- The Fund's yield for Institutional Service Shares for the seven-day period ended October 31, 1993, was 1.96%. The Fund calculates the yield for Institutional Service Shares daily, 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 (on funds that pay dividends daily) 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). To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in Institutional Service Shares, the performance will be reduced for shareholders paying those fees. EFFECTIVE YIELD - -------------------------------------------------------------------------------- The Fund's effective yield for Institutional Service Shares for the seven-day period ended October 31, 1993, was 1.98%. The Fund's effective yield for Institutional Service Shares is computed 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. TAX-EQUIVALENT YIELD - -------------------------------------------------------------------------------- The Fund's tax-equivalent yield for Institutional Service Shares for the seven-day period ended October 31, 1993, was 2.90%. The tax-equivalent yield for Institutional Service Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that Shares would have had to earn to equal its actual yield, assuming a 28% federal tax rate and the 4.5% regular personal income tax rate imposed by Connecticut for individual taxpayers and assuming that income earned by the Fund is 100% tax-exempt on a regular federal, state, and local basis. TAX-EQUIVALENCY TABLE Institutional Service Shares may also use a tax-equivalency table 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 from the regular personal income tax imposed by Connecticut.* 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 1993 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 RETURN: $1-36,900 $36,901-89,150 $89,151-140,000 $140,001-250,000 OVER $250,000 SINGLE RETURN: $1-22,100 $22,101-53,500 $53,501-115,000 $115,001-250,000 OVER $250,000 - ----------------------------------------------------------------------------------------------------------- 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 above chart is for illustrative purposes only. It is not an indicator of past or future performance of Institutional Service Shares. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local regular or alternative minimum taxes. PERFORMANCE COMPARISONS - -------------------------------------------------------------------------------- The performance of Institutional Service Shares depends upon such variables as: - - portfolio quality; - - average portfolio maturity; - - type of instruments in which the portfolio is invested; - - changes in interest rates on money market instruments; - - changes in the Fund's or Institutional Service Shares' expenses; and - - the relative amount of Fund cash flow. From time to time, the Fund may advertise its performance compared to similar funds or portfolios using certain indices, reporting services, and financial publications. These may include the following: - - LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by making comparative calculations using total return. Total return assumes the reinvestment of all income dividends and capital gains distributions, if any. From time to time, the Fund will quote its Lipper ranking in the "money market funds" category in advertising and sales literature. - -------------------------------------------------------------------------------- Investors may use such an index in addition to the prospectus to obtain a more complete view of the Fund's or Share's performance before investing. Of course, when comparing the performance of the Shares to any index, factors such as composition of the index and prevailing market conditions should be considered in assessing the significance of such comparisons. When comparing funds using reporting services, or total return and yield, investors should take into consideration any relevant differences in funds such as permitted portfolio composition and methods used to value portfolio securities and compute offering price. Advertisements and other sales literature for the Shares may refer to total return. Total return is the historic change in the value of an investment in the Shares based on the monthly reinvestment of dividends over a specified period of time. 9101004B (12/93) 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 non-diversified portfolio of securities which is one of a series of investment portfolios in Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The investment objective of the Fund is to provide current income exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania consistent with stability of principal. The Fund invests primarily in short-term Pennsylvania municipal securities. 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 the Commonwealth of Pennsylvania or its political subdivisions and financing authorities, which are exempt from the federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania. Cash Series Shares are sold at net asset value, without a sales load. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. 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. THE CASH SERIES 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 BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. This prospectus contains the information you should read and know before you invest in Cash Series Shares. Keep this prospectus for future reference. The Fund has also filed a Combined Statement of Additional Information for Cash Series Shares and Institutional Service Shares dated December 31, 1993, with the Securities and Exchange Commission. The information contained in the Combined Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Combined Statement of Additional Information free of charge by calling 1-800-235-4669. To obtain other information or to make inquiries about the Fund, contact this Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1993 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 Acceptable Investments 3 Variable Rate Demand Notes 4 Participation Interests 4 Municipal Leases 4 Ratings 4 Credit Enhancement 5 Demand Features 5 Restricted and Illiquid Securities 5 When-Issued and Delayed Delivery Transactions 5 Temporary Investments 5 Pennsylvania Municipal Securities 6 Standby Commitments 6 Pennsylvania Investment Risks 6 Non-Diversification 7 Investment Limitations 7 Regulatory Compliance 8 FEDERATED MUNICIPAL TRUST INFORMATION 8 - ------------------------------------------------------ Management of Federated Municipal Trust 8 Board of Trustees 8 Investment Adviser 8 Advisory Fees 8 Adviser's Background 8 Distribution of Cash Series Shares 9 Distribution Plan 9 Administrative Arrangements 10 Administration of the Fund 10 Administrative Services 10 Custodian 10 Transfer Agent and Dividend Disbursing Agent 10 Legal Counsel 10 Independent Public Accountants 10 NET ASSET VALUE 10 - ------------------------------------------------------ INVESTING IN CASH SERIES SHARES 11 - ------------------------------------------------------ Share Purchases 11 Through a Financial Institution 11 Directly from the Distributor 11 Minimum Investment Required 11 What Shares Cost 11 Systematic Investment Program 12 Automatic Investments 12 Subaccounting Services 12 Certificates and Confirmations 12 Dividends 12 Capital Gains 13 REDEEMING CASH SERIES SHARES 13 - ------------------------------------------------------ Through a Financial Institution 13 Receiving Payment 13 By Check 13 By Wire 13 Directly from the Fund By Mail 14 Signatures 14 Checkwriting 14 VISA Card 14 Redemption Before Purchase Instruments Clear 15 Accounts with Low Balances 15 SHAREHOLDER INFORMATION 15 - ------------------------------------------------------ Voting Rights 15 Massachusetts Partnership Law 15 TAX INFORMATION 16 - ------------------------------------------------------ Federal Income Tax 16 Pennsylvania Tax Considerations 17 Other State and Local Taxes 17 PERFORMANCE INFORMATION 17 - ------------------------------------------------------ OTHER CLASSES OF SHARES 18 - ------------------------------------------------------ Financial Highlights-- Institutional Service Shares 19 FINANCIAL STATEMENTS 20 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 40 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- CASH SERIES SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................ None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).................................................................. None Deferred Sales Load (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 CASH SERIES SHARES OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)...................................................................... 0.46% 12b-1 Fee.............................................................................................. 0.40% Other Expenses......................................................................................... 0.19% Total Cash Series Shares Operating Expenses (2)................................................... 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 Total Cash Series Shares Operating Expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1994. The Total Cash Series Shares Operating Expenses were 0.97% for the fiscal year ended October 31, 1993 and were 1.09% 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 CASH SERIES SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN CASH SERIES SHARES" AND "FEDERATED MUNICIPAL TRUST 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 charge permitted under the rules of the National Association of Securities Dealers, Inc. ("NASD"). However, in order for a Fund investor to exceed the NASD's maximum front-end sales charge of 6.25%, a continuous investment in the Fund for 42 years would be required.
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. As noted in the table above, the Fund charges no redemption fee for Cash Series Shares............................................ $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. The information set forth in the foregoing table and example relates only to Cash Series Shares of the Fund. The Fund also offers another class of shares called Institutional Service Shares. Institutional Service Shares and Cash Series Shares are subject to certain of the same expenses, however; Institutional Service Shares are not subject to a 12b-1 fee. See "Other Classes of Shares." 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 40.
YEAR ENDED OCTOBER 31, 1993 1992 1991* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ---------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ---------------------------------------------------------------------------------- Net investment income 0.02 0.03 0.03 - ---------------------------------------------------------------------------------- --------- --------- --------- LESS DISTRIBUTIONS - ---------------------------------------------------------------------------------- Dividends to shareholders from net investment income (0.02) (0.03) (0.03) - ---------------------------------------------------------------------------------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ---------------------------------------------------------------------------------- --------- --------- --------- TOTAL RETURN** 1.83% 2.67% 3.55%(a) - ---------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------------------------------------------------------- Expenses 0.97% 0.96% 0.78%(b) - ---------------------------------------------------------------------------------- Net investment income 1.88% 2.64% 3.92%(b) - ---------------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.12% 0.12% 0.28%(b) - ---------------------------------------------------------------------------------- SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $18,561 $24,694 $19,846 - ----------------------------------------------------------------------------------
* Reflects operations for the period from January 25, 1991 (date of initial public offering) to October 31, 1991. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) The voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (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 of beneficial interest 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") have established two classes of shares, known as Cash Series Shares and Institutional Service Shares. This prospectus relates only to Cash Series Shares of the Fund. Cash Series Shares ("Shares") of the Fund are designed primarily for the retail customers of financial institutions. A minimum initial investment of $10,000 over a 90-day period is required. The Fund may not be a suitable investment for non-Pennsylvania taxpayers or retirement plans since it invests primarily in Pennsylvania municipal securities. The Fund attempts to stabilize the value of a Share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to provide current income exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania 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 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 Pennsylvania. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in a portfolio of Pennsylvania municipal securities with remaining maturities of 13 months or less at the time of purchase by the Fund. As a matter of investment policy, which cannot be changed without approval of shareholders, the Fund invests its assets so that at least 80% of its annual interest income is exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania. 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 the approval of shareholders. 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 the Commonwealth 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 both federal regular income tax and Pennsylvania state income tax imposed upon non-corporate taxpayers. Examples of Pennsylvania municipal securities include, but are not limited to: tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes ("BANs") 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. At least 80% of the value of the Fund's total assets will be invested in Pennsylvania municipal securities. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term municipal securities 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 adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in municipal securities from financial institutions such as commercial and investment banks, savings and loan associations and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying municipal securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities and may be considered to be illiquid. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation certificate on any of the above. RATINGS. The Pennsylvania municipal securities in which the Fund invests must either 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 Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1 and FIN-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 categories. See "Regulatory Compliance." CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been credit-enhanced by a guaranty, letter of credit or insurance. 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. The bankruptcy, receivership or default of the credit enhancer will adversely affect the quality and marketability of the underlying security. 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. 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 laws. Under criteria established by the Trustees, certain restricted securities are considered to be liquid. To the extent restricted securities are deemed to be illiquid, the Fund will limit their purchase, together with other securities considered to be illiquid, to 10% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Pennsylvania Municipal Securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in short-term, non-Pennsylvania municipal tax-exempt obligations or other taxable, temporary investments. All temporary investments will satisfy the same credit quality standards as the Fund's acceptable investments. See "Ratings" above. Temporary investments include: notes issued by or on behalf of municipal or corporate issuers; marketable obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; other debt securities; commercial paper; certificates of deposit of banks; and repurchase agreements (arrangements in which banks, broker/dealers, and other recognized financial institutions sell the Fund a temporary investment and agree 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 of generating income subject to federal regular income tax or the personal income taxes imposed by the Commonwealth of Pennsylvania. 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 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. STANDBY COMMITMENTS Some securities dealers are willing to sell municipal securities to the Fund accompanied by their commitments to repurchase the municipal securities prior to maturity, at the Fund's option, for the amortized cost of the municipal securities at the time of repurchase. These arrangements are not used to protect against changes in the market value of municipal securities. They permit the Fund, however, to remain fully invested and still provide liquidity to satisfy redemptions. The cost of municipal securities accompanied by these "standby" commitments could be greater than the cost of municipal securities without such commitments. Standby commitments are not marketable or otherwise assignable and have value only to the Fund. The default or bankruptcy of a securities dealer giving such a commitment would not affect the quality of the municipal securities purchased. However, without a standby commitment, these securities could be more difficult to sell. The Fund enters into standby commitments only with those dealers whose credit the investment adviser believes to be of high quality. PENNSYLVANIA 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 and maturity of the particular offering; the maturity of the obligations; and the rating of the issue. Further, any adverse economic conditions or developments affecting the Commonwealth of Pennsylvania or its municipalities could impact the Fund's portfolio. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Pennsylvania municipal securities and demand features for such securities, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. Investing in Pennsylvania municipal securities which meet the Fund's quality standards may not be possible if the Commonwealth of Pennsylvania or its municipalities do not maintain their high quality, short-term credit ratings. In addition, certain Pennsylvania constitutional amendments, legislative measures, executive orders, administrative regulations and voter initiatives could result in adverse consequences affecting Pennsylvania municipal securities. An expanded discussion of the current economic risks associated with the purchase of Pennsylvania municipal securities is contained in the Combined Statement of Additional Information. NON-DIVERSIFICATION The Fund is a non-diversified investment portfolio. As such, there is no limit on the percentage of assets which can be invested in any single issuer. An investment in the Fund, therefore, will entail greater risk than would exist in a diversified investment portfolio because the higher percentage of investments among fewer issuers may result in greater fluctuation in the total market value of the Fund's portfolio. Any economic, political, or regulatory developments affecting the value of the securities in the Fund's portfolio will have a greater impact on the total value of the portfolio than would be the case if the portfolio were diversified among more issuers. The Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that at the end of each quarter of the taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer; beyond that, no more than 25% of its total assets are invested in the securities of a single issuer. 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. In order to pass-through to investors the tax-free income from the Fund for purposes of the Pennsylvania Personal Income Tax, 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 above investment limitation cannot be changed without shareholder approval. The following investment limitation, however, can be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in this limitation becomes effective. The Fund will not invest more than 5% of its total assets in industrial development bonds or other Municipal Securities when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in this prospectus and its Combined 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, as amended. 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 INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF FEDERATED MUNICIPAL TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of Trustees is 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. The Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, 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, for which it receives an annual fee from the Fund. ADVISORY FEES. The Fund's adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. Under the advisory contract, which provides for the voluntary waiver of the advisory fee by the adviser, the adviser may voluntarily waive some or all of the advisory fee. This does not include reimbursement to the Fund of any expenses incurred by shareholders who use the transfer agent's subaccounting facilities. The adviser can terminate this voluntary waiver of expenses at any time at its sole discretion. The adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. 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. Total assets under management or administration by these and other subsidiaries of Federated Investors are approximately $70 billion. Federated Investors, which was founded in 1956 as Federated Investors, Inc., develops and manages mutual funds primarily for the financial industry. Federated Investors' track record of competitive performance and its disciplined, risk-averse investment philosophy serve approximately 3,500 client institutions nationwide. Through these same client institutions, individual shareholders also have access to this same level of investment expertise. 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. Pursuant to the provisions of a distribution plan adopted in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund will pay to the distributor an amount computed at an annual rate of .40 of 1% of the average daily net asset value of the Shares to finance any activity which is principally intended to result in the sale of Shares subject to the Plan. The distributor may from time to time and for such periods as it deems appropriate, voluntarily reduce its compensation under the Plan to the extent the expenses attributable to the Shares exceed such lower expense limitation as the distributor may, by notice to the Trust, voluntarily declare to be effective. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers ("brokers") to provide sales and/or administrative services as agents for their clients or customers who beneficially own Shares of the Fund. Administrative services may include, but are not limited to, the following functions: 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 regarding the Shares; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as the Fund reasonably requests for Shares. Financial institutions will receive fees from the distributor 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 distributor. The Fund's 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. 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 Board of Trustees will consider appropriate changes in the services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state law. ADMINISTRATIVE ARRANGEMENTS. In addition to the fees paid by the distributor to financial institutions under the Plan as described above, the distributor may also pay financial institutions a fee with respect to the average daily net asset value of Shares held by their customers for providing administrative services. The rate of such fee will be determined by the average net asset value of the shares held by their customers in the Cash Series classes of the Trust and in Cash Trust Series, another registered investment company distributed by Federated Securities Corp. This fee is in addition to amounts paid under the Plan and, if paid, will be reimbursed by the adviser and not the Fund. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services, Inc. provides these at approximate cost. CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and dividend disbursing agent for the Fund. LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania. 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 adding the interest of the Shares in the value of all securities and other assets of the Fund, subtracting the interest of the Shares in liabilities of the Fund and those attributable to Shares, and dividing the remainder by the total number of Shares outstanding. The Fund, of course, cannot guarantee that its net asset value will always remain at $1.00 per Share. INVESTING IN CASH SERIES SHARES - -------------------------------------------------------------------------------- SHARE PURCHASES Shares are sold on days on which the New York Stock Exchange and the Federal Reserve wire system are open for business. Shares may be purchased through a financial institution which has a sales agreement with the distributor or directly from the distributor, Federated Securities Corp. The Fund reserves the right to reject any purchase request. To purchase Shares, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken over the telephone. THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution (such as a bank or an investment dealer) to place an order to purchase Shares. Orders through a financial institution 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. DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase Shares directly from the distributor. To do so: complete and sign the new account form available from the Fund; enclose a check payable to Pennsylvania Municipal Cash Trust--Cash Series Shares; and mail both to Federated Services Company, c/o State Street Bank and Trust Company, P.O. Box 8604, Boston, Massachusetts 02266-8604. The order is considered received when payment by check is converted by State Street Bank and Trust Company into federal funds. This is normally the next business day after State Street Bank receives the check. To purchase Shares by Federal Reserve wire, call 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 same day. Federal funds should be wired as follows: State Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to: Pennsylvania 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; Title or Name of Account; and ABA Number 011000028. Shares cannot be purchased by wire on days on which the New York Stock Exchange is closed and on federal holidays restricting wire transfers. MINIMUM INVESTMENT REQUIRED The minimum initial investment in Shares is $10,000. However, an account may be opened with a smaller amount as long as the $10,000 minimum is reached within 90 days. An institutional investor's minimum investment will be calculated by combining all accounts it maintains with the Fund. Individual accounts established through a bank or broker may be subject to a different minimum investment requirement. WHAT SHARES COST Shares are sold at their net asset value next determined after an order is received. There is no sales charge imposed by the Fund. Investors who purchase Shares through a bank or broker may be charged an additional service fee by that bank or broker. The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m. (Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no shares are tendered for redemption and no orders to purchase shares are received; or (iii) the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. SYSTEMATIC INVESTMENT PROGRAM Once an account has been opened, shareholders may add to their investment on a regular basis in a minimum amount of $100. Under this program, funds may be automatically withdrawn periodically from the shareholder's checking account and invested in Fund shares. A shareholder may apply for participation in this program through his financial institution. AUTOMATIC INVESTMENTS Investors may wish to establish accounts with their brokers or administrators to have automatic investments made to the Fund. The investments may be made on predetermined dates or when the investor's account reaches a certain level. Participating brokers or administrators are responsible for prompt transmission of orders relating to the program; however, they may charge for this service and other services. Investors should read this prospectus in connection with any broker's or administrator's agreement or literature describing these services and fees. SUBACCOUNTING SERVICES Institutions are encouraged to open single master accounts. However, certain institutions may wish to use the transfer agent's subaccounting system to minimize their internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Financial institutions holding Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Shares. This prospectus should, therefore, be read together with any agreement between the customer and the financial institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Monthly confirmations are sent to report transactions such as purchases and redemptions as well as dividends paid during the month. DIVIDENDS Dividends are declared daily and paid monthly. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends on the day after the check is converted by, upon instruction of the transfer agent, into federal funds. Dividends are automatically reinvested on payment dates in additional Shares unless cash payments are requested on an application or by contacting the Fund. CAPITAL GAINS Capital gains, if any, could result in an increase in dividends. Capital losses, if any, could result in a decrease in dividends. If, for some extraordinary reason, the Fund realizes net long-term or short-term capital gains, it will distribute them at least once every 12 months. REDEEMING CASH SERIES SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares 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. Redemptions can be made through a financial institution or directly from the Fund. Redemption requests must be received in proper form. THROUGH A FINANCIAL INSTITUTION A shareholder may redeem Shares by calling his/her financial institution (such as a bank or an investment dealer) to request the redemption. Shares will be redeemed at the net asset value next determined after State Street Bank receives the redemption request from the financial institution. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions to the Fund. The financial institution may charge customary fees and commissions for this service. If, at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders will be promptly notified. An authorization form permitting the Fund to accept redemption requests by telephone must first be completed. Authorization forms and information on this service are available from Federated Securities Corp. Telephone redemption instructions may be recorded. 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 such a case should occur, another method of redemption, such as By Mail, should be considered. RECEIVING PAYMENT. Pursuant to instructions from the financial institution, redemptions will be made by check or by wire. BY CHECK. Normally a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper redemption request. Dividends are paid up to and including the day that a redemption request is processed. BY WIRE. Proceeds for redemption requests received before 12:00 noon (Eastern time) will be wired the same day but will not be entitled to that day's dividend. Redemption requests received after 12:00 noon (Eastern time) will receive that day's dividends and will be wired the following business day. DIRECTLY FROM THE FUND BY MAIL. Any shareholder may redeem Shares by sending a written request to the Fund. The written request should include the shareholder's name, the Fund name and class of shares, the account number, and the share or dollar amount requested. If share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. Shareholders should call the Fund for assistance in redeeming by mail. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, 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 signatures on written redemption requests guaranteed by: a trust company or commercial bank whose deposits are insured by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance Corporation ("FDIC"); a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; a savings bank or savings and loan association whose deposits are insured by the Savings Association Insurance Fund ("SAIF"), which is administered by the FDIC; 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. The Fund and its transfer agent have 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 and its transfer agent reserve the right to amend these standards at any time without notice. CHECKWRITING. At the shareholder's request, State Street Bank will establish a checking account for redeeming Shares. For further information, contact Federated Securities Corp. A fee may be charged for this service. With a Fund checking account, Shares may be redeemed simply by writing a check. The redemption will be made at the net asset value on the date that State Street Bank presents the check to the Fund. A check may not be written to close an account. If a shareholder wishes to redeem Shares and have the proceeds available, a check may be written and negotiated through the shareholder's bank. Checks should never be sent to State Street Bank to redeem Shares. Cancelled checks are returned to the shareholder each month. VISA CARD. At the shareholder's request, State Street Bank will establish a VISA account. The VISA account allows a shareholder to redeem Shares by using a VISA card. A fee determined by State Street Bank will be charged to the account for this service. For further information, contact Federated Securities Corp. REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR When Shares are purchased by check, the proceeds from the redemption of those Shares are not available, and the Shares may not be exchanged, until the Fund or its agents are reasonably certain that the purchase check has cleared, which could take up to ten calendar days. 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. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights except that in matters affecting only a particular Fund or class, only shares of that Fund or class are entitled to vote. As of November 29, 1993, BHC Securities Incorporated, Philadelphia, Pennsylvania, owned 47.28% of the voting securities of the Cash Series Shares of the Fund, and, therefore, may, for certain purposes, be deemed to control the Cash Series Shares of the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. As a Massachusetts business trust, 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 for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of all series in the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders of the Fund, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such 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 of the Fund is held personally liable for the Trust's obligations, the Trust is required 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 cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. 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 some municipal bonds may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The alternative minimum tax, equal to up to 28% of alternative minimum taxable income for individuals and 20% for corporations, 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. The Tax Reform Act of 1986 treats interest on certain "private activity" bonds issued after August 7, 1986, as a tax preference item for both individuals and corporations. Unlike traditional governmental purpose municipal bonds, which finance roads, schools, libraries, prisons and other public facilities, private activity bonds provide benefits to private parties. The Fund may purchase all types of municipal bonds, including private activity bonds. Thus, should it purchase any such bonds, a portion of the Fund's dividends may be treated as a tax preference item. In addition, in the case of a corporate shareholder, dividends of the Fund which represent interest on municipal bonds may be subject to the 20% corporate alternative minimum tax because the dividends are included in a corporation's "adjusted current earnings." The corporate alternative minimum tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's alternative minimum taxable income as a tax preference item. "Adjusted current earnings" is based upon the concept of a corporation's "earnings and profits." Since "earnings and profits" generally includes the full amount of any Fund dividend, and alternative minimum taxable income does not include the portion of the Fund's dividend attributable to municipal bonds which are not private activity bonds, 75% of the difference will be included in the calculation of the corporation's alternative minimum tax. Dividends of the Fund representing net interest income or realized net short-term gains earned on some temporary investments are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional shares. Information on the tax status of dividends and distributions is provided annually. PENNSYLVANIA TAX CONSIDERATIONS Under current Pennsylvania law, distributions made by the Fund will be exempt from Pennsylvania personal income tax to the extent that such distributions represent exempt-interest dividends as defined in the Internal Revenue Code, and are attributable to obligations issued by the Commonwealth of Pennsylvania and its political subdivisions, agencies, and instrumentalities or certain qualifying obligations of the United States, its territories or possessions, the interest from which is statutorily free from state taxation in the Commonwealth of Pennsylvania ("exempt obligations"). Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will not be exempt from Pennsylvania personal income tax. Shareholders subject to the Pennsylvania corporate net income tax will not be subject to corporate net income tax on distributions of interest made by the Fund, provided such distributions are attributable to exempt obligations, and further provided such distributions are not included in such shareholder's federal taxable income determined before net operating loss carryovers and special deductions. Shares of the Fund that are held by individual shareholders subject to the Pennsylvania county personal property tax will be exempt from such tax to the extent that the Fund's portfolio consists of exempt obligations on the annual assessment date. OTHER STATE AND LOCAL TAXES Income from the Fund is not necessarily free from regular state income taxes in states other than Pennsylvania or from personal property taxes. State laws differ on this issue and 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 the Fund advertises its yield, effective yield, and tax-equivalent yield for Cash Series Shares. The yield of Cash Series Shares represents the annualized rate of income earned on an investment in Cash Series Shares 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 in Cash Series Shares 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 of Cash Series Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that Cash Series Shares would have had to earn to equal their actual yield, assuming a specific tax rate. Advertisements and other sales literature may also refer to total return. Total return represents the change, over a specified period of time, in the value of an investment in Cash Series 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, and tax-equivalent yield will be calculated separately for Cash Series Shares and Institutional Service Shares. Because Cash Series Shares are subject to 12b-1 fees, the yield, the effective yield, and the tax-equivalent yield for Institutional Service Shares, will exceed the yield, the effective yield, and the tax-equivalent yield for Cash Series Shares for the same period. From time to time, the Fund may advertise the performance of Cash Series Shares using certain reporting services and/or compare the performance of Cash Series Shares to certain indices. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- Institutional Service Shares are sold to accounts for which financial institutions act in an agency capacity. Institutional Service Shares are sold at net asset value. Investments in Institutional Service Shares are subject to a minimum initial investment of $25,000. Institutional Service Shares are not sold pursuant to a 12b-1 Plan. Financial institutions and brokers providing sales and administrative services may receive different compensation depending upon which class of shares of the Fund is sold. The distributor may pay an administrative fee to a financial institution or broker for administrative services provided to the Institutional Service Shares class, and may pay such a fee for administrative services provided to the Cash Series Shares class in addition to fees paid pursuant to the 12b-1 Plan. Any fee paid by the distributor for administrative services will not be an expense of the class, but will be reimbursed to the distributor by the investment adviser. The amount of dividends payable to Institutional Service Shares will exceed that of Cash Series Shares by the difference between class expenses and distribution expenses borne by shares of each respective class. The stated advisory fee is the same for both classes of shares. 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 40.
YEAR ENDED OCTOBER 31, 1993 1992 1991 1990* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------------------------ Net investment income 0.02 0.03 0.05 0.05 - ------------------------------------------------------------------ --------- --------- --------- --------- LESS DISTRIBUTIONS - ------------------------------------------------------------------ Dividends to shareholders from net investment income (0.02) (0.03) (0.05) (0.05) - ------------------------------------------------------------------ --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------------------------ --------- --------- --------- --------- TOTAL RETURN** 2.24% 3.08% 4.64% 5.78%(a) - ------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------ Expenses 0.57% 0.56% 0.55% 0.50%(b) - ------------------------------------------------------------------ Net investment income 2.21% 3.04% 4.53% 5.56%(b) - ------------------------------------------------------------------ Expense waiver/reimbursement(c) 0.12% 0.12% 0.11% 0.18%(b) - ------------------------------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------------------------------ Net assets, end of period (000 omitted) $318,518 $308,200 $317,165 $275,882 - ------------------------------------------------------------------
* Reflects operations for the period from November 21, 1989 (date of initial public investment) to October 31, 1990. For the period from the start of business, October 10, 1989, to November 20, 1989, net investment income aggregating $0.0067 per share ($670) was distributed to the Fund's investment adviser. Such distribution represented the net investment income of the Fund prior to the initial public offering of Fund shares which commenced on November 21, 1989. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) The voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1993 - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ---------- --------------- SHORT-TERM MUNICIPAL SECURITIES--103.4% - ----------------------------------------------------------------------------------- PENNSYLVANIA--102.8% ------------------------------------------------------------------- $ 1,000,000 Allegheny County, PA, IDA Weekly VRDNs (Series 1991)/(Mine Safety Appliances Co.)/(Sanwa Bank Ltd. LOC) P-1 $ 1,000,000 ------------------------------------------------------------------- 1,900,000 Allegheny County, PA, IDA Weekly VRDNs (Series 1991B)/(Shandon, Inc.)/(PNC Bank N.A. LOC)/(Subject to AMT) P-1 1,900,000 ------------------------------------------------------------------- 3,400,000 Allegheny County, PA, IDA Weekly VRDNs, Adjustable Rate Commercial Development Revenue Bonds (Series 1992)/(Eleven Parkway Center Associates/(Mellon Bank N.A. LOC) Aa3 3,400,000 ------------------------------------------------------------------- 6,000,000 Allegheny County, PA, IDA, 2.70% CP (USX, Inc.)/(Long Term Credit Bank of Japan Ltd. LOC), Mandatory Tender 12/8/93 A-1 6,000,000 ------------------------------------------------------------------- 6,500,000 Allegheny County, PA, IDA, 2.80% CP (Duquesne Light Company)/(Barclays Bank PLC LOC), Mandatory Tender 10/20/94 A-1+ 6,500,000 ------------------------------------------------------------------- 1,500,000 Allegheny County, PA, IDA, 2.85% CP (USX, Inc.)/(Long Term Credit Bank of Japan Ltd. LOC), Mandatory Tender 11/10/93 A-1 1,500,000 ------------------------------------------------------------------- 4,000,000 Allegheny County, PA, Weekly VRDNs (Series C38)/ (MBIA Insured) VMIG1 4,000,000 ------------------------------------------------------------------- 2,000,000 Athens, PA, Area School District, 2.77% TRANs, 6/30/94 NR(3) 2,000,503 ------------------------------------------------------------------- 6,500,000 Authority for Improvements in Municipalities, PA, Weekly VRDNs (Pooled Hospital & Equipment Leasing Program)/ (MBIA Insured) VMIG1 6,500,000 ------------------------------------------------------------------- $ 1,350,000 Baldwin, PA, 2.87% TRANs, 12/31/93 NR $ 1,350,192 -------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ---------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ------------------------------------------------------------------- 2,000,000 Bedford County, PA, IDA Weekly VRDNs (Series 1985)/ (Sepa, Inc. Facility)/(Banque Paribas LOC) A-1 2,000,000 ------------------------------------------------------------------- 3,600,000 Bensalem Township, PA, 2.83% TRANs, 12/31/93 NR(3) 3,600,282 ------------------------------------------------------------------- 2,255,000 Berks County, PA, IDA Weekly VRDNs (Beacon Container)/(Hamilton National Bank LOC)/(Subject to AMT) P-1 2,255,000 ------------------------------------------------------------------- 1,385,000 Berks County, PA, IDA Weekly VRDNs (Quaker Maid Meats, Inc.)/(Meridian Bank LOC)/(Subject to AMT) VMIG1 1,385,000 ------------------------------------------------------------------- 2,300,000 Berks County, PA, IDA Weekly VRDNs (Series 1988)/ (Arrow International, Inc.)/(Hamilton National Bank LOC)/(Subject to AMT) P-1 2,300,000 ------------------------------------------------------------------- 3,000,000 Blackhawk, PA, School District, 2.72% TRANs, 6/30/94 NR(3) 3,000,000 ------------------------------------------------------------------- 3,190,000 Bucks County, PA, IDA Weekly VRDNs (Pennsylvania Associates)/(Meridian National Bank LOC) P-1 3,190,000 ------------------------------------------------------------------- 1,000,000 Bucks County, PA, IDA Weekly VRDNs (Series 1986)/ (Winks Lane, Inc.)/(Mellon Bank N.A. LOC) P-1 1,000,000 ------------------------------------------------------------------- 5,450,000 Bucks County, PA, IDA Weekly VRDNs (Series 1991)/ (Cabot Medical Corp.)/(Meridian Bank LOC)/(Subject to AMT) VMIG1 5,450,000 ------------------------------------------------------------------- 1,000,000 Butler County, PA, IDA Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd. LOC) P-1 1,000,000 ------------------------------------------------------------------- 3,000,000 Butler County, PA, IDA Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd. LOC)/(Subject to AMT) P-1 3,000,000 ------------------------------------------------------------------- 1,000,000 Butler County, PA, IDA Weekly VRDNs (Series 1992B)/ (Mine Safety Appliances)/(Sanwa Bank Ltd. LOC)/ (Subject to AMT) P-1 1,000,000 ------------------------------------------------------------------- $ 5,000,000 Cambria County, PA, IDA Weekly VRDNs (Cambria Cogeneration Corp.)/(Fuji Bank Ltd. LOC)/(Subject to AMT) VMIG1 $ 5,000,000 -------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ---------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ------------------------------------------------------------------- 700,000 Cambria County, PA, IDA Weekly VRDNs (Cambria Cogeneration)/(Fuji Bank Ltd. LOC)/(Subject to AMT) A-1 700,000 ------------------------------------------------------------------- 2,500,000 Cambria County, PA, IDA Weekly VRDNs (Cambria Cogeneration Corp.)/(Fuji Bank Ltd. LOC)/(Subject to AMT) VMIG1 2,500,000 ------------------------------------------------------------------- 2,200,000 Carbon County, PA, IDA Weekly VRDNs (Summit Management & Utilities, Inc.)/(PNC Bank, Northeast PA LOC)/(Subject to AMT) A-1 2,200,000 ------------------------------------------------------------------- 7,300,000 Clearfield County, PA, IDA Weekly VRDNs (Penn Traffic Co.)/(Algemene Bank Nederland LOC)/(Subject to AMT) P-1 7,300,000 ------------------------------------------------------------------- 1,565,000 Clinton County, PA, 2.87% GO TRANs, 12/31/93 NR(3) 1,565,174 ------------------------------------------------------------------- 2,500,000 Clinton County, PA, IDA Weekly VRDNs (Armstrong World Industries)/(Mellon Bank N.A. LOC) P-1 2,500,000 ------------------------------------------------------------------- 2,285,000 Clinton County, PA, Municipal Authority Weekly VRDNs (Series A)/(Lock Haven Hospital)/(Mellon Bank N.A. LOC) P-1 2,285,000 ------------------------------------------------------------------- 10,000,000 Commonwealth of Pennsylvania, 3.25% TANs, 6/30/94 SP-1+ 10,035,576 ------------------------------------------------------------------- 1,825,000 Conrad Weiser, PA, Area School District, 2.72% TRANs, 6/30/94 NR(3) 1,825,000 ------------------------------------------------------------------- 4,000,000 Delaware County, PA, IDA, 2.70% CP (Standard Oil Co.)/(B.P. North America Guaranty), Mandatory Tender 1/13/94 A-1+ 4,000,000 ------------------------------------------------------------------- 2,000,000 Delaware County, PA, PCA, 2.80% CP (Philadelphia Electric Co.)/(FGIC Insured), Mandatory Tender 3/23/94 A-1+ 2,000,000 ------------------------------------------------------------------- $ 1,370,000 Eastern York, PA, School District, 2.78% TRANs, 6/30/94 NR(3) $ 1,370,794 ------------------------------------------------------------------- 800,000 Erie County, PA, IDA Weekly VRDNs (P.H.B., Inc.)/ (Marine Bank LOC)/(Subject to AMT) P-1 800,000 ------------------------------------------------------------------- 625,000 Erie County, PA, IDA Weekly VRDNs (Series 1985)/ (R.P-C Value, Inc.)/(PNC Bank N.A. LOC) P-1 625,000 -------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ---------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ------------------------------------------------------------------- 800,000 Erie County, PA, IDA Weekly VRDNs (Series B)/(P.H.B., Inc.)/(Marine Bank LOC)/(Subject to AMT) P-1 800,000 ------------------------------------------------------------------- 1,780,000 Erie County, PA, IDA Weekly VRDNs Multi-Mode Revenue Reference Bonds (Corry Manor, Inc.)/(Marine Bank LOC) A-1 1,780,000 ------------------------------------------------------------------- 750,000 Forest County, PA, IDA Weekly VRDNs (Industrial Timber and Land Co.)/(National City Bank LOC) P-1 750,000 ------------------------------------------------------------------- 1,530,000 Forest County, PA, IDA Weekly VRDNs (Marienville Healthcare Facility)/(PNC Bank N.A. LOC) P-1 1,530,000 ------------------------------------------------------------------- 2,100,000 Franklin County, PA, IDR Weekly VRDNs (Guarriello Limited Partnership)/(PNC Bank N.A. LOC)/(Subject to AMT) P-1 2,100,000 ------------------------------------------------------------------- 2,100,000 Grove City, PA, School District, 2.79% TRANs, 6/30/94 NR(3) 2,101,218 ------------------------------------------------------------------- 3,000,000 Lackawanna County, PA, IDA Weekly VRDNs (Series 1992)/(HEM Project)/(Corestate Bank N.A. LOC)/ (Subject to AMT) P-1 3,000,000 ------------------------------------------------------------------- 4,900,000 Lehigh County, PA, General Purpose Authority Revenue Bonds Weekly VRDNs (Series 1990)/(Phoebe Terrace, Inc.)/(Meridian Bank LOC) P-1 4,900,000 ------------------------------------------------------------------- 3,400,000 Lehigh County, PA, IDA Weekly VRDNs (Cedar Crest College)/(PNC Bank, Northeast PA LOC) A-1 3,400,000 ------------------------------------------------------------------- $ 4,800,000 Lehigh County, PA, IDA Weekly VRDNs (Series 1989A)/ (Hershey Pizza Co., Inc.)/(PNC Bank, Northeast PA LOC)/(Subject to AMT) A-1 $ 4,800,000 ------------------------------------------------------------------- 1,380,000 McKean County, PA, IDA Weekly VRDNs Multi-Mode Revenue Reference Bonds (Bradford Manor, Inc.)/(Marine Bank, LOC) A-1 1,380,000 ------------------------------------------------------------------- 3,300,000 Monroe County, PA, IDA PCR Weekly VRDNs (Cooper Industries)/(Sanwa Bank Ltd. LOC) A-1+ 3,300,000 -------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ---------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ------------------------------------------------------------------- 1,500,000 Montgomery County, PA, IDA Weekly VRDNs (Series 1992)/(RJI Limited Partnership)/(Meridian Bank LOC)/ (Subject to AMT) VMIG1 1,500,000 ------------------------------------------------------------------- 2,800,000 Montgomery County, PA, IDA Weekly VRDNs (Thomas & Betts Corp.)/(Wachovia Bank & Trust Co. N.A. LOC)/ (Subject to AMT) P-1 2,800,000 ------------------------------------------------------------------- 2,725,000 Moon Township, PA, IDA Weekly VRDNs (Airport Hotel Associates)/(Algemene Bank Nederland LOC) A-1+ 2,725,000 ------------------------------------------------------------------- 5,000,000 North Lebanon Township, PA, Municipal Authority Mortgage Weekly VRDNs (Grace Community, Inc.)/ (Meridian Bank LOC) VMIG1 5,000,000 ------------------------------------------------------------------- 5,000,000 Northampton County, PA, IDA, 2.65% CP (Citizens Utilities Company)/(Subject to AMT), Mandatory Tender 12/10/93 A-1+ 5,000,000 ------------------------------------------------------------------- 4,000,000 Northampton County, PA, IDA, 2.65% CP (Citizins Utilities Company)/(Subject to AMT), Mandatory Tender 12/14/93 A-1+ 4,000,000 ------------------------------------------------------------------- 4,000,000 Northampton County, PA, IDA, 2.70% CP (Citizens Utilities Company)/(Subject to AMT), Mandatory Tender 1/20/94 A-1+ 4,000,000 ------------------------------------------------------------------- $ 375,000 Pennsylvania EDA Revenue Bonds Weekly VRDNs (O.D.I., Inc.)/(PNC Bank N.A. LOC)/(Subject to AMT) Aa3 $ 375,000 ------------------------------------------------------------------- 825,000 Pennsylvania EDA Revenue Bonds Weekly VRDNs (Ram Forest Products)/(PNC Bank N.A. LOC)/(Subject to AMT) Aa3 825,000 ------------------------------------------------------------------- 1,750,000 Pennsylvania EDA Weekly VRDNs (Series G4)/(Metamura Products, Inc.)/(PNC Bank N.A. LOC)/(Subject to AMT) Aa3 1,750,000 ------------------------------------------------------------------- 825,000 Pennsylvania EDA Weekly VRDNs (PNC Bank N.A. LOC) P-1 825,000 ------------------------------------------------------------------- 325,000 Pennsylvania EDA Weekly VRDNs (Cavert Wire Co.)/ (PNC Bank N.A. LOC)/(Subject to AMT) Aa3 325,000 -------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ---------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ------------------------------------------------------------------- 3,900,000 Pennsylvania EDA Weekly VRDNs (Industrial Scientific Corp.)/(Mellon Bank N.A. LOC)/(Subject to AMT) P-1 3,900,000 ------------------------------------------------------------------- 1,800,000 Pennsylvania EDA Weekly VRDNs (Joseph J. Brunner, Inc.)/(PNC Bank N.A. LOC)/(Subject to AMT) A-1 1,800,000 ------------------------------------------------------------------- 875,000 Pennsylvania EDA Weekly VRDNs (Pioneer Fluid)/ (PNC Bank N.A. LOC)/(Subject to AMT) Aa3 875,000 ------------------------------------------------------------------- 950,000 Pennsylvania EDA Weekly VRDNs (Reale Associates)/ (PNC Bank N.A. LOC)/(Subject to AMT) Aa3 950,000 ------------------------------------------------------------------- 1,600,000 Pennsylvania EDA Weekly VRDNs (Series 1986)/(B.W. Ebensburg)/(Swiss Bank LOC)/(Subject to AMT) VMIG1 1,600,000 ------------------------------------------------------------------- 575,000 Pennsylvania EDA Weekly VRDNs (Series B8)/(Payne Printing Co.)/(PNC Bank N.A. LOC)/(Subject to AMT) Aa3 575,000 ------------------------------------------------------------------- 4,600,000 Pennsylvania EDA Weekly VRDNs (Walnut & Craig Street Associates)/(PNC Bank N.A. LOC)/(Subject to AMT) Aa3 4,600,000 ------------------------------------------------------------------- 3,000,000 Pennsylvania Floating Rate Trust Certificate, 2.65% Monthly TOBs (Series 1993H)/(Commonwealth of Pennsylvania)/(AMBAC Insured), 11/1/93 NR(2) 3,000,000 ------------------------------------------------------------------- $ 7,300,000 Pennsylvania HFA, 2.90% TOBs (First National Bank, Chicago BPA), Optional Tender 4/1/94 NR(2) $ 7,300,000 ------------------------------------------------------------------- 1,000,000 Pennsylvania HFA, Section 8 Assisted Residential Development Refunding Bonds Weekly VRDNs (Series 1992A)/ (Capital Guaranty Insured, Citibank N.A. BPA) NR(1) 1,000,000 ------------------------------------------------------------------- 9,700,000 Pennsylvania Higher Education Assistance Agency Weekly VRDNs (Fuji Bank Ltd. LOC)/(Subject to AMT) VMIG1 9,700,000 ------------------------------------------------------------------- 5,600,000 Pennsylvania Higher Education Facilities Authority Weekly VRDNs (Osteopathic Medical Center of Philadelphia)/(Bank of New York LOC) VMIG1 5,600,000 -------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ---------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ------------------------------------------------------------------- 5,000,000 Pennsylvania Higher Education Facilities Authority, 2.90% Annual TOBs (Carnegie Mellon University), Mandatory Tender 11/1/93 A-1 5,000,000 ------------------------------------------------------------------- 4,100,000 Pennsylvania State Higher Education Assistance Agency Weekly VRDNs (Student Loan Marketing Association LOC) A-1 4,100,000 ------------------------------------------------------------------- 3,000,000 Pennsylvania State Higher Education Facilities Authority, 2.55% Annual TOBs (Carnegie-Mellon University), Optional Tender 5/1/94 A-1 3,000,000 ------------------------------------------------------------------- 9,625,000 Pennsylvania State Higher Education Facilities Authority, 2.85% TOBs (Carnegie-Mellon University), Optional Tender 11/1/94 A-1 9,625,000 ------------------------------------------------------------------- 5,800,000 Pennsylvania State University, 3.00% BANs (Series 93), 5/26/94 MIG1 5,811,948 ------------------------------------------------------------------- 2,900,000 Philadelphia Authority for Industrial Development Weekly VRDNs (Series 1991A)/(Levin Corp.)/(PNC Bank N.A. LOC) P-1 2,900,000 ------------------------------------------------------------------- $ 19,300,000 Philadelphia Redevelopment Authority Multi-Family Revenue Bonds Weekly VRDNs (Series 1985)/(Franklin Town Towers)/(Marine Midland Bank N.A. and Hong-Kong Shanghai Banking Corp. LOCs) A-1 $ 19,300,000 ------------------------------------------------------------------- 3,000,000 Philadelphia, PA, 2.70% CP GO Bonds (Series 1990)/(Fuji Bank Ltd. LOC), Mandatory Tender 1/13/94 A-1 3,000,000 ------------------------------------------------------------------- 5,930,000 Philadelphia, PA, HEFA, 2.70% Annual TOBs (Pennsylvania Hospital)/(PNC Bank N.A. LOC), Optional Tender 7/1/94 A-1 5,930,000 ------------------------------------------------------------------- 3,500,000 Philadelphia, PA, IDA, 3.15% Annual TOBs (Series A)/ (Suite Hotel)/(Bank of Tokyo Ltd. LOC), Optional Tender 6/1/94 A-1+ 3,500,000 -------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ---------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ------------------------------------------------------------------- 7,600,000 Philadelphia, PA, IDR Weekly VRDNs (Series 93)/ (Sackett Development)/(Mellon Bank N.A. LOC) P-1 7,600,000 ------------------------------------------------------------------- 8,000,000 Philadelphia, PA, School District Weekly VRDNs (Series PT-3)/(MBIA Insured) VMIG1 8,000,000 ------------------------------------------------------------------- 1,300,000 Phoenixville, PA, 2.80% GO TRANs, 12/31/93 NR(3) 1,300,000 ------------------------------------------------------------------- 4,450,000 Pheonixville, PA, Area School District, 2.82% TRANs, 6/30/94 NR(3) 4,452,836 ------------------------------------------------------------------- 5,000,000 Pittsburgh, PA, Urban Redevelopment Authority, 2.85% Mortgage Revenue Bonds (Series B)/(Barclays Bank PLC Investment Agreement)/(Subject to AMT), Mandatory Tender 6/1/94 A-1+ 5,000,000 ------------------------------------------------------------------- 1,800,000 Port Authority of Allegheny County, PA, 2.90% Grant Anticipation Notes (Series 1993A)/(PNC Bank N.A. LOC), 8/1/94 P-1 1,800,000 ------------------------------------------------------------------- 1,000,000 Quakertown, PA, HDA Weekly VRDNs (The HPS Group Pooled Finance)/(First National Bank, Chicago LOC) VMIG1 1,000,000 ------------------------------------------------------------------- $ 2,400,000 Riverside, PA, Beaver County School District, 2.77% TRANs, 6/30/94 NR(3) $ 2,400,762 ------------------------------------------------------------------- 2,000,000 Shaler Township, PA, 2.86% GO TRANs, 12/31/93 NR(3) 2,000,189 ------------------------------------------------------------------- 1,550,000 Shippensburg, PA, Area School District, 2.73% TRANs, 6/30/94 NR(3) 1,550,000 ------------------------------------------------------------------- 10,000,000 Upper Allegheny, PA, Joint Sanitary Authority, 2.85% Annual TOBs (Series 1986C)/(AIG Investment Agreement), Mandatory Tender 7/15/94 A-1+ 10,000,000 ------------------------------------------------------------------- 2,180,000 Upper Southampton Township, PA, 2.85% GO TRANs, 12/31/93 NR(3) 2,180,347 ------------------------------------------------------------------- 4,000,000 Venango, PA, IDA, 2.60% CP (Series 1993)/(Scrubgrass Power Co.)/(National Westminster Bank PLC LOC)/ (Subject to AMT), Mandatory Tender 11/29/93 A-1+ 4,000,000 -------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ---------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ------------------------------------------------------------------- 2,000,000 Venango, PA, IDA, 2.60% CP (Series A)/(Scrubgrass Power Co.)/(National Westminster Bank PLC LOC)/ (Subject to AMT), Mandatory Tender 11/24/93 A-1+ 2,000,000 ------------------------------------------------------------------- 2,000,000 Washington County, PA, HDA Weekly VRDNs (Keystone Diversified Management Corp.)/(Mellon Bank N.A. LOC) A-1 2,000,000 ------------------------------------------------------------------- 1,625,000 Washington County, PA, IDA Weekly VRDNs (Series 1988)/(Cameron Coca-Cola, Inc.)/(Mellon Bank N.A. LOC) P-1 1,625,000 ------------------------------------------------------------------- 1,215,000 Washington County, PA, IDA Weekly VRDNs (Series 1990)/(Mac Plastics, Inc.)/(National City Bank LOC)/ (Subject to AMT) Aa 1,215,000 ------------------------------------------------------------------- 1,300,000 Washington County, PA, Municipal Authority Facilities Revenue Bonds Weekly VRDNs (Series 1985)/(Pooled Capital Program)/(Sumitomo Bank Ltd. LOC) P-1 1,300,000 ------------------------------------------------------------------- 1,100,000 West Chester, PA, 3.11% GO TRANs, 12/31/93 NR(3) 1,100,457 ------------------------------------------------------------------- $ 12,000,000 Westmoreland County, PA, 2.85% TRANs (PNC Bank N.A. LOC), 12/31/93 P-1 $ 12,000,000 ------------------------------------------------------------------- 1,000,000 Whitehall, PA, 2.97% GO TRANs, 12/31/93 NR(3) 1,000,196 ------------------------------------------------------------------- 3,000,000 York County, PA, IDA Weekly VRDNs (West Manchester Inn Associates)/(Mellon Bank N.A. LOC) P-1 3,000,000 ------------------------------------------------------------------- --------------- TOTAL $ 346,595,474 ------------------------------------------------------------------- --------------- PUERTO RICO--0.6% ------------------------------------------------------------------- 2,100,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit Suisse and Sumitomo Bank Ltd. LOCs) A-1+ 2,100,000 ------------------------------------------------------------------- --------------- TOTAL INVESTMENTS (AT AMORTIZED COST) $ 348,695,474\ ------------------------------------------------------------------- ---------------
\ Also represents cost for federal tax purposes. * See Notes to Portfolio of Investments. Note: The category of investments is shown as a percentage of net assets ($337,079,400) at October 31, 1993. The following abbreviations are used in this portfolio: AMBAC--American Municipal Bond Assurance Corporation AMT--Alternative Minimum Tax BANs--Bond Anticipation Notes BPA--Bond Purchase Agreement CP--Commercial Paper EDA--Economic Development Authority FGIC--Financial Guaranty Insurance Company GO--General Obligation HDA--Hospital Development Authority HEFA--Health and Education Facilities Authority HFA--Housing Finance Authority/Agency IDA--Industrial Development Authority IDR--Industrial Development Revenue LOC--Letter of Credit LOCs--Letters of Credit MBIA--Municipal Bond Investors Assurance PCA--Pollution Control Authority PCR--Pollution Control Revenue 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) PENNSYLVANIA MUNICIPAL CASH TRUST NOTES TO PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL OBLIGATIONS RATINGS S&P A Standard & Poor's 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 (+) designation. SP-2 Satisfactory capacity to pay principal and interest. MOODY'S 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. FITCH Fitch's short-term ratings place greater emphasis on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. F-1 Strongest degree of assurance for timely payment. Those issues determined to provide exceptionally strong credit quality are given a plus (+) designation. F-2 Notes reflecting a degree of assurance for timely payment only slightly less in degree than the highest category. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P Standard & Poor's 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-1+, AA/A-1K, and A/A-1. (The definitions for the short-term ratings are provided below.) PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- MOODY'S 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. FITCH Fitch usually assigns two ratings to long-term debt issues that include provisions for a variable rate demand feature. The long-term rating addresses the ability of the obligor to pay debt service and the short-term rating addresses the timely payment of the demand feature. Exemples of rating designations are as follows: AAA/F-1+, AA/F-1K, and A/F-1. (The definitions for the long-term and short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS S&P A Standard & Poor's 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 designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign designation. A-2 Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated "A-1." MOODY'S P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. The following is an explanation of the Fitch ratings. These ratings are not referenced in the Portfolio of Investments. FITCH F-1 Issues assigned this rating relfect a strong degree of assurance for timely payment. Those issuers determined to possess the strongest degree of assurance for timely payment are denoted with a plus (+) sign designation. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- F-2 Issuers carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as the "F-1+" and "F-1" categories LONG-TERM DEBT RATINGS (INVESTMENT GRADE) S&P AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the 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. BBB Debt rated "BBB" is regarding as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest than debt rated in higher ratings categories. MOODY'S Aaa Bonds that 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 edge." Interest payments are protected by a large margin and principal is secure. While the various protective elements are likely to change, such changes which can be foreseen are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds that 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 that 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 that suggest a susceptibility to impairment some time in the future. Baa Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- FITCH AAA Bonds that are rated AAA are of the highest credit quality. The obligor has an exceptionally strong ability to pay debt service. AA Bonds that are rated AA are of very high quality. The obligor has a very strong ability to pay debt service. Debt rated in this category may also have a (+) or (-) sign with a rating to indicate the relative position within the rating category. A Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. NR indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P, Moody's, or Fitch with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated in one of the two highest short-term ratings categories by a nationally recognized statistical ratings organization. NR(1)The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by Fitch. NR(2)The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch. NR(3)The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "A" by Standard & Poor's, Moody's, or Fitch. NR(4)The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by Fitch. PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1993 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------------------------ Investments, at amortized cost and value (Note 2A) $ 348,695,474 - ------------------------------------------------------------------------------------------------ Cash 832,981 - ------------------------------------------------------------------------------------------------ Interest receivable 1,900,397 - ------------------------------------------------------------------------------------------------ Receivable for Fund shares sold 1,524 - ------------------------------------------------------------------------------------------------ Deferred expenses (Note 2E) 16,988 - ------------------------------------------------------------------------------------------------ --------------- Total assets 351,447,364 - ------------------------------------------------------------------------------------------------ LIABILITIES: - ------------------------------------------------------------------------------------------------ Payable for investments purchased $ 13,725,000 - -------------------------------------------------------------------------------- Dividends payable 497,169 - -------------------------------------------------------------------------------- Payable for Fund shares redeemed 10,000 - -------------------------------------------------------------------------------- Accrued expenses and other liabilities 135,795 - -------------------------------------------------------------------------------- -------------- Total liabilities 14,367,964 - ------------------------------------------------------------------------------------------------ --------------- NET ASSETS for 337,079,400 shares of beneficial interest outstanding $ 337,079,400 - ------------------------------------------------------------------------------------------------ --------------- NET ASSET VALUE, Offering Price, and Redemption Price Per Share: - ------------------------------------------------------------------------------------------------ Institutional Service Shares ($318,518,627 / 318,518,627 shares of beneficial interest outstanding) $1.00 - ------------------------------------------------------------------------------------------------ --------------- Cash Series Shares ($18,560,773 / 18,560,773 shares of beneficial interest 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, 1993 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------------------------- Interest income (Note 2B) $ 9,700,827 - --------------------------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------------------------- Investment advisory fee (Note 5) $ 1,740,351 - ------------------------------------------------------------------------------------ Administrative personnel and services fees (Note 5) 338,801 - ------------------------------------------------------------------------------------ Custodian, transfer and dividend disbursing agent fees and expenses 195,678 - ------------------------------------------------------------------------------------ Trustees' fees 8,055 - ------------------------------------------------------------------------------------ Auditing fees 20,958 - ------------------------------------------------------------------------------------ Legal fees 14,712 - ------------------------------------------------------------------------------------ Printing and postage 24,161 - ------------------------------------------------------------------------------------ Fund share registration costs 40,411 - ------------------------------------------------------------------------------------ Distribution services fees (Note 5) 91,235 - ------------------------------------------------------------------------------------ Insurance premiums 14,422 - ------------------------------------------------------------------------------------ Miscellaneous 2,742 - ------------------------------------------------------------------------------------ ------------- Total expenses 2,491,526 - ------------------------------------------------------------------------------------ Deduct-- - ------------------------------------------------------------------------------------ Waiver of investment advisory fee (Note 5) 415,874 - ------------------------------------------------------------------------------------ ------------- Net expenses 2,075,652 - --------------------------------------------------------------------------------------------------- ------------- Net investment income $ 7,625,175 - --------------------------------------------------------------------------------------------------- -------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1993 1992 INCREASE (DECREASE) IN NET ASSETS: - ----------------------------------------------------------------------------- OPERATIONS-- - ----------------------------------------------------------------------------- Net investment income $ 7,625,175 $ 10,365,086 - ----------------------------------------------------------------------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - ----------------------------------------------------------------------------- Dividends to shareholders from net investment income: - ----------------------------------------------------------------------------- Institutional Service Shares (7,195,929) (9,810,541) - ----------------------------------------------------------------------------- Cash Series Shares (429,246) (554,545) - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets from distributions to shareholders (7,625,175) (10,365,086) - ----------------------------------------------------------------------------- FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - ----------------------------------------------------------------------------- Proceeds from sale of shares 932,887,176 846,311,595 - ----------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of dividends declared 1,613,211 2,064,869 - ----------------------------------------------------------------------------- Cost of shares redeemed (930,314,734) (852,494,450) - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets from Fund share transactions 4,185,653 (4,117,986) - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets 4,185,653 (4,117,986) - ----------------------------------------------------------------------------- NET ASSETS: - ----------------------------------------------------------------------------- Beginning of period 332,893,747 337,011,733 - ----------------------------------------------------------------------------- ---------------- ---------------- End of period $ 337,079,400 $ 332,893,747 - ----------------------------------------------------------------------------- ---------------- ----------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1993 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company with several 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. Effective December 31, 1990, the Fund provides two classes of shares ("Institutional Service Shares" and "Cash Series Shares"). Cash Series Shares are identical in all respects to Institutional Service Shares except that Cash Series Shares are sold pursuant to a distribution plan ("Plan") adopted in accordance with Investment Company Act Rule 12b-1. (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. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that the best method currently available for valuing portfolio securities is amortized cost. The Fund's use of the amortized cost method to value its portfolio securities is conditioned on its compliance with Rule 2a-7 under the Investment Company Act of 1940. Since the Fund may invest 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 general tax-exempt mutual fund. In order to reduce the risk associated with such factors, at October 31, 1993, 67.2% 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 of various financial institutions. The aggregate percentages by financial institution ranged from 0.3% to 14.0% of total investments. B. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest earned net of premium, and original issue discount as required by the Internal Revenue Code. C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal Revenue Code (the "Code") applicable to investment companies and to distribute to shareholders each year all of its net income. Accordingly, no provision for federal tax is necessary. Dividends paid by the Fund representing net interest received on tax-exempt municipal securities are not includable by shareholders as gross income for federal income tax purposes because the Fund intends to meet certain requirements of the Code applicable to regulated investment companies which will enable the Fund to pay exempt-interest dividends. The portion of such interest, if any, earned on private PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- activity bonds issued after August 7, 1986 may be considered a tax preference item to shareholders for the purpose of computing the alternative minimum tax. D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objective and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain 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. E. 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 the shares, have been deferred and are being amortized using the straight-line method through October 1994. F. EXPENSES--Expenses of the Fund (other than distribution services fees) and waivers and reimbursements, if any, are allocated to each class of shares based on its relative daily average net assets for the period. Expenses incurred by the Trust which do not specifically relate to an individual Fund are allocated among all Funds based on a Fund's relative net asset value size or as deemed appropriate by the administrator. G. OTHER--Investment transactions are accounted for on the date of the transaction. (3) DIVIDENDS The Fund computes its net income daily and, immediately prior to the calculation of its net asset value at the close of business, declares and records dividends to shareholders of record at the time of the previous computation of the Fund's net asset value. Payment of dividends is made monthly in cash, or in additional shares at the net asset value on the payable date. (4) 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, 1993 capital paid-in aggregated $337,079,400. Transactions in Fund shares were as follows: PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, INSTITUTIONAL SERVICE SHARES 1993 1992 Shares outstanding, beginning of period 308,199,611 317,165,299 - -------------------------------------------------------------------------------------- Shares sold 889,559,906 794,876,747 - -------------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 1,201,127 1,514,034 - -------------------------------------------------------------------------------------- Shares redeemed (880,442,017) (805,356,469) - -------------------------------------------------------------------------------------- ------------ ------------ Shares outstanding, end of period 318,518,627 308,199,611 - -------------------------------------------------------------------------------------- ------------ ------------ CASH SERIES SHARES Shares outstanding, beginning of period 24,694,136 19,846,434 - -------------------------------------------------------------------------------------- Shares sold 43,327,270 51,434,848 - -------------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 412,084 550,835 - -------------------------------------------------------------------------------------- Shares redeemed (49,872,717) (47,137,981) - -------------------------------------------------------------------------------------- ------------ ------------ Shares outstanding, end of period 18,560,773 24,694,136 - -------------------------------------------------------------------------------------- ------------ ------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Federated Management, the Fund's investment adviser ("Adviser"), receives for its services an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The Adviser has voluntarily agreed to waive a portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time in its sole discretion. During the fiscal year ended October 31, 1993, the Adviser earned $1,740,351 as its advisory fee, of which $415,874 was voluntarily waived. During the year ended October 31, 1993, pursuant to Rule 17a-7 of the Investment Company Act of 1940, the Fund engaged in purchase and sale transactions with other funds advised by the Adviser amounting to $419,475,000 and $412,510,000, respectively. These purchases and sales were conducted on an arms-length basis insofar as they were transacted for cash consideration only, at independent current market prices and without brokerage commission, fee or other remuneration. The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Trust will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the assets of the Fund, for fees it paid which relate to the distribution and administration of the Fund's Cash Series Shares. The Plan provides that the Fund may incur distribution expenses up to 0.40 of 1% of the average daily net assets of the Cash Series Shares, annually, to pay commissions, maintenance fees and to compensate the distributor. During the year ended October 31, 1993, FSC earned $91,235 in distribution services fees, none of which was voluntarily waived. Administrative personnel and services were provided at approximate cost by Federated Administrative Services, Inc. Certain Officers and Trustees of the Trust are Officers and Directors of the above corporations. (6) CURRENT CREDIT RATINGS Current credit ratings and related notes are unaudited. 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 investments as of October 31, 1993, the related statement of operations for the year then ended, 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 the securities owned as of October 31, 1993, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Pennsylvania Municipal Cash Trust, an investment portfolio of Federated Municipal Trust, as of October 31, 1993, 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 & CO. Pittsburgh, Pennsylvania December 13, 1993 ADDRESSES - -------------------------------------------------------------------------------- Pennsylvania Municipal Cash Trust Cash Series Shares Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8604 Trust Company Boston, Massachusetts 02266-8604 - --------------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company Federated Investors Towers Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, D.C. 20037 - --------------------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen & Co. 2100 One PPG Place Pittsburgh, Pennsylvania 15222 - ---------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST CASH SERIES SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company December 31, 1993 [LOGO] FEDERATED SECURITIES CORP. Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 9101005A-CSS (12/93) 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 non-diversified portfolio of securities which is one of a series of investment portfolios in Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The investment objective of the Fund is to provide current income exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania consistent with stability of principal. The Fund invests primarily in short-term Pennsylvania municipal securities. 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 the Commonwealth of Pennsylvania or its political subdivisions and financing authorities, which are exempt from the federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania. Institutional Service Shares are sold at net asset value, without a sales load. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. 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. THE INSTITUTIONAL SERVICE 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 BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. This prospectus contains the information you should read and know before you invest in Institutional Service Shares. Keep this prospectus for future reference. The Fund has also filed a Combined Statement of Additional Information for Institutional Service Shares and Cash Series Shares dated December 31, 1993, with the Securities and Exchange Commission. The information contained in the Combined Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Combined Statement of Additional Information free of charge by calling 1-800-235-4669. To obtain other information or to make inquiries about the Fund, contact this Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1993 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 Acceptable Investments 3 Variable Rate Demand Notes 4 Participation Interests 4 Municipal Leases 4 Ratings 4 Credit Enhancement 5 Demand Features 5 Restricted and Illiquid Securities 5 When-Issued and Delayed Delivery Transactions 5 Temporary Investments 5 Pennsylvania Municipal Securities 6 Standby Commitments 6 Pennsylvania Investment Risks 6 Non-Diversification 7 Investment Limitations 7 Regulatory Compliance 8 FEDERATED MUNICIPAL TRUST INFORMATION 8 - ------------------------------------------------------ Management of Federated Municipal Trust 8 Board of Trustees 8 Investment Adviser 8 Advisory Fees 8 Adviser's Background 8 Distribution of Institutional Service Shares 9 Administrative Arrangements 9 Administration of the Fund 9 Administrative Services 9 Custodian 9 Transfer Agent and Dividend Disbursing Agent 10 Legal Counsel 10 Independent Public Accountants 10 NET ASSET VALUE 10 - ------------------------------------------------------ INVESTING IN INSTITUTIONAL SERVICE SHARES 10 - ------------------------------------------------------ Share Purchases 10 By Wire 10 By Mail 10 Minimum Investment Required 10 What Shares Cost 11 Subaccounting Services 11 Certificates and Confirmations 11 Dividends 11 Capital Gains 11 REDEEMING INSTITUTIONAL SERVICE SHARES 12 - ------------------------------------------------------ Telephone Redemption 12 Written Requests 12 Signatures 12 Receiving Payment 13 Checkwriting 13 Redemption Before Purchase Instruments Clear 13 Accounts with Low Balances 13 SHAREHOLDER INFORMATION 13 - ------------------------------------------------------ Voting Rights 13 Massachusetts Partnership Law 14 TAX INFORMATION 14 - ------------------------------------------------------ Federal Income Tax 14 Pennsylvania Tax Considerations 15 Other State and Local Taxes 15 PERFORMANCE INFORMATION 15 - ------------------------------------------------------ OTHER CLASSES OF SHARES 16 - ------------------------------------------------------ Financial Highlights--Cash Series Shares 17 FINANCIAL STATEMENTS 18 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 40 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................ None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).................................................................. None Deferred Sales Load (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 INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)...................................................................... 0.46% 12b-1 Fee.............................................................................................. None Other Expenses......................................................................................... 0.19% Total Institutional Service Shares Operating Expenses (2)......................................... 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 Total Institutional Service Shares Operating Expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1994. The Total Institutional Service Shares Operating Expenses were 0.57% for the fiscal year ended October 31, 1993 and were 0.69% absent the voluntary waiver of a portion of the management fee. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL SERVICE SHARES" AND "FEDERATED MUNICIPAL TRUST 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. As noted in the table above, the Fund charges no redemption fee for Institutional Service Shares.................................. $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. The information set forth in the foregoing table and example relates only to Institutional Service Shares of the Fund. The Fund also offers another class of shares called Cash Series Shares. Institutional Service Shares and Cash Series Shares are subject to certain of the same expenses; however, Cash Series Shares are subject to a 12b-1 fee of 0.40%. See "Other Classes of Shares." 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 40.
YEAR ENDED OCTOBER 31, 1993 1992 1991 1990* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------------------------ Net investment income 0.02 0.03 0.05 0.05 - ------------------------------------------------------------------ --------- --------- --------- --------- LESS DISTRIBUTIONS - ------------------------------------------------------------------ Dividends to shareholders from net investment income (0.02) (0.03) (0.05) (0.05) - ------------------------------------------------------------------ --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------------------------ --------- --------- --------- --------- TOTAL RETURN** 2.24% 3.08% 4.64% 5.78%(a) - ------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------ Expenses 0.57% 0.56% 0.55% 0.50%(b) - ------------------------------------------------------------------ Net investment income 2.21% 3.04% 4.53% 5.56%(b) - ------------------------------------------------------------------ Expense waiver/reimbursement (c) 0.12% 0.12% 0.11% 0.18%(b) - ------------------------------------------------------------------ SUPPLEMENT DATA - ------------------------------------------------------------------ Net assets, end of period (000 omitted) $318,518 $308,200 $317,165 $275,882 - ------------------------------------------------------------------
* Reflects operations for the period from November 21, 1989 (date of initial public investment) to October 31, 1990. For the period from the start of business, October 10, 1989, to November 20, 1989, net investment income aggregating $0.0067 per share ($670) was distributed to the Fund's investment adviser. Such distribution represented the net investment income of the Fund prior to the initial public offering of Fund shares which commenced on November 21, 1989. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) The voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (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 of beneficial interest 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") have established two classes of shares, known as Institutional Service Shares and Cash Series Shares. This prospectus relates only to Institutional Service Shares of the Fund. Institutional Service Shares ("Shares") of the Fund are designed for the investment of moneys held by financial institutions in an agency capacity. A minimum initial investment of $25,000 over a 90-day period is required. The Fund may not be a suitable investment for non-Pennsylvania taxpayers or retirement plans since it invests primarily in Pennsylvania municipal securities. The Fund attempts to stabilize the value of a Share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to provide current income exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania 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 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 Pennsylvania. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in a portfolio of Pennsylvania municipal securities with remaining maturities of 13 months or less at the time of purchase by the Fund. As a matter of investment policy, which cannot be changed without approval of shareholders, the Fund invests its assets so that at least 80% of its annual interest income is exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania. 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 the approval of shareholders. 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 the Commonwealth 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 both federal regular income tax and Pennsylvania state income tax imposed upon non-corporate taxpayers. Examples of Pennsylvania municipal securities include, but are not limited to: tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes ("BANs") 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 municipal securities 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 rated 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 adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in municipal securities from financial institutions such as commercial and investment banks, savings and loan associations and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying municipal securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities and may be considered to be illiquid. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation certificate on any of the above. RATINGS. The Pennsylvania municipal securities in which the Fund invests must either 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 Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1 and FIN-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 categories. See "Regulatory Compliance." CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been credit-enhanced by a guaranty, letter of credit or insurance. 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. The bankruptcy, receivership or default of the credit enhancer will adversely affect the quality and marketability of the underlying security. 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. 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 laws. Under criteria established by the Trustees, certain restricted securities are considered to be liquid. To the extent restricted securities are deemed to be illiquid, the Fund will limit their purchase, together with other securities considered to be illiquid, to 10% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Pennsylvania municipal securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in short-term, non-Pennsylvania municipal tax-exempt obligations or other taxable, temporary investments. All temporary investments will satisfy the same credit quality standards as the Fund's acceptable investments. See "Ratings" above. Temporary investments include: notes issued by or on behalf of municipal or corporate issuers; marketable obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities; other debt securities; commercial paper; certificates of deposit of banks; and repurchase agreements (arrangements in which banks, broker/dealers, and other recognized financial institutions sell the Fund a temporary investment and agree 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 of generating income subject to federal regular income tax or personal income taxes imposed by the Commonwealth of Pennsylvania. 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 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. STANDBY COMMITMENTS Some securities dealers are willing to sell municipal securities to the Fund accompanied by their commitments to repurchase the municipal securities prior to maturity, at the Fund's option, for the amortized cost of the municipal securities at the time of repurchase. These arrangements are not used to protect against changes in the market value of municipal securities. They permit the Fund, however, to remain fully invested and still provide liquidity to satisfy redemptions. The cost of municipal securities accompanied by these "standby" commitments could be greater than the cost of Municipal Securities without such commitments. Standby commitments are not marketable or otherwise assignable and have value only to the Fund. The default or bankruptcy of a securities dealer giving such a commitment would not affect the quality of the municipal securities purchased. However, without a standby commitment, these securities could be more difficult to sell. The Fund enters into standby commitments only with those dealers whose credit the investment adviser believes to be of high quality. PENNSYLVANIA 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 and maturity of the particular offering; the maturity of the obligations; and the rating of the issue. Further, any adverse economic conditions or developments affecting the Commonwealth of Pennsylvania or its municipalities could impact the Fund's portfolio. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Pennsylvania municipal securities and demand features for such securities, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. Investing in Pennsylvania municipal securities which meet the Fund's quality standards may not be possible if the Commonwealth of Pennsylvania or its municipalities do not maintain their high quality, short-term credit ratings. In addition, certain Pennsylvania constitutional amendments, legislative measures, executive orders, administrative regulations and voter initiatives could result in adverse consequences affecting Pennsylvania municipal securities. An expanded discussion of the current economic risks associated with the purchase of Pennsylvania municipal securities is contained in the Combined Statement of Additional Information. NON-DIVERSIFICATION The Fund is a non-diversified investment portfolio. As such, there is no limit on the percentage of assets which can be invested in any single issuer. An investment in the Fund, therefore, will entail greater risk than would exist in a diversified investment portfolio because the higher percentage of investments among fewer issuers may result in greater fluctuation in the total market value of the Fund's portfolio. Any economic, political, or regulatory developments affecting the value of the securities in the Fund's portfolio will have a greater impact on the total value of the portfolio than would be the case if the portfolio were diversified among more issuers. The Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that at the end of each quarter of the taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer; beyond that, no more than 25% of its total assets are invested in the securities of a single issuer. 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. In order to pass-through to investors the tax-free income from the Fund for purposes of the Pennsylvania Personal Income Tax, 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 above investment limitation cannot be changed without shareholder approval. The following investment limitation, however, can be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in this limitation becomes effective. The Fund will not invest more than 5% of its total assets in industrial development bonds or other municipal securities when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in this prospectus and its Combined 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, as amended. 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 INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF FEDERATED MUNICIPAL TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of Trustees is 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. The Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, 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, for which it receives an annual fee from the Fund. ADVISORY FEES. The Fund's adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. Under the advisory contract, which provides for the voluntary waiver of the advisory fee by the adviser, the adviser may voluntarily waive some or all of the advisory fee. This does not include reimbursement to the Fund of any expenses incurred by shareholders who use the transfer agent's subaccounting facilities. The adviser can terminate this voluntary waiver of expenses at any time at its sole discretion. The adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. 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. Total assets under management or administration by these and other subsidiaries of Federated Investors are approximately $70 billion. Federated Investors, which was founded in 1956 as Federated Investors, Inc., develops and manages mutual funds primarily for the financial industry. Federated Investors' track record of competitive performance and its disciplined, risk-averse investment philosophy serve approximately 3,500 client institutions nationwide. Through these same client institutions, individual shareholders also have access to this same level of investment expertise. 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. ADMINISTRATIVE ARRANGEMENTS. The distributor may select brokers and dealers to provide distribution and administrative services. The distributor may also select administrators (including depository institutions such as commercial banks and savings and loan associations) to provide administrative services. These administrative services include, but are not limited to, distributing prospectuses and other information, providing accounting assistance, and communicating or facilitating purchases and redemptions of Shares. Brokers, dealers, and administrators will receive fees from the distributor based upon Shares owned by their clients or customers. The fees are calculated as a percentage of the average aggregate net asset value of shareholder accounts during the period for which the brokers, dealers, and administrators provide services. Any fees paid for these services by the distributor will be reimbursed by the adviser. The Glass-Steagall Act limits the ability of a depository institution (such as a commercial bank or a savings and loan association) to become an underwriter or distributor of securities. In the event the Glass-Steagall Act is deemed to prohibit depository institutions from acting in the capacities described above or should Congress relax current restrictions on depository institutions, the Board of Trustees will consider appropriate changes in the administrative services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state law. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services, Inc. provides these at approximate cost. CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and dividend disbursing agent for the Fund. LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania. 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 adding the interest of the Shares in the value of all securities and other assets of the Fund, subtracting the interest of the Shares in the liabilities of the Fund and those attributable to Shares, and dividing the remainder by the total number of Shares outstanding. The Fund, of course, cannot guarantee that its net asset value will always remain at $1.00 per Share. INVESTING IN INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- SHARE PURCHASES Shares are sold on days on which the New York Stock Exchange and the Federal Reserve wire system are open for business. Shares may be purchased either by wire or by mail. The Fund reserves the right to reject any purchase request. To purchase Shares, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken over the telephone. BY WIRE. To purchase Shares by Federal Reserve wire, call 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 same day. Federal funds should be wired as follows: State Street Bank and Trust Company, Boston, Massachusetts; 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 days on which the New York Stock Exchange is closed and on federal holidays restricting wire transfers.. BY MAIL. To purchase Shares by mail, send a check made payable to Pennsylvania Municipal Cash Trust--Institutional Service Shares to Federated Services Company, c/o State Street Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are considered received when payment by check is converted by State Street Bank into federal funds. This is normally the next business day after State Street Bank receives the check. MINIMUM INVESTMENT REQUIRED The minimum initial investment in the Shares is $25,000. However, an account may be opened with a smaller amount as long as the $25,000 minimum is reached within 90 days. An institutional investor's minimum investment will be calculated by combining all accounts it maintains with the Fund. Individual accounts established through a bank or broker may be subject to a different minimum investment requirement. WHAT SHARES COST Shares are sold at their net asset value next determined after an order is received. There is no sales charge imposed by the Fund. Investors who purchase Shares through a bank or broker may be charged an additional service fee by that bank or broker. The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m. (Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no Shares are tendered for redemption and no orders to purchase Shares are received; (iii) the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. SUBACCOUNTING SERVICES Institutions are encouraged to open single master accounts. However, certain institutions may wish to use the transfer agent's subaccounting system to minimize their internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Financial institutions holding Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Shares. This prospectus should, therefore, be read together with any agreement between the customer and the financial institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Monthly confirmations are sent to report transactions such as purchases and redemptions as well as dividends paid during the month. DIVIDENDS Dividends are declared daily and paid monthly. Shares purchased by wire before 1:00 P.M. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends on the day after the check is converted, upon instruction of the transfer agent, into federal funds. Dividends are automatically reinvested on payment dates in additional Shares unless cash payments are requested on an application or by contacting the Fund. CAPITAL GAINS Capital gains, if any, could result in an increase in dividends. Capital losses, if any, could result in a decrease in dividends. If, for some extraordinary reason, the Fund realizes net long-term or short-term capital gains, it will distribute them at least once every 12 months. REDEEMING INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares 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 by telephone request or by written request. TELEPHONE REDEMPTION Shareholders may redeem their Shares by telephoning the Fund. Redemption requests received before 12:00 noon (Eastern time) are not entitled to that day's dividend. A daily dividend will be paid on Shares redeemed if the redemption request is received after 12:00 noon (Eastern time). However, the proceeds are not wired until the following business day. If at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders will be promptly notified. An authorization form permitting the Fund to accept redemption requests by telephone must first be completed. Authorization forms and information on this service are available from Federated Securities Corp. Telephone redemption instructions may be recorded. If reasonable procedures are not followed by the Fund, it may be liable for loses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, shareholders may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption, such as Written Requests, should be considered. WRITTEN REQUESTS Shares may also be redeemed by sending a written request to the Fund. Call the Fund for specific instructions before redeeming by letter. The shareholder will be asked to provide in the request his name, the Fund name and class of shares, his account number, and the share or dollar amount requested. If share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, 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 signatures on written redemption requests guaranteed by: a trust company or commercial bank whose deposits are insured by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance Corporation ("FDIC"); a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; a savings bank or savings and loan association whose deposits are insured by the Savings Association Insurance Fund ("SAIF"), which is administered by the FDIC; 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. The Fund and its transfer agent have 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 and its transfer agent reserve the right to amend these standards at any time without notice. RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. CHECKWRITING. At the shareholder's request, State Street Bank will establish a checking account for redeeming Shares. For further information, contact Federated Securities Corp. A fee may be charged for this service. With a Fund checking account, Shares may be redeemed simply by writing a check. The redemption will be made at the net asset value on the date that State Street Bank presents the check to the Fund. A check may not be written to close an account. If a shareholder wishes to redeem Shares and have the proceeds available, a check may be written and negotiated through the shareholder's bank. Checks should never be sent to State Street Bank to redeem Shares. Cancelled checks are returned to the shareholder each month. REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR When Shares are purchased by check, the proceeds from the redemption of those Shares are not available, and the Shares may not be exchanged, until the Fund or its agents are reasonably certain that the purchase check has cleared, which could take up to ten calendar days. 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. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only shares of that Fund or class are entitled to vote. As a Massachusetts business trust, 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 for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of all series in the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders of the Fund, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such 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 of the Fund is held personally liable for the Trust's obligations, the Trust is required 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 cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. 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 some municipal bonds may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The alternative minimum tax, equal to up to 28% of alternative minimum taxable income for individuals and 20% for corporations, 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. The Tax Reform Act of 1986 treats interest on certain "private activity" bonds issued after August 7, 1986, as a tax preference item for both individuals and corporations. Unlike traditional governmental purpose municipal bonds, which finance roads, schools, libraries, prisons and other public facilities, private activity bonds provide benefits to private parties. The Fund may purchase all types of municipal bonds, including private activity bonds. Thus, should it purchase any such bonds, a portion of the Fund's dividends may be treated as a tax preference item. In addition, in the case of a corporate shareholder, dividends of the Fund which represent interest on municipal bonds may be subject to the 20% corporate alternative minimum tax because the dividends are included in a corporation's "adjusted current earnings." The corporate alternative minimum tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's alternative minimum taxable income as a tax preference item. "Adjusted current earnings" is based upon the concept of a corporation's "earnings and profits." Since "earnings and profits" generally includes the full amount of any Fund dividend, and alternative minimum taxable income does not include the portion of the Fund's dividend attributable to municipal bonds which are not private activity bonds, 75% of the difference will be included in the calculation of the corporation's alternative minimum tax. Dividends of the Fund representing net interest income or realized net short-term gains earned on some temporary investments are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional Shares. Information on the tax status of dividends and distributions is provided annually. PENNSYLVANIA TAX CONSIDERATIONS Under current Pennsylvania law, distributions made by the Fund will be exempt from Pennsylvania personal income tax to the extent that such distributions represent exempt-interest dividends as defined in the Internal Revenue Code, and are attributable to obligations issued by the Commonwealth of Pennsylvania and its political subdivisions, agencies, and instrumentalities or certain qualifying obligations of the United States, its territories or possessions, the interest from which is statutorily free from state taxation in the Commonwealth of Pennsylvania ("exempt obligations"). Conversely, to the extent that distributions made by the Fund are derived from other types of obligations, such distributions will not be exempt from Pennsylvania personal income tax. Shareholders subject to the Pennsylvania corporate net income tax will not be subject to corporate net income tax on distributions of interest made by the Fund, provided such distributions are attributable to exempt obligations, and further provided such distributions are not included in such shareholder's federal taxable income determined before net operating loss carryovers and special deductions. Shares of the Fund that are held by individual shareholders subject to the Pennsylvania county personal property tax will be exempt from such tax to the extent that the Fund's portfolio consists of exempt obligations on the annual assessment date. OTHER STATE AND LOCAL TAXES Income from the Fund is not necessarily free from regular state income taxes in states other than Pennsylvania or from personal property taxes. State laws differ on this issue and 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 the Fund advertises its yield, effective yield, and tax-equivalent yield for Institutional Service Shares. The yield of Institutional Service Shares represents the annualized rate of income earned on an investment in Institutional Service Shares 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 in Institutional Service Shares 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 of Institutional Service Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that Institutional Service Shares would have had to earn to equal their actual yield, assuming a specific tax rate. Advertisements and other sales literature may also refer to total return. Total return represents the change, over a specified period of time, in the value of an investment in Institutional Service 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, and tax-equivalent yield will be calculated separately for Institutional Service Shares and Cash Series Shares. Because Cash Series Shares are subject to 12b-1 fees, the yield, the effective yield, and the tax-equivalent yield for Institutional Service Shares, will exceed the yield, the effective yield, and the tax-equivalent yield for Cash Series Shares for the same period. From time to time, the Fund may advertise the performance of Institutional Service Shares using certain reporting services and/or compare the performance of Institutional Service Shares to certain indices. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- Cash Series Shares are sold primarily to retail customers of financial institutions. Cash Series Shares are sold at net asset value. Investments in Cash Series Shares are subject to a minimum initial investment of $10,000. Cash Series Shares are distributed pursuant to a 12b-1 Plan adopted by the Trust whereby the distributor is paid a fee of .40 of 1% of the Cash Series Shares' average daily net assets. Financial institutions and brokers providing sales and/or administrative services may receive different compensation from one class of shares of the Fund than from another class of shares. While the distributor may in addition to fees paid pursuant to the 12b-1 Plan, pay an administrative fee to a financial institution or broker for administrative services provided to a class, such a fee will not be an expense of the class, but will be reimbursed to the distributor by the investment adviser. The amount of dividends payable to Institutional Service Shares will exceed that of Cash Series Shares by the difference between class expenses and distribution expenses borne by shares of each respective class. The stated advisory fee is the same for both classes of shares. 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 40.
YEAR ENDED OCTOBER 31, 1993 1992 1991* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ---------------------------------------------------------------------------------- --------- --------- --------- INCOME FROM INVESTMENT OPERATIONS - ---------------------------------------------------------------------------------- Net investment income 0.02 0.03 0.03 - ---------------------------------------------------------------------------------- --------- --------- --------- LESS DISTRIBUTIONS - ---------------------------------------------------------------------------------- Dividends to shareholders from net investment income (0.02) (0.03) (0.03) - ---------------------------------------------------------------------------------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ---------------------------------------------------------------------------------- --------- --------- --------- TOTAL RETURN** 1.83% 2.67% 3.55%(a) - ---------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------------------------------------------------------- Expenses 0.97% 0.96% 0.78%(b) - ---------------------------------------------------------------------------------- Net investment income 1.88% 2.64% 3.92%(b) - ---------------------------------------------------------------------------------- Expense waiver/reimbursement(c) 0.12% 0.12% 0.28%(b) - ---------------------------------------------------------------------------------- SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $18,561 $24,694 $19,846 - ----------------------------------------------------------------------------------
* Reflects operations for the period from January 25, 1991 (date of initial public offering) to October 31, 1991. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) The voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1993 - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--103.4% - ----------------------------------------------------------------------------------- PENNSYLVANIA--102.8% ------------------------------------------------------------------- $ 1,000,000 Allegheny County, PA, IDA Weekly VRDNs (Series 1991)/(Mine Safety Appliances Co.)/(Sanwa Bank Ltd. LOC) P-1 $ 1,000,000 ------------------------------------------------------------------- 1,900,000 Allegheny County, PA, IDA Weekly VRDNs (Series 1991B)/(Shandon, Inc.)/(PNC Bank N.A. LOC)/(Subject to AMT) P-1 1,900,000 ------------------------------------------------------------------- 3,400,000 Allegheny County, PA, IDA Weekly VRDNs, Adjustable Rate Commercial Development Revenue Bonds (Series 1992)/(Eleven Parkway Center Associates/(Mellon Bank N.A. LOC) Aa3 3,400,000 ------------------------------------------------------------------- 6,000,000 Allegheny County, PA, IDA, 2.70% CP (USX, Inc.)/(Long Term Credit Bank of Japan Ltd. LOC), Mandatory Tender 12/8/93 A-1 6,000,000 ------------------------------------------------------------------- 6,500,000 Allegheny County, PA, IDA, 2.80% CP (Duquesne Light Company)/(Barclays Bank PLC LOC), Mandatory Tender 10/20/94 A-1+ 6,500,000 ------------------------------------------------------------------- 1,500,000 Allegheny County, PA, IDA, 2.85% CP (USX, Inc.)/(Long Term Credit Bank of Japan Ltd. LOC), Mandatory Tender 11/10/93 A-1 1,500,000 ------------------------------------------------------------------- 4,000,000 Allegheny County, PA, Weekly VRDNs (Series C38)/ (MBIA Insured) VMIG1 4,000,000 ------------------------------------------------------------------- 2,000,000 Athens, PA, Area School District, 2.77% TRANs, 6/30/94 NR(3) 2,000,503 ------------------------------------------------------------------- 6,500,000 Authority for Improvements in Municipalities, PA, Weekly VRDNs (Pooled Hospital & Equipment Leasing Program)/ (MBIA Insured) VMIG1 6,500,000 ------------------------------------------------------------------- $ 1,350,000 Baldwin, PA, 2.87% TRANs, 12/31/93 NR $ 1,350,192 -------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ------------------------------------------------------------------- 2,000,000 Bedford County, PA, IDA Weekly VRDNs (Series 1985)/ (Sepa, Inc. Facility)/(Banque Paribas LOC) A-1 2,000,000 ------------------------------------------------------------------- 3,600,000 Bensalem Township, PA, 2.83% TRANs, 12/31/93 NR(3) 3,600,282 ------------------------------------------------------------------- 2,255,000 Berks County, PA, IDA Weekly VRDNs (Beacon Container)/(Hamilton National Bank LOC)/(Subject to AMT) P-1 2,255,000 ------------------------------------------------------------------- 1,385,000 Berks County, PA, IDA Weekly VRDNs (Quaker Maid Meats, Inc.)/(Meridian Bank LOC)/(Subject to AMT) VMIG1 1,385,000 ------------------------------------------------------------------- 2,300,000 Berks County, PA, IDA Weekly VRDNs (Series 1988)/ (Arrow International, Inc.)/(Hamilton National Bank LOC)/(Subject to AMT) P-1 2,300,000 ------------------------------------------------------------------- 3,000,000 Blackhawk, PA, School District, 2.72% TRANs, 6/30/94 NR(3) 3,000,000 ------------------------------------------------------------------- 3,190,000 Bucks County, PA, IDA Weekly VRDNs (Pennsylvania Associates)/(Meridian National Bank LOC) P-1 3,190,000 ------------------------------------------------------------------- 1,000,000 Bucks County, PA, IDA Weekly VRDNs (Series 1986)/ (Winks Lane, Inc.)/(Mellon Bank N.A. LOC) P-1 1,000,000 ------------------------------------------------------------------- 5,450,000 Bucks County, PA, IDA Weekly VRDNs (Series 1991)/ (Cabot Medical Corp.)/(Meridian Bank LOC)/(Subject to AMT) VMIG1 5,450,000 ------------------------------------------------------------------- 1,000,000 Butler County, PA, IDA Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd. LOC) P-1 1,000,000 ------------------------------------------------------------------- 3,000,000 Butler County, PA, IDA Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd. LOC)/(Subject to AMT) P-1 3,000,000 ------------------------------------------------------------------- 1,000,000 Butler County, PA, IDA Weekly VRDNs (Series 1992B)/ (Mine Safety Appliances)/(Sanwa Bank Ltd. LOC)/ (Subject to AMT) P-1 1,000,000 ------------------------------------------------------------------- $ 5,000,000 Cambria County, PA, IDA Weekly VRDNs (Cambria Cogeneration Corp.)/(Fuji Bank Ltd. LOC)/(Subject to AMT) VMIG1 $ 5,000,000 -------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ------------------------------------------------------------------- 700,000 Cambria County, PA, IDA Weekly VRDNs (Cambria Cogeneration)/(Fuji Bank Ltd. LOC)/(Subject to AMT) A-1 700,000 ------------------------------------------------------------------- 2,500,000 Cambria County, PA, IDA Weekly VRDNs (Cambria Cogeneration Corp.)/(Fuji Bank Ltd. LOC)/(Subject to AMT) VMIG1 2,500,000 ------------------------------------------------------------------- 2,200,000 Carbon County, PA, IDA Weekly VRDNs (Summit Management & Utilities, Inc.)/(PNC Bank, Northeast PA LOC)/(Subject to AMT) A-1 2,200,000 ------------------------------------------------------------------- 7,300,000 Clearfield County, PA, IDA Weekly VRDNs (Penn Traffic Co.)/(Algemene Bank Nederland LOC)/(Subject to AMT) P-1 7,300,000 ------------------------------------------------------------------- 1,565,000 Clinton County, PA, 2.87% GO TRANs, 12/31/93 NR(3) 1,565,174 ------------------------------------------------------------------- 2,500,000 Clinton County, PA, IDA Weekly VRDNs (Armstrong World Industries)/(Mellon Bank N.A. LOC) P-1 2,500,000 ------------------------------------------------------------------- 2,285,000 Clinton County, PA, Municipal Authority Weekly VRDNs (Series A)/(Lock Haven Hospital)/(Mellon Bank N.A. LOC) P-1 2,285,000 ------------------------------------------------------------------- 10,000,000 Commonwealth of Pennsylvania, 3.25% TANs, 6/30/94 SP-1+ 10,035,576 ------------------------------------------------------------------- 1,825,000 Conrad Weiser, PA, Area School District, 2.72% TRANs, 6/30/94 NR(3) 1,825,000 ------------------------------------------------------------------- 4,000,000 Delaware County, PA, IDA, 2.70% CP (Standard Oil Co.)/(B.P. North America Guaranty), Mandatory Tender 1/13/94 A-1+ 4,000,000 ------------------------------------------------------------------- 2,000,000 Delaware County, PA, PCA, 2.80% CP (Philadelphia Electric Co.)/(FGIC Insured), Mandatory Tender 3/23/94 A-1+ 2,000,000 ------------------------------------------------------------------- $ 1,370,000 Eastern York, PA, School District, 2.78% TRANs, 6/30/ 94 NR(3) $ 1,370,794 ------------------------------------------------------------------- 800,000 Erie County, PA, IDA Weekly VRDNs (P.H.B., Inc.)/ (Marine Bank LOC)/(Subject to AMT) P-1 800,000 -------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ------------------------------------------------------------------- 625,000 Erie County, PA, IDA Weekly VRDNs (Series 1985)/ (R.P-C Value, Inc.)/(PNC Bank N.A. LOC) P-1 625,000 ------------------------------------------------------------------- 800,000 Erie County, PA, IDA Weekly VRDNs (Series B)/(P.H.B., Inc.)/(Marine Bank LOC)/(Subject to AMT) P-1 800,000 ------------------------------------------------------------------- 1,780,000 Erie County, PA, IDA Weekly VRDNs Multi-Mode Revenue Reference Bonds (Corry Manor, Inc.)/(Marine Bank LOC) A-1 1,780,000 ------------------------------------------------------------------- 750,000 Forest County, PA, IDA Weekly VRDNs (Industrial Timber and Land Co.)/(National City Bank LOC) P-1 750,000 ------------------------------------------------------------------- 1,530,000 Forest County, PA, IDA Weekly VRDNs (Marienville Healthcare Facility)/(PNC Bank N.A. LOC) P-1 1,530,000 ------------------------------------------------------------------- 2,100,000 Franklin County, PA, IDR Weekly VRDNs (Guarriello Limited Partnership)/(PNC Bank N.A. LOC)/(Subject to AMT) P-1 2,100,000 ------------------------------------------------------------------- 2,100,000 Grove City, PA, School District, 2.79% TRANs, 6/30/94 NR(3) 2,101,218 ------------------------------------------------------------------- 3,000,000 Lackawanna County, PA, IDA Weekly VRDNs (Series 1992)/(HEM Project)/(Corestate Bank N.A. LOC)/ (Subject to AMT) P-1 3,000,000 ------------------------------------------------------------------- 4,900,000 Lehigh County, PA, General Purpose Authority Revenue Bonds Weekly VRDNs (Series 1990)/(Phoebe Terrace, Inc.)/(Meridian Bank LOC) P-1 4,900,000 ------------------------------------------------------------------- 3,400,000 Lehigh County, PA, IDA Weekly VRDNs (Cedar Crest College)/(PNC Bank, Northeast PA LOC) A-1 3,400,000 ------------------------------------------------------------------- $ 4,800,000 Lehigh County, PA, IDA Weekly VRDNs (Series 1989A)/ (Hershey Pizza Co., Inc.)/(PNC Bank, Northeast PA LOC)/(Subject to AMT) A-1 $ 4,800,000 ------------------------------------------------------------------- 1,380,000 McKean County, PA, IDA Weekly VRDNs Multi-Mode Revenue Reference Bonds (Bradford Manor, Inc.)/(Marine Bank, LOC) A-1 1,380,000 -------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ------------------------------------------------------------------- 3,300,000 Monroe County, PA, IDA PCR Weekly VRDNs (Cooper Industries)/(Sanwa Bank Ltd. LOC) A-1+ 3,300,000 ------------------------------------------------------------------- 1,500,000 Montgomery County, PA, IDA Weekly VRDNs (Series 1992)/(RJI Limited Partnership)/(Meridian Bank LOC)/ (Subject to AMT) VMIG1 1,500,000 ------------------------------------------------------------------- 2,800,000 Montgomery County, PA, IDA Weekly VRDNs (Thomas & Betts Corp.)/(Wachovia Bank & Trust Co. N.A. LOC)/ (Subject to AMT) P-1 2,800,000 ------------------------------------------------------------------- 2,725,000 Moon Township, PA, IDA Weekly VRDNs (Airport Hotel Associates)/(Algemene Bank Nederland LOC) A-1+ 2,725,000 ------------------------------------------------------------------- 5,000,000 North Lebanon Township, PA, Municipal Authority Mortgage Weekly VRDNs (Grace Community, Inc.)/ (Meridian Bank LOC) VMIG1 5,000,000 ------------------------------------------------------------------- 5,000,000 Northampton County, PA, IDA, 2.65% CP (Citizens Utilities Company)/(Subject to AMT), Mandatory Tender 12/10/93 A-1+ 5,000,000 ------------------------------------------------------------------- 4,000,000 Northampton County, PA, IDA, 2.65% CP (Citizins Utilities Company)/(Subject to AMT), Mandatory Tender 12/14/93 A-1+ 4,000,000 ------------------------------------------------------------------- 4,000,000 Northampton County, PA, IDA, 2.70% CP (Citizens Utilities Company)/(Subject to AMT), Mandatory Tender 1/20/94 A-1+ 4,000,000 ------------------------------------------------------------------- $ 375,000 Pennsylvania EDA Revenue Bonds Weekly VRDNs (O.D.I., Inc.)/(PNC Bank N.A. LOC)/(Subject to AMT) Aa3 $ 375,000 ------------------------------------------------------------------- 825,000 Pennsylvania EDA Revenue Bonds Weekly VRDNs (Ram Forest Products)/(PNC Bank N.A. LOC)/(Subject to AMT) Aa3 825,000 ------------------------------------------------------------------- 1,750,000 Pennsylvania EDA Weekly VRDNs (Series G4)/ (Metamura Products, Inc.)/(PNC Bank N.A. LOC)/(Subject to AMT) Aa3 1,750,000 -------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ------------------------------------------------------------------- 825,000 Pennsylvania EDA Weekly VRDNs (PNC Bank N.A. LOC) P-1 825,000 ------------------------------------------------------------------- 325,000 Pennsylvania EDA Weekly VRDNs (Cavert Wire Co.)/ (PNC Bank N.A. LOC)/(Subject to AMT) Aa3 325,000 ------------------------------------------------------------------- 3,900,000 Pennsylvania EDA Weekly VRDNs (Industrial Scientific Corp.)/(Mellon Bank N.A. LOC)/(Subject to AMT) P-1 3,900,000 ------------------------------------------------------------------- 1,800,000 Pennsylvania EDA Weekly VRDNs (Joseph J. Brunner, Inc.)/(PNC Bank N.A. LOC)/(Subject to AMT) A-1 1,800,000 ------------------------------------------------------------------- 875,000 Pennsylvania EDA Weekly VRDNs (Pioneer Fluid)/ (PNC Bank N.A. LOC)/(Subject to AMT) Aa3 875,000 ------------------------------------------------------------------- 950,000 Pennsylvania EDA Weekly VRDNs (Reale Associates)/ (PNC Bank N.A. LOC)/(Subject to AMT) Aa3 950,000 ------------------------------------------------------------------- 1,600,000 Pennsylvania EDA Weekly VRDNs (Series 1986)/(B.W. Ebensburg)/(Swiss Bank LOC)/(Subject to AMT) VMIG1 1,600,000 ------------------------------------------------------------------- 575,000 Pennsylvania EDA Weekly VRDNs (Series B8)/(Payne Printing Co.)/(PNC Bank N.A. LOC)/(Subject to AMT) Aa3 575,000 ------------------------------------------------------------------- 4,600,000 Pennsylvania EDA Weekly VRDNs (Walnut & Craig Street Associates)/(PNC Bank N.A. LOC)/(Subject to AMT) Aa3 4,600,000 ------------------------------------------------------------------- $ 3,000,000 Pennsylvania Floating Rate Trust Certificate, 2.65% Monthly TOBs (Series 1993H)/(Commonwealth of Pennsylvania)/(AMBAC Insured), 11/1/93 NR(2) $ 3,000,000 ------------------------------------------------------------------- 7,300,000 Pennsylvania HFA, 2.90% TOBs (First National Bank, Chicago BPA), Optional Tender 4/1/94 NR(2) 7,300,000 ------------------------------------------------------------------- 1,000,000 Pennsylvania HFA, Section 8 Assisted Residential Development Refunding Bonds Weekly VRDNs (Series 1992A)/ (Capital Guaranty Insured, Citibank N.A. BPA) NR(1) 1,000,000 ------------------------------------------------------------------- 9,700,000 Pennsylvania Higher Education Assistance Agency Weekly VRDNs (Fuji Bank Ltd. LOC)/(Subject to AMT) VMIG1 9,700,000 -------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ------------------------------------------------------------------- 5,600,000 Pennsylvania Higher Education Facilities Authority Weekly VRDNs (Osteopathic Medical Center of Philadelphia)/(Bank of New York LOC) VMIG1 5,600,000 ------------------------------------------------------------------- 5,000,000 Pennsylvania Higher Education Facilities Authority, 2.90% Annual TOBs (Carnegie Mellon University), Mandatory Tender 11/1/93 A-1 5,000,000 ------------------------------------------------------------------- 4,100,000 Pennsylvania State Higher Education Assistance Agency Weekly VRDNs (Student Loan Marketing Association LOC) A-1 4,100,000 ------------------------------------------------------------------- 3,000,000 Pennsylvania State Higher Education Facilities Authority, 2.55% Annual TOBs (Carnegie-Mellon University), Optional Tender 5/1/94 A-1 3,000,000 ------------------------------------------------------------------- 9,625,000 Pennsylvania State Higher Education Facilities Authority, 2.85% TOBs (Carnegie-Mellon University), Optional Tender 11/1/94 A-1 9,625,000 ------------------------------------------------------------------- 5,800,000 Pennsylvania State University, 3.00% BANs (Series 93), 5/26/94 MIG1 5,811,948 ------------------------------------------------------------------- $ 2,900,000 Philadelphia Authority for Industrial Development Weekly VRDNs (Series 1991A)/(Levin Corp.)/(PNC Bank N.A. LOC) P-1 $ 2,900,000 ------------------------------------------------------------------- 19,300,000 Philadelphia Redevelopment Authority Multi-Family Revenue Bonds Weekly VRDNs (Series 1985)/(Franklin Town Towers)/(Marine Midland Bank N.A. and Hong-Kong Shanghai Banking Corp. LOCs) A-1 19,300,000 ------------------------------------------------------------------- 3,000,000 Philadelphia, PA, 2.70% CP GO Bonds (Series 1990)/ (Fuji Bank Ltd. LOC), Mandatory Tender 1/13/94 A-1 3,000,000 ------------------------------------------------------------------- 5,930,000 Philadelphia, PA, HEFA, 2.70% Annual TOBs (Pennsylvania Hospital)/(PNC Bank N.A. LOC), Optional Tender 7/1/94 A-1 5,930,000 -------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ------------------------------------------------------------------- 3,500,000 Philadelphia, PA, IDA, 3.15% Annual TOBs (Series A)/ (Suite Hotel)/(Bank of Tokyo Ltd. LOC), Optional Tender 6/1/94 A-1+ 3,500,000 ------------------------------------------------------------------- 7,600,000 Philadelphia, PA, IDR Weekly VRDNs (Series 93)/ (Sackett Development)/(Mellon Bank N.A. LOC) P-1 7,600,000 ------------------------------------------------------------------- 8,000,000 Philadelphia, PA, School District Weekly VRDNs (Series PT-3)/(MBIA Insured) VMIG1 8,000,000 ------------------------------------------------------------------- 1,300,000 Phoenixville, PA, 2.80% GO TRANs, 12/31/93 NR(3) 1,300,000 ------------------------------------------------------------------- 4,450,000 Pheonixville, PA, Area School District, 2.82% TRANs, 6/30/94 NR(3) 4,452,836 ------------------------------------------------------------------- 5,000,000 Pittsburgh, PA, Urban Redevelopment Authority, 2.85% Mortgage Revenue Bonds (Series B)/(Barclays Bank PLC Investment Agreement)/(Subject to AMT), Mandatory Tender 6/1/94 A-1+ 5,000,000 ------------------------------------------------------------------- $ 1,800,000 Port Authority of Allegheny County, PA, 2.90% Grant Anticipation Notes (Series 1993A)/(PNC Bank N.A. LOC), 8/1/94 P-1 $ 1,800,000 ------------------------------------------------------------------- 1,000,000 Quakertown, PA, HDA Weekly VRDNs (The HPS Group Pooled Finance)/(First National Bank, Chicago LOC) VMIG1 1,000,000 ------------------------------------------------------------------- 2,400,000 Riverside, PA, Beaver County School District, 2.77% TRANs, 6/30/94 NR(3) 2,400,762 ------------------------------------------------------------------- 2,000,000 Shaler Township, PA, 2.86% GO TRANs, 12/31/93 NR(3) 2,000,189 ------------------------------------------------------------------- 1,550,000 Shippensburg, PA, Area School District, 2.73% TRANs, 6/30/94 NR(3) 1,550,000 ------------------------------------------------------------------- 10,000,000 Upper Allegheny, PA, Joint Sanitary Authority, 2.85% Annual TOBs (Series 1986C)/(AIG Investment Agreement), Mandatory Tender 7/15/94 A-1+ 10,000,000 ------------------------------------------------------------------- 2,180,000 Upper Southampton Township, PA, 2.85% GO TRANs, 12/31/93 NR(3) 2,180,347 -------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ------------------------------------------------------------------- 4,000,000 Venango, PA, IDA, 2.60% CP (Series 1993)/(Scrubgrass Power Co.)/(National Westminster Bank PLC LOC)/ (Subject to AMT), Mandatory Tender 11/29/93 A-1+ 4,000,000 ------------------------------------------------------------------- 2,000,000 Venango, PA, IDA, 2.60% CP (Series A)/(Scrubgrass Power Co.)/(National Westminster Bank PLC LOC)/ (Subject to AMT), Mandatory Tender 11/24/93 A-1+ 2,000,000 ------------------------------------------------------------------- 2,000,000 Washington County, PA, HDA Weekly VRDNs (Keystone Diversified Management Corp.)/(Mellon Bank N.A. LOC) A-1 2,000,000 ------------------------------------------------------------------- 1,625,000 Washington County, PA, IDA Weekly VRDNs (Series 1988)/(Cameron Coca-Cola, Inc.)/(Mellon Bank N.A. LOC) P-1 1,625,000 ------------------------------------------------------------------- $ 1,215,000 Washington County, PA, IDA Weekly VRDNs (Series 1990)/(Mac Plastics, Inc.)/(National City Bank LOC)/ (Subject to AMT) Aa $ 1,215,000 ------------------------------------------------------------------- 1,300,000 Washington County, PA, Municipal Authority Facilities Revenue Bonds Weekly VRDNs (Series 1985)/(Pooled Capital Program)/(Sumitomo Bank Ltd. LOC) P-1 1,300,000 ------------------------------------------------------------------- 1,100,000 West Chester, PA, 3.11% GO TRANs, 12/31/93 NR(3) 1,100,457 ------------------------------------------------------------------- 12,000,000 Westmoreland County, PA, 2.85% TRANs (PNC Bank N.A. LOC), 12/31/93 P-1 12,000,000 ------------------------------------------------------------------- 1,000,000 Whitehall, PA, 2.97% GO TRANs, 12/31/93 NR(3) 1,000,196 ------------------------------------------------------------------- 3,000,000 York County, PA, IDA Weekly VRDNs (West Manchester Inn Associates)/(Mellon Bank N.A. LOC) P-1 3,000,000 ------------------------------------------------------------------- --------------- Total 346,595,474 ------------------------------------------------------------------- --------------- PUERTO RICO--0.6% ------------------------------------------------------------------- 2,100,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit Suisse and Sumitomo Bank Ltd. LOCs) A-1+ 2,100,000 ------------------------------------------------------------------- --------------- TOTAL INVESTMENTS (AT AMORTIZED COST) $ 348,695,474\ ------------------------------------------------------------------- ---------------
PENNSYLVANIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED -------------------------------------------------------------------
\ Also represents cost for federal tax purposes. * See Notes to Portfolio of Investments. Note: The category of investments is shown as a percentage of net assets ($337,079,400) at October 31, 1993. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following abbreviations are used in this portfolio: AMBAC--American Municipal Bond Assurance Corporation AMT--Alternative Minimum Tax BANs--Bond Anticipation Notes BPA--Bond Purchase Agreement CP--Commercial Paper EDA--Economic Development Authority FGIC--Financial Guaranty Insurance Company GO--General Obligation HDA--Hospital Development Authority HEFA--Health and Education Facilities Authority HFA--Housing Finance Authority/Agency IDA--Industrial Development Authority IDR--Industrial Development Revenue LOC--Letter of Credit LOCs--Letters of Credit MBIA--Municipal Bond Investors Assurance PCA--Pollution Control Authority PCR--Pollution Control Revenue 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) PENNSYLVANIA MUNICIPAL CASH TRUST NOTES TO PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL OBLIGATIONS RATINGS S&P A Standard & Poor's 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 (+) designation. SP-2 Satisfactory capacity to pay principal and interest. MOODY'S 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. FITCH Fitch's short-term ratings place greater emphasis on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. F-1 Strongest degree of assurance for timely payment. Those issues determined to provide exceptionally strong credit quality are given a plus (+) designation. F-2 Notes reflecting a degree of assurance for timely payment only slightly less in degree than the highest category. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P Standard & Poor's 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-1+, AA/A-1K, and A/A-1. (The definitions for the short-term ratings are provided below.) PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- MOODY'S 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. FITCH Fitch usually assigns two ratings to long-term debt issues that include provisions for a variable rate demand feature. The long-term rating addresses the ability of the obligor to pay debt service and the short-term rating addresses the timely payment of the demand feature. Exemples of rating designations are as follows: AAA/F-1+, AA/F-1K, and A/F-1. (The definitions for the long-term and short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS S&P A Standard & Poor's 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 designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign designation. A-2 Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated "A-1." MOODY'S P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. The following is an explanation of the Fitch ratings. These ratings are not referenced in the Portfolio of Investments. FITCH F-1 Issues assigned this rating relfect a strong degree of assurance for timely payment. Those issuers determined to possess the strongest degree of assurance for timely payment are denoted with a plus (+) sign designation. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- F-2 Issuers carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as the "F-1+" and "F-1" categories LONG-TERM DEBT RATINGS (INVESTMENT GRADE) S&P AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the 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. BBB Debt rated "BBB" is regarding as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest than debt rated in higher ratings categories. MOODY'S Aaa Bonds that 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 edge." Interest payments are protected by a large margin and principal is secure. While the various protective elements are likely to change, such changes which can be foreseen are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds that 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 that 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 that suggest a susceptibility to impairment some time in the future. Baa Bonds which are rated Baa are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- FITCH AAA Bonds that are rated AAA are of the highest credit quality. The obligor has an exceptionally strong ability to pay debt service. AA Bonds that are rated AA are of very high quality. The obligor has a very strong ability to pay debt service. Debt rated in this category may also have a (+) or (-) sign with a rating to indicate the relative position within the rating category. A Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. NR indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P, Moody's, or Fitch with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated in one of the two highest short-term ratings categories by a nationally recognized statistical ratings organization. NR(1)The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by Fitch. NR(2)The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch. NR(3)The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "A" by Standard & Poor's, Moody's, or Fitch. NR(4)The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by Fitch. PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1993 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------------------------ Investments, at amortized cost and value (Note 2A) $ 348,695,474 - ------------------------------------------------------------------------------------------------ Cash 832,981 - ------------------------------------------------------------------------------------------------ Interest receivable 1,900,397 - ------------------------------------------------------------------------------------------------ Receivable for Fund shares sold 1,524 - ------------------------------------------------------------------------------------------------ Deferred expenses (Note 2E) 16,988 - ------------------------------------------------------------------------------------------------ --------------- Total assets 351,447,364 - ------------------------------------------------------------------------------------------------ LIABILITIES: - ------------------------------------------------------------------------------------------------ Payable for investments purchased $ 13,725,000 - -------------------------------------------------------------------------------- Dividends payable 497,169 - -------------------------------------------------------------------------------- Payable for Fund shares redeemed 10,000 - -------------------------------------------------------------------------------- Accrued expenses and other liabilities 135,795 - -------------------------------------------------------------------------------- -------------- Total liabilities 14,367,964 - ------------------------------------------------------------------------------------------------ --------------- NET ASSETS for 337,079,400 shares of beneficial interest outstanding $ 337,079,400 - ------------------------------------------------------------------------------------------------ --------------- NET ASSET VALUE, Offering Price, and Redemption Price Per Share: - ------------------------------------------------------------------------------------------------ Institutional Service Shares ($318,518,627 / 318,518,627 shares of beneficial interest outstanding) $1.00 - ------------------------------------------------------------------------------------------------ --------------- Cash Series Shares ($18,560,773 / 18,560,773 shares of beneficial interest 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, 1993 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------------------------- Interest income (Note 2B) $ 9,700,827 - --------------------------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------------------------- Investment advisory fee (Note 5) $ 1,740,351 - ------------------------------------------------------------------------------------ Administrative personnel and services fees (Note 5) 338,801 - ------------------------------------------------------------------------------------ Custodian, transfer and dividend disbursing agent fees and expenses 195,678 - ------------------------------------------------------------------------------------ Trustees' fees 8,055 - ------------------------------------------------------------------------------------ Auditing fees 20,958 - ------------------------------------------------------------------------------------ Legal fees 14,712 - ------------------------------------------------------------------------------------ Printing and postage 24,161 - ------------------------------------------------------------------------------------ Fund share registration costs 40,411 - ------------------------------------------------------------------------------------ Distribution services fees (Note 5) 91,235 - ------------------------------------------------------------------------------------ Insurance premiums 14,422 - ------------------------------------------------------------------------------------ Miscellaneous 2,742 - ------------------------------------------------------------------------------------ ------------- Total expenses 2,491,526 - ------------------------------------------------------------------------------------ Deduct-- - ------------------------------------------------------------------------------------ Waiver of investment advisory fee (Note 5) 415,874 - ------------------------------------------------------------------------------------ ------------- Net expenses 2,075,652 - --------------------------------------------------------------------------------------------------- ------------- Net investment income $ 7,625,175 - --------------------------------------------------------------------------------------------------- -------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1993 1992 INCREASE (DECREASE) IN NET ASSETS: - ----------------------------------------------------------------------------- OPERATIONS-- - ----------------------------------------------------------------------------- Net investment income $ 7,625,175 $ 10,365,086 - ----------------------------------------------------------------------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - ----------------------------------------------------------------------------- Dividends to shareholders from net investment income: - ----------------------------------------------------------------------------- Institutional Service Shares (7,195,929) (9,810,541) - ----------------------------------------------------------------------------- Cash Series Shares (429,246) (554,545) - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets from distributions to shareholders (7,625,175) (10,365,086) - ----------------------------------------------------------------------------- FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - ----------------------------------------------------------------------------- Proceeds from sale of shares 932,887,176 846,311,595 - ----------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of dividends declared 1,613,211 2,064,869 - ----------------------------------------------------------------------------- Cost of shares redeemed (930,314,734) (852,494,450) - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets from Fund share transactions 4,185,653 (4,117,986) - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets 4,185,653 (4,117,986) - ----------------------------------------------------------------------------- NET ASSETS: - ----------------------------------------------------------------------------- Beginning of period 332,893,747 337,011,733 - ----------------------------------------------------------------------------- ---------------- ---------------- End of period $ 337,079,400 $ 332,893,747 - ----------------------------------------------------------------------------- ---------------- ----------------
(See Notes which are an integral part of the Financial Statements) PENNSYLVANIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1993 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company with several 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. Effective December 31, 1990, the Fund provides two classes of shares ("Institutional Service Shares" and "Cash Series Shares"). Cash Series Shares are identical in all respects to Institutional Service Shares except that Cash Series Shares are sold pursuant to a distribution plan ("Plan") adopted in accordance with Investment Company Act Rule 12b-1. (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. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that the best method currently available for valuing portfolio securities is amortized cost. The Fund's use of the amortized cost method to value its portfolio securities is conditioned on its compliance with Rule 2a-7 under the Investment Company Act of 1940. Since the Fund may invest 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 general tax-exempt mutual fund. In order to reduce the risk associated with such factors, at October 31, 1993, 67.2% 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 of various financial institutions. The aggregate percentages by financial institution ranged from 0.3% to 14.0% of total investments. B. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest earned net of premium, and original issue discount as required by the Internal Revenue Code. C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal Revenue Code (the "Code") applicable to investment companies and to distribute to shareholders each year all of its net income. Accordingly, no provision for federal tax is necessary. Dividends paid by the Fund representing net interest received on tax-exempt municipal securities are not includable by shareholders as gross income for federal income tax purposes because the Fund intends to meet certain requirements of the Code applicable to regulated investment companies which will enable the Fund to pay exempt-interest dividends. The portion of such interest, if any, earned on private PENNSYLVANIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- activity bonds issued after August 7, 1986 may be considered a tax preference item to shareholders for the purpose of computing the alternative minimum tax. D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objective and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain 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. E. 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 the shares, have been deferred and are being amortized using the straight-line method through October 1994. F. EXPENSES--Expenses of the Fund (other than distribution services fees) and waivers and reimbursements, if any, are allocated to each class of shares based on its relative daily average net assets for the period. Expenses incurred by the Trust which do not specifically relate to an individual Fund are allocated among all Funds based on a Fund's relative net asset value size or as deemed appropriate by the administrator. G. OTHER--Investment transactions are accounted for on the date of the transaction. (3) DIVIDENDS The Fund computes its net income daily and, immediately prior to the calculation of its net asset value at the close of business, declares and records dividends to shareholders of record at the time of the previous computation of the Fund's net asset value. Payment of dividends is made monthly in cash, or in additional shares at the net asset value on the payable date. (4) 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, 1993 capital paid-in aggregated $337,079,400. Transactions in Fund shares were as follows:
YEAR ENDED OCTOBER 31, INSTITUTIONAL SERVICE SHARES 1993 1992 Shares outstanding, beginning of period 308,199,611 317,165,299 - -------------------------------------------------------------------------------- Shares sold 889,559,906 794,876,747 - -------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 1,201,127 1,514,034 - -------------------------------------------------------------------------------- Shares redeemed (880,442,017) (805,356,469) - -------------------------------------------------------------------------------- --------------- --------------- Shares outstanding, end of period 318,518,627 308,199,611 - -------------------------------------------------------------------------------- --------------- ---------------
YEAR ENDED OCTOBER 31, CASH SERIES SHARES 1993 1992 Shares outstanding, beginning of period 24,694,136 19,846,434 - -------------------------------------------------------------------------------- Shares sold 43,327,270 51,434,848 - -------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 412,084 550,835 - -------------------------------------------------------------------------------- Shares redeemed (49,872,717) (47,137,981) - -------------------------------------------------------------------------------- --------------- --------------- Shares outstanding, end of period 18,560,773 24,694,136 - -------------------------------------------------------------------------------- --------------- ---------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Federated Management, the Fund's investment adviser ("Adviser"), receives for its services an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The Adviser has voluntarily agreed to waive a portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time in its sole discretion. During the fiscal year ended October 31, 1993, the Adviser earned $1,740,351 as its advisory fee, of which $415,874 was voluntarily waived. During the year ended October 31, 1993, pursuant to Rule 17a-7 of the Investment Company Act of 1940, the Fund engaged in purchase and sale transactions with other funds advised by the Adviser amounting to $419,475,000 and $412,510,000, respectively. These purchases and sales were conducted on an arms-length basis insofar as they were transacted for cash consideration only, at independent current market prices and without brokerage commission, fee or other remuneration. The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Trust will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the assets of the Fund, for fees it paid which relate to the distribution and administration of the Fund's Cash Series Shares. The Plan provides that the Fund may incur distribution expenses up to 0.40 of 1% of the average daily net assets of the Cash Series Shares, annually, to pay commissions, maintenance fees and to compensate the distributor. During the year ended October 31, 1993, FSC earned $91,235 in distribution services fees, none of which was voluntarily waived. Administrative personnel and services were provided at approximate cost by Federated Administrative Services, Inc. Certain Officers and Trustees of the Trust are Officers and Directors of the above corporations. (6) CURRENT CREDIT RATINGS Current credit ratings and related notes are unaudited. 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 investments as of October 31, 1993, the related statement of operations for the year then ended, the statement of changes in net assets, and the financial highlights (see pages 2 and 17 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 the securities owned as of October 31, 1993, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Pennsylvania Municipal Cash Trust, an investment portfolio of Federated Municipal Trust, as of October 31, 1993, 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 & CO. Pittsburgh, Pennsylvania December 13, 1993 ADDRESSES - -------------------------------------------------------------------------------- Pennsylvania Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8602 Trust Company Boston, Massachusetts 02266-8602 - --------------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, D.C. 20037 - --------------------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen & Co. 2100 One PPG Place Pittsburgh, Pennsylvania 15222 - ---------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL CASH TRUST INSTITUTIONAL SERVICE SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company December 31, 1993 [LOGO] FEDERATED SECURITIES CORP. Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 9101005A-ISS 12/93) PENNSYLVANIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH SERIES SHARES INSTITUTIONAL SERVICE SHARES COMBINED STATEMENT OF ADDITIONAL INFORMATION This Combined Statement of Additional Information should be read with the respective prospectus of Cash Series Shares and Institutional Service Shares of Pennsylvania Municipal Cash Trust (the "Fund") dated December 31, 1993. This Statement is not a prospectus itself. To receive a copy of either prospectus, write or call Federated Municipal Trust. FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 Statement dated December 31, 1993 [LOGO] FEDERATED SECURITIES CORP. --------------------------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS TABLE OF CONTENTS - -------------------------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND 1 - --------------------------------------------------------------- INVESTMENT OBJECTIVE AND POLICIES 1 - --------------------------------------------------------------- Acceptable Investments 1 When-Issued and Delayed Delivery Transactions 1 Temporary Investments 2 Investment Limitations 2 Pennsylvania Investment Risks 4 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 - --------------------------------------------------------------- Officers and Trustees 5 The Funds 7 Fund Ownership 7 Trustee Liability 8 INVESTMENT ADVISORY SERVICES 8 - --------------------------------------------------------------- Adviser to the Fund 8 Advisory Fees 8 ADMINISTRATIVE SERVICES 8 - --------------------------------------------------------------- BROKERAGE TRANSACTIONS 9 - --------------------------------------------------------------- PURCHASING SHARES 9 - --------------------------------------------------------------- Distribution Plan (Cash Series Shares) 9 Conversion to Federal Funds 9 DETERMINING NET ASSET VALUE 9 - --------------------------------------------------------------- Use of the Amortized Cost Method 10 REDEEMING SHARES 10 - --------------------------------------------------------------- Redemption in Kind 11 TAX STATUS 11 - --------------------------------------------------------------- The Fund's Tax Status 11 YIELD 11 - --------------------------------------------------------------- EFFECTIVE YIELD 11 - --------------------------------------------------------------- TAX-EQUIVALENT YIELD 12 - --------------------------------------------------------------- Tax Equivalency Table 12 PERFORMANCE COMPARISONS 12 - --------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND - -------------------------------------------------------------------------------- The Fund is a portfolio in Federated Municipal Trust (the "Trust"), which was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. Shares of the Fund are offered in two classes, known as Cash Series Shares and Institutional Service Shares (individually and collectively referred to as "Shares"). This Combined Statement of Additional Information relates to the above-mentioned Shares of the Fund. INVESTMENT OBJECTIVE AND POLICIES - -------------------------------------------------------------------------------- The Fund's investment objective is to provide current income exempt from federal regular income tax and the personal income taxes imposed by the Commonwealth of Pennsylvania consistent with stability of principal. The investment objective cannot be changed without approval of shareholders. ACCEPTABLE INVESTMENTS The Fund invests primarily in debt obligations issued by or on behalf of the Commonwealth of Pennsylvania and 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 both federal regular income tax and state income tax imposed upon non-corporate taxpayers. When determining whether a Pennsylvania municipal security presents minimal credit risks, the investment adviser considers the creditworthiness of the issuer of the security, the issuer of a demand feature if the Fund has the unconditional right to demand payment for the security, or the guarantor of payment by either of those issuers. If a security loses its rating or the security's rating is reduced below the required minimum after the Fund purchased it, the Fund is not required to sell the security. The investment adviser considers this event, however, in its determination of whether the Fund should continue to hold the security in its portfolio. If ratings made by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") change because of changes in those organizations or in their rating systems, the Fund will try to use comparable ratings as standards in accordance with the investment policies described in the Fund's prospectuses. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests which represent undivided proportional interests in lease payments by a governmental or non-profit entity. The lease payments and other rights under the lease provide for and secure the payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. In particular, lease obligations may be subject to periodic appropriation. If the entity does not appropriate funds for future lease payments, the entity cannot be compelled to make such payments. 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. Under the criteria currently established by the Board of Trustees ("Trustees"), the Fund's investment adviser must consider the following factors in determining the liquidity of municipal lease securities: (1) the frequency of trades and quotes for the security; (2) the volatility of quotations and trade prices for the security; (3) the number of dealers willing to purchase or sell the security and the number of potential purchasers; (4) dealer undertakings to make a market in the security; (5) the nature of the security and the nature of the marketplace trades; (6) the rating of the security and the financial condition and prospects of the issuer of the security; (7) such other factors as may be relevant to the Fund's ability to dispose of the security; (8) whether the lease can be terminated by the lessee; (9) the potential recovery, if any, from a sale of the leased property upon termination of the lease; (10) the lessee's general credit strength; (11) the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations; and (12) any credit enhancement or legal recourse provided upon an event of nonappropriation or other termination of the lease. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The Fund engages in when-issued and delayed delivery transactions only for the purpose of acquiring portfolio securities consistent with the Fund's investment objective and policies, not for investment leverage. These transactions are made to secure what is considered to be an advantageous price and yield for the Fund. 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. - -------------------------------------------------------------------------------- No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. The Fund may engage in these transactions to an extent that would cause the segregation of an amount up to 20% of the total value of its assets. TEMPORARY INVESTMENTS The Fund may also invest in high quality temporary investments during times of unusual market conditions for defensive purposes and to maintain liquidity. REPURCHASE AGREEMENTS Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities or other securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price within one year from the date of acquisition. 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 investment adviser to be creditworthy pursuant to guidelines established by the Trustees. From time to time, such as when suitable Pennsylvania municipal securities are not available, the Fund may maintain a portion of its assets in cash. Any portion of the Fund's assets maintained in cash will reduce the amount of assets in Pennsylvania municipal securities and thereby reduce the Fund's yield. 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 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 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, instrumentalities, 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 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. - -------------------------------------------------------------------------------- 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 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. 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. LENDING CASH OR SECURITIES The Fund will not lend any of its assets except that it may acquire publicly or nonpublicly issued Pennsylvania municipal securities or temporary investments or enter into repurchase agreements, 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 (including instruments issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment), 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 Fund does not consider the issuance of separate classes of shares to involve the issuance of "senior securities" within the meaning of the investment limitation set forth above. 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 IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in industrial development bonds or other municipal securities where the principal and interest are the responsibility of companies (or guarantors, where applicable) with 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 the Fund's investment adviser, owning individually more than 1/2 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. DEALING IN PUTS AND CALLS The Fund will not purchase or sell 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 MINERALS The Fund will not purchase or sell oil, gas, or other mineral exploration or development programs, or leases. - -------------------------------------------------------------------------------- INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of its net assets in securities which are illiquid, including repurchase agreements providing for settlement more than seven days after notice, certain restricted securities not determined by the Trustees to be liquid, non-negotiable fixed time deposits with maturities over seven days. 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 does not expect to borrow money or pledge securities in excess of 5% of the value of its net assets during the coming fiscal year. 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 a general summary of the Commonwealth's financial condition. 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 Commonwealth has experienced revenue shortfalls as a result of the recent recession. Financially, the Commonwealth incurred a $1.1 billion deficit in 1991. Fiscal operations improved in 1992, and, with the addition of increased taxes, the deficit was nearly eliminated. During the fiscal year 1993, Pennsylvania focused on expenditure reductions while revenues were stabilized. In addition, due to the length and severity of the recent recession, several municipalities have undergone severe financial stress and are vulnerable to further economic cycles. Historically, the Pennsylvania economy was largely composed of heavy industry that was concentrated in steel production, coal, and railroads. The exposure to these industries, especially the steel sector, has declined and the economy has diversified into services and trade sectors. Presently, services and trade compose over 50% of the economy. Unemployment in Pennsylvania over the past two years has surpassed the national average, and population growth, as in many of the industrial states, has been motionless. The overall condition of the Commonwealth is further demonstrated by its debt ratings. Pennsylvania maintains an A1 rating by Moody's that has been in effect since 1986. Standard & Poor's has rated the State AA-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. FEDERATED MUNICIPAL TRUST MANAGEMENT - -------------------------------------------------------------------------------- OFFICERS AND TRUSTEES Officers and Trustees are listed with their addresses, principal occupations, and present positions, including any affiliation with Federated Management, Federated Investors, Federated Securities Corp., Federated Services Company, Federated Administrative Services, Inc., and the Funds (as defined below).
POSITIONS WITH NAME AND ADDRESS THE TRUST PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS John F. Donahue\* Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated Investors Tower Trustee Federated Advisers, Federated Management, and Federated Research; Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds; formerly, Director, The Standard Fire Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice President of the Trust. John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Wood/IPC Commercial Vice-President, John R. Wood and Associates, Inc., Realtors; Department President, Northgate Village Development Corporation; General John R. Wood and Partner or Trustee in private real estate ventures in Southwest Associates, Inc., Realtors Florida; Director, Trustee or Managing General Partner of the 3255 Tamiami Trail North Funds; formerly, President, Naples Property Management, Inc. Naples, FL William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, One PNC Plaza -- Inc.; Director, Trustee, or Managing General Partner of the Funds; 23rd Floor formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Pittsburgh, PA Corp. and Director, Ryan Homes, Inc. James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; 571 Hayward Mill Road Director, Trustee, or Managing General Partner of the Funds; Concord, MA formerly, Director, Blue Cross of Massachusetts, Inc. Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and 3471 Fifth Avenue Montefiore Hospitals; Clinical Professor of Medicine and Trustee, Suite 1111 University of Pittsburgh; Director, Trustee, or Managing General Pittsburgh, PA Partner of the Funds. Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park 5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; 225 Franklin Street Director, Trustee or Managing General Partner of the Funds; Boston, MA formerly, President, State Street Bank and Trust Company and State Street Boston Corporation and Trustee, Lahey Clinic Foundation, Inc. Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, 5916 Penn Mall Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, Pittsburgh, PA or Managing General Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A.
- --------------------------------------------------------------------------------
POSITIONS WITH NAME AND ADDRESS THE TRUST PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, 1202 Cathedral of Carnegie Endowment for International Peace, RAND Corporation, Learning Online Computer Library Center, Inc., and U.S. Space Foundation; University of Pittsburgh Chairman, Czecho Slovak Management Center; Director, Trustee, or Pittsburgh, PA Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; formerly, Chairman, National Advisory Council for Environmental Policy and Technology. Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or 4905 Bayard Street Managing General Partner of the Funds. Pittsburgh, PA Glen R. Johnson* President Trustee, Federated Investors; President and/or Trustee of some of Federated Investors Tower and Trustee the Funds; staff member, Federated Securities Corp. and Federated Pittsburgh, PA Administrative Services, Inc. J. Christopher Donahue* Vice President President and Trustee, Federated Investors; Trustee, Federated Federated Investors Tower Advisers, Federated Management, and Federated Research; Trustee, Pittsburgh, PA Federated Services Company; President and Director, Federated Administrative Services, Inc.; Trustee, Federated Services Company; President or Vice President of the Funds; Director, Trustee or Managing General Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Trust. Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Federated Investors Tower Chairman and Director, Federated Securities Corp.; President or Pittsburgh, PA Vice President of the Funds; Director or Trustee of some of the Funds. Edward C. Gonzales Vice President Vice President, Treasurer and Trustee, Federated Investors; Vice Federated Investors Tower and Treasurer President and Treasurer, Federated Advisers, Federated Management, Pittsburgh, PA and Federated Research; Trustee, Federated Services Company; Executive Vice President, Treasurer, and Director, Federated Securities Corp.; Chairman, Treasurer, and Director, Federated Administrative Services, Inc.; Trustee or Director of some of the Funds; Vice President and Treasurer of the Funds. John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated Federated Investors Tower and Secretary Investors; Vice President, Secretary and Trustee, Federated Pittsburgh, PA Advisers, Federated Management, and Federated Research; Trustee, Federated Services Company; Executive Vice President, Secretary, and Director, Federated Administrative Services, Inc.; Director and Executive Vice President, Federated Securities Corp.; Vice President and Secretary of the Funds.
- --------------------------------------------------------------------------------
POSITIONS WITH NAME AND ADDRESS THE TRUST PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Pittsburgh, PA Federated Advisers, Federated Management, and Federated Research; Vice President of the Funds; Director, Trustee, or Managing General Partner of some of the Funds; formerly, Vice President, The Standard Fire Insurance Company and President of its Federated Research Division.
*This Trustee is deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940, as amended. \Member of the Trust's Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. THE FUNDS "The Funds" and "Funds" mean the following investment companies: A.T. Ohio Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust; Automated Government Money Trust; The Boulevard Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT Series Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated Income Securities Trust, Inc.; Federated Income Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds; The Passageway Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Fund; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; and Trust for U.S. Treasury Obligations. FUND OWNERSHIP Officers and Trustees own less than 1% of the Fund's outstanding Shares. As of November 29, 1993, the following shareholders of record owned 5% or more of the outstanding Cash Series Shares of the Fund: Albert Berman, Glen Mills, Pennsylvania, owned approximately 1,158,652 shares (5.43%); Urban Redevelopment DCA Grant, Pittsburgh, Pennsylvania, owned approximately 1,287,367 shares (6.03%); Stephen Berman, Newton Square, Pennsylvania, owned approximately 1,330,730 shares (6.24%); Estate of Sidney Berman, Lansdowne, Pennsylvania, owned approximatley 2,315,780 shares (10.85%); and BHC Securities, Incorporated, Philadelphia, Pennsylvania, owned approximately 10,087,196 shares (47.28%). As of November 29, 1993, the following shareholders of record owned 5% or more of the outstanding Institutional Service Shares of the Fund: Mellon Bank Capital Markets, Pittsburgh, Pennsylvania, owned approximately 16,422,834 shares (5.07%); Spruce Co--ACM, Scranton, Pennsylvania, owned approximately 16,465,377 shares (5.08%); Bow & Co., Wilkes-Barre, Pennsylvania, owned approximately 16,799,701 shares (5.18%); PNC Securities Corp., Pittsburgh, Pennsylvania, owned approximately 22,001,283 shares (6.79%); Anderson & Co., Philadelphia, Pennsylvania, owned approximately 53,350,907 shares (16.46%); and ACO, Pittsburgh, Pennsylvania, owned approximately 61,725,055 shares (19.04%). 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. 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, his wife, and his son, J. Christopher Donahue. John F. Donahue is Chairman and Trustee, Federated Management; Chairman and Trustee, Federated Investors; and Chairman and Trustee of the Trust. John A. Staley, IV, is President and Trustee, Federated Management; Vice President and Trustee, Federated Investors; Executive Vice President, Federated Securities Corp.; and Vice President of the Trust. J. Christopher Donahue is Trustee, Federated Management; President and Trustee, Federated Investors; President and Director, Federated Administrative Services, Inc.; and Vice President of the Trust. John W. McGonigle is Vice President, Secretary, and Trustee, Federated Management; Trustee, Vice President, Secretary and General Counsel, Federated Investors; Executive Vice President, Secretary, and Director, Federated Administrative Services, Inc.; Director and Executive Vice President, Federated Securities Corp.; and Vice President and Secretary of the Trust. 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. During the fiscal years ended October 31, 1993, 1992 and 1991, the Fund's adviser earned $1,740,351, $1,718,171, and $1,722,277, respectively, of which $415,874, $415,265, and $362,580, respectively, were voluntarily waived, because of undertakings to limit the Fund's expenses. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitation established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this expense limitation, the investment advisory fee paid will be reduced by the amount of the excess, subject to an annual adjustment. If the expense limitation is exceeded, the amount to be reimbursed by the adviser will be limited, in any single fiscal year, by the amount of the investment advisory fee. These arrangements are not part of the advisory contract and have been established only to comply with applicable state authorities. They may be amended or rescinded in the future. ADMINISTRATIVE SERVICES - -------------------------------------------------------------------------------- Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides administrative personnel and services to the Fund at approximate cost. For the fiscal years ended October 31, 1993, 1992, and 1991, the Fund incurred costs for administrative services of $338,801, $293,498, and $272,253, respectively. John A. Staley, IV, an officer of the Trust, and Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, each hold approximately 15% and 20%, respectively, of the outstanding common stock and serve as directors of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services, Inc. For the years ended October 31, 1993, 1992, and 1991, Federated Administrative Services, Inc. paid approximately $165,431, $189,741, and $187,677, respectively, for services provided by Commercial Data Services, Inc. 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 investment 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 review 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. 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. Research services provided by brokers may be used by the adviser or by affiliates of Federated Investors in advising Federated funds 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. PURCHASING SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value without a sales charge on days the New York Stock Exchange and the Federal Reserve wire system are open for business. The procedure for purchasing Shares is explained in the respective prospectus under "Investing in Cash Series Shares" and "Investing in Institutional Service Shares." DISTRIBUTION PLAN (CASH SERIES SHARES) With respect to the Cash Series Shares class of the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. The Plan provides for payment of fees to Federated Securities Corp. to finance any activity which is principally intended to result in the sale of the Fund's Shares subject to the Plan. Such activities may include the advertising and marketing of Shares; preparing, printing and distributing prospectuses and sales literature to prospective shareholders, brokers or administrators; and implementing and operating the Plan. Pursuant to the Plan, the distributor may pay fees to brokers for distribution and administrative services and to administrators for administrative services as to Shares. The administrative services are provided by a representative who has knowledge of the shareholder's particular circumstances and goals, and include, but are not limited to: communicating account openings; communicating account closings; entering purchase transactions; entering redemption transactions; providing or arranging to provide accounting support for all transactions, wiring funds and receiving funds for Share purchases and redemptions, confirming and reconciling all transactions; reviewing the activity in Fund accounts; providing training and supervision of broker personnel; posting and reinvesting dividends to Fund accounts or arranging for this service to be performed by the Fund's transfer agent; and maintaining and distributing current copies of prospectuses and shareholder reports to the beneficial owners of Shares and prospective shareholders. The Board of Trustees expects that the adoption of the Plan will result in the sale of a sufficient number of Shares so as to allow the Fund to achieve economic viability. It is also anticipated that an increase in the size of the Fund will facilitate more efficient portfolio management and assist the Fund in seeking to achieve its investment objective. For the fiscal years ended October 31, 1993 and 1992, brokers and administrators (financial institutions) earned fees in the amount of $91,235 and $84,459, respectively, none of which was waived, pursuant to the distribution plan. CONVERSION TO FEDERAL FUNDS It is the Fund's policy to be as fully invested as possible so that maximum interest may be earned. To this end, all payments from shareholders must be in federal funds or be converted into federal funds. State Street Bank and Trust Company acts as the shareholder's agent in depositing checks and converting them to federal funds. DETERMINING NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the value of a Share at $1.00. The days on which net asset value is calculated by the Fund are described in the respective prospectus. - -------------------------------------------------------------------------------- USE OF THE AMORTIZED COST METHOD 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. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7, as amended (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. Under the Rule, the Fund is permitted to purchase instruments which are subject to demand features or standby commitments. As defined by the Rule, a demand feature entitles the Fund to receive the principal amount of the instrument from the issuer or a third party (1) on no more than 30 days' notice or (2) at specified intervals not exceeding one year on no more than 30 days' notice. A standby commitment entitles the Fund to achieve same-day settlement and to receive an exercise price equal to the amortized cost of the underlying instrument plus accrued interest at the time of exercise. Although demand features and standby commitments are techniques and are defined as "puts" under the Rule, the Fund does not consider them to be "puts" as that term is used in the Fund's investment limitations. Demand features and standby commitments are features which enhance an instrument's liquidity, and the investment limitation which proscribes puts is designed to prohibit the purchase and sale of put and call options and is not designed to prohibit the Fund from using techniques which enhance the liquidity of portfolio instruments. MONITORING PROCEDURES The Trustees' 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 .5% 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. INVESTMENT RESTRICTIONS The Rule requires that the Fund limit its investments to instruments that, in the opinion of the Trustees, present minimal credit risk and have received the requisite rating from one or more nationally recognized statistical rating organizations. If the instruments are not rated, the Trustees must determine that they are of comparable quality. The Rule also requires the Fund to maintain a dollar-weighted average portfolio maturity (not more than 90 days) appropriate to the objective of maintaining a stable net asset value of $1.00 per share. In addition, no instrument with a remaining maturity of more than 397 days can be purchased by the Fund. For a discussion of the treatment of variable rate municipal securities with demand features, refer to "Variable Rate Demand Notes" in the prospectus. Should the disposition of a portfolio security result in a dollar-weighted average portfolio maturity of more than 90 days, the Fund will invest its available cash to reduce the average maturity to 90 days or less as soon as possible. The Fund may attempt to increase yield by trading portfolio securities to take advantage of short-term market variations. This policy may, from time to time, result in high portfolio turnover. Under the amortized cost method of valuation, 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 indicated daily yield on Shares of the Fund computed the same way may tend to be lower than a similar computation made by using a method of calculation based upon market prices and estimates. REDEEMING SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares at the next computed net asset value after the Fund receives the redemption request. Redemption procedures are explained in the respective prospectus under "Redeeming Cash Series Shares" and "Redeeming Institutional Service Shares." Although State Street Bank does not charge for telephone redemptions, it reserves the right to charge a fee for the cost of wire-transferred redemptions of less than $5,000. - -------------------------------------------------------------------------------- REDEMPTION IN KIND Although the Trust intends to redeem Shares in cash, it reserves the right under certain circumstances to pay the redemption price in whole or in part by a distribution of securities from the respective Fund's portfolio. To the extent available, such securities will be readily marketable. Redemption in kind will be made in conformity with applicable Securities and Exchange Commission rules, taking such securities at the same value employed in determining net asset value and selecting the securities in a manner the Trustees determine to be fair and equitable. The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act of 1940 under which the Trust is obligated to redeem Shares for any one shareholder in cash only up to the lesser of $250,000 or 1% of the net asset value of the respective class during any 90-day period. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders receiving their securities and selling them before their maturity could receive less than the redemption value of their securities and could incur certain transaction costs. TAX STATUS - -------------------------------------------------------------------------------- THE FUND'S TAX STATUS The Fund will pay no federal income tax because it expects to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. To qualify for this treatment, 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. YIELD - -------------------------------------------------------------------------------- The Fund's yield for Cash Series Shares for the seven-day period ended October 31, 1993 was 1.68%. The yield for Institutional Service Shares was 2.08% for the same period. The Fund calculates the yield daily for both classes of shares, based upon the seven-days ending on the day of 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 (on funds that pay dividends daily) 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). To the extent that financial institutions and broker/dealers charge fees in conjunction with an investment in either class of shares, the performance will be reduced for shareholders paying those fees. EFFECTIVE YIELD - -------------------------------------------------------------------------------- The Fund's effective yield for Cash Series Shares for the seven-day period ended October 31, 1993 was 1.69%. The effective yield for Institutional Service Shares was 2.10% for the same period. The Fund's effective yield for both classes of Shares is computed 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. TAX-EQUIVALENT YIELD - -------------------------------------------------------------------------------- The Fund's tax-equivalent yield for Cash Series Shares for the seven-day period ended October 31, 1993 was 2.43%. The tax-equivalent yield for Institutional Service Shares was 3.01% for the same period. The tax-equivalent yield for both classes of Shares is calculated similarly to the yield, but reflect the taxable yield that either class of Shares would have had to earn to equal actual yield, assuming a 28% federal tax rate and 2.8% regular personal income tax rate imposed by Pennsylvania and assuming that income earned by the Fund is 100% tax-exempt on a regular federal, state, and local basis. TAX-EQUIVALENCY TABLE Both classes of Shares may also use a tax-equivalency table 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 the regular personal income tax imposed by Pennsylvania*. 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 1993 COMMONWEALTH OF PENNSYLVANIA - ----------------------------------------------------------------------------- COMBINED FEDERAL AND STATE INCOME TAX BRACKET 17.80% 30.80% 33.80% 38.80% 42.40% - ----------------------------------------------------------------------------- JOINT $1- $36,901- $89,151- $140,001- OVER RETURN: 36,900 89,150 140,000 250,000 $ 250,000 SINGLE $1- $22,001- $53,501- $115,001- OVER RETURN: 22,100 53,500 115,000 250,000 $ 250,000 - ----------------------------------------------------------------------------- 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 above chart is for illustrative purposes only. It is not an indicator of past or future performance of either class of Shares. *Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local regular or alternative minimum taxes. PERFORMANCE COMPARISONS - -------------------------------------------------------------------------------- The performance of both classes of Shares depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates on money market instruments; changes in the Fund's or either class of Share's expenses; and the relative amount of Fund cash flow. From time to time, the Fund may advertise the performance of both classes of Shares compared to similar funds or portfolios using certain indices, reporting services, and financial publications. These may include the following: LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by making comparative calculations using total return. Total return assumes the reinvestment of all income dividends and capital gains distributions, if any. - -------------------------------------------------------------------------------- From time to time, the Fund will quote its Lipper ranking in the "money market funds" category in advertising and sales literature. Investors may use such an index in addition to the prospectus of either class of Shares to obtain a more complete view of the performance of that class before investing. Of course, when comparing the performance of either class of Shares to any index, factors such as composition of the index and prevailing market conditions should be considered in assessing the significance of such comparisons. When comparing funds using reporting services, or total return and yield, investors should take into consideration any relevant differences in funds such as permitted portfolio composition and methods used to value portfolio securities and compute offering price. Advertisements and other sales literature for both classes of Shares may refer to total return. Total return is the historic change in the value of an investment in either class of Shares based on the monthly reinvestment of dividends over a specified period of time. 9101005B(12/93) 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 non-diversified portfolio of securities which is one of a series of investment portfolios in Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The investment objective of the Fund is to provide current income exempt from federal regular income tax, and Massachusetts state income tax consistent with stability of principal. 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, which are exempt from the federal regular and Massachusetts state income tax. Institutional Service Shares are sold at net asset value, without a sales load. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. 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. THE INSTITUTIONAL SERVICE 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 BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. This prospectus contains the information you should read and know before you invest in Institutional Service Shares. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information for Institutional Service Shares dated December 31, 1993, with the Securities and Exchange Commission. 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 free of charge by calling 1-800-235-4669. To obtain other information or to make inquiries about the Fund, contact the Fund at the address listed at the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1993 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 Acceptable Investments 3 Variable Rate Demand Notes 4 Participation Interests 4 Municipal Leases 4 Ratings 4 Credit Enhancement 5 Demand Features 5 Restricted and Illiquid Securities 5 When-Issued and Delayed Delivery Transactions 5 Temporary Investments 5 Massachusetts Municipal Securities 6 Standby Commitments 6 Massachusetts Investment Risks 6 Non-Diversification 7 Investment Limitations 7 Regulatory Compliance 7 FEDERATED MUNICIPAL TRUST INFORMATION 8 - ------------------------------------------------------ Management of Federated Municipal Trust 8 Board of Trustees 8 Investment Adviser 8 Advisory Fees 8 Adviser's Background 8 Distribution of Institutional Service Shares 9 Administrative Arrangements 9 Administration of the Fund 9 Administrative Services 9 Custodian 9 Transfer Agent and Dividend Disbursing Agent 9 Legal Counsel 9 Independent Public Accountants 9 NET ASSET VALUE 10 - ------------------------------------------------------ INVESTING IN INSTITUTIONAL SERVICE SHARES 10 - ------------------------------------------------------ Share Purchases 10 By Wire 10 By Mail 10 Minimum Investment Required 10 What Shares Cost 11 Subaccounting Services 11 Certificates and Confirmations 11 Dividends 11 Capital Gains 11 REDEEMING INSTITUTIONAL SERVICE SHARES 12 - ------------------------------------------------------ Telephone Redemption 12 Written Requests 12 Signatures 12 Receiving Payment 13 Checkwriting 13 Redemption Before Purchase Instruments Clear 13 Accounts with Low Balances 13 SHAREHOLDER INFORMATION 13 - ------------------------------------------------------ Voting Rights 13 Massachusetts Partnership Law 14 TAX INFORMATION 14 - ------------------------------------------------------ Federal Income Tax 14 Massachusetts Tax Considerations 15 Other State and Local Taxes 15 PERFORMANCE INFORMATION 15 - ------------------------------------------------------ OTHER CLASSES OF SHARES 16 - ------------------------------------------------------ Financial Highlights--BayFunds Shares 17 FINANCIAL STATEMENTS 18 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 33 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................. None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).................. None Deferred Sales Load (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 INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)....................................................................... 0.10% 12b-1 Fee............................................................................................... None Other Expenses.......................................................................................... 0.45% Total Institutional Service Shares Operating Expenses (2)...................................... 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 Total Institutional Service Shares Operating Expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1994. The Total Institutional Service Shares Operating Expenses were 0.53% for the fiscal year ended October 31, 1993 and were 0.96% absent the voluntary waiver of a portion of the management fee. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL SERVICE SHARES" AND "FEDERATED MUNICIPAL TRUST 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. As noted in the table above, the Fund charges no redemption fee for Institutional Service Shares............................................. $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. The information set forth in the foregoing table and example relates only to Institutional Service Shares of the Fund. The Fund also offers another class of shares called BayFunds Shares. Institutional Service Shares and BayFunds Shares are subject to certain of the same expenses; however, BayFunds Shares are subject to a Shareholder Servicing Fee of up to 0.25% and a Sub-Transfer Agent Fee. Certain expenses are allocated as incurred by each class. These expenses are greater for BayFunds Shares than for Institutional Service Shares. All other expenses are allocated based upon the average daily net assets of each Class. See "Other Classes of Shares." 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 33.
YEAR ENDED OCTOBER 31, 1993 1992 1991 1990* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ---------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ---------------------------------------------------------------------- Net investment income 0.02 0.03 0.05 0.03 - ---------------------------------------------------------------------- --------- --------- --------- --------- LESS DISTRIBUTIONS - ---------------------------------------------------------------------- Dividends to shareholders from net investment income (0.02) (0.03) (0.05) (0.03) - ---------------------------------------------------------------------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ---------------------------------------------------------------------- --------- --------- --------- --------- TOTAL RETURN** 1.99% 2.87% 4.63% 2.59%(a) - ---------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------------------------------------------- Expenses 0.53% 0.34% 0.30% 0.17%(b) - ---------------------------------------------------------------------- Net investment income 1.97% 2.82% 4.48% 5.66%(b) - ---------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.43% 0.55% 0.69% 0.57%(b) - ---------------------------------------------------------------------- SUPPLEMENTAL DATA - ---------------------------------------------------------------------- Net assets, end of period (000 omitted) $84,524 $85,570 $81,681 $63,483 - ----------------------------------------------------------------------
* Reflects operations for the period from May 18, 1990 (date of initial public investment) to October 31, 1990. ** Based on net asset value which does not reflect sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (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 of beneficial interest 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") have established two classes of shares, known as Institutional Service Shares and BayFunds Shares. This prospectus relates only to Institutional Service Shares of the Fund. Institutional Service Shares ("Shares") of the Fund are designed for the investment of moneys held by financial institutions in an agency capacity. A minimum initial investment of $25,000 over a 90-day period is required. The Fund may not be a suitable investment for non-Massachusetts taxpayers or retirement plans since it invests primarily in Massachusetts municipal securities. The Fund attempts to stabilize the value of a Share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to provide current income exempt from 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 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. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in a portfolio of Massachusetts municipal securities with remaining maturities of 13 months or less at the time of purchase by the Fund. As a matter of investment policy, which cannot be changed without approval of shareholders, the Fund invests its assets so that at least 80% of its annual interest income is exempt from federal regular income tax and Massachusetts state income tax. 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 the approval of shareholders. 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 both federal regular income tax and Massachusetts state income tax imposed upon non-corporate taxpayers. Examples of Massachusetts municipal securities include, but are not limited to: tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes ("BANs") 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. At least 80% of the value of the Fund's total assets will be invested in Massachusetts municipal securities. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term municipal securities 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 adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in municipal securities from financial institutions such as commercial and investment banks, savings and loan associations and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying municipal securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities and may be considered to be illiquid. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation certificate on any of the above. RATINGS. The Massachusetts municipal securities in which the Fund invests must either 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 Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1 and FIN-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 categories. See "Regulatory Compliance." CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been credit-enhanced by a guaranty, letter of credit or insurance. 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. The bankruptcy, receivership or default of the credit enhancer will adversely affect the quality and marketability of the underlying security. 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. 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 laws. Under criteria established by the Trustees, certain restricted securities are considered liquid. To the extent restricted securities are deemed to be illiquid, the Fund will limit their purchase, together with other securities considered to be illiquid, to 10% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Massachusetts municipal securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. TEMPORARY INVESTMENTS. From time to time, during periods of other than normal market conditions, the Fund may invest in short-term, tax-exempt or taxable, temporary investments. All temporary investments will satisfy the same credit quality standards as the Fund's acceptable investments. See "Ratings" above. Temporary investments include: notes issued by or on behalf of municipal or corporate issuers; marketable obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; other debt securities; commercial paper; certificates of deposit of banks; and repurchase agreements (arrangements in which banks, broker/dealers, and other recognized financial institutions sell the Fund a temporary investment and agree 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 of generating income subject to federal regular income tax or Massachusetts state income 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 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. STANDBY COMMITMENTS Some securities dealers are willing to sell municipal securities to the Fund accompanied by their commitments to repurchase the municipal securities prior to maturity, at the Fund's option, for the amortized cost of the municipal securities at the time of repurchase. These arrangements are not used to protect against changes in the market value of municipal securities. They permit the Fund, however, to remain fully invested and still provide liquidity to satisfy redemptions. The cost of municipal securities accompanied by these "standby" commitments could be greater than the cost of municipal securities without such commitments. Standby commitments are not marketable or otherwise assignable and have value only to the Fund. The default or bankruptcy of a securities dealer giving such a commitment would not affect the quality of the municipal securities purchased. However, without a standby commitment, these securities could be more difficult to sell. The Fund enters into standby commitments only with those dealers whose credit the investment adviser believes to be of high quality. 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 and maturity of the particular offering; the maturity of the obligations; and the rating of the issue. Further, any adverse economic conditions or developments affecting the Commonwealth of Massachusetts or its municipalities could impact the Fund's portfolio. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Massachusetts municipal securities and demand features for such securities or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. Investing in Massachusetts municipal securities which meet the Fund's quality standards may not be possible if the Commonwealth of Massachusetts or its municipalities do not maintain their high quality, short-term current credit ratings. In addition, certain Massachusetts constitutional amendments, legislative measures, executive orders, administrative regulations and voter initiatives could result in adverse consequences affecting Massachusetts municipal securities. An expanded discussion of the current economic risks associated with the purchase of Massachusetts municipal securities is contained in the Statement of Additional Information. NON-DIVERSIFICATION The Fund is a non-diversified investment portfolio. As such, there is no limit on the percentage of assets which can be invested in any single issuer. An investment in the Fund, therefore, will entail greater risk than would exist in a diversified investment portfolio because the higher percentage of investments among fewer issuers may result in greater fluctuation in the total market value of the Fund's portfolio. Any economic, political, or regulatory developments affecting the value of the securities in the Fund's portfolio will have a greater impact on the total value of the portfolio than would be the case if the portfolio were diversified among more issuers. The Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that at the end of each quarter of the taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer; beyond that, no more than 25% of its total assets are invested in the securities of a single issuer. 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 above investment limitation cannot be changed without shareholder approval. The following investment limitation, however, can be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in this limitation becomes effective. The Fund will not invest more than 5% of its total assets in industrial development bonds or other municipal securities when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in this prospectus and its 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, as amended. 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 INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF FEDERATED MUNICIPAL TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of Trustees is 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. The Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, 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, for which it receives an annual fee from the Fund. ADVISORY FEES. The Fund's adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. Under the advisory contract, which provides for the voluntary waiver of the advisory fee by the adviser, the adviser may voluntarily waive some or all of the advisory fee. This does not include reimbursement to the Fund of any expenses incurred by shareholders who use the transfer agent's subaccounting facilities. The adviser can terminate this voluntary waiver of expenses at any time at its sole discretion. The adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. 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. Total assets under management or administration by these and other subsidiaries of Federated Investors are approximately $70 billion. Federated Investors, which was founded in 1956 as Federated Investors, Inc., develops and manages mutual funds primarily for the financial industry. Federated Investors' track record of competitive performance and its disciplined, risk-averse investment philosophy serve approximately 3,500 client institutions nationwide. Through these same client institutions, individual shareholders also have access to this same level of investment expertise. 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. ADMINISTRATIVE ARRANGEMENTS. The distributor may select brokers and dealers to provide distribution and administrative services. The distributor may also select administrators (including depository institutions such as commercial banks and savings and loan associations) to provide administrative services. These administrative services include, but are not limited to, distributing prospectuses and other information, providing accounting assistance, and communicating or facilitating purchases and redemptions of Shares. Brokers, dealers, and administrators will receive fees from the distributor based upon Shares owned by their clients or customers. The fees are calculated as a percentage of the average aggregate net asset value of shareholder accounts during the period for which the brokers, dealers, and administrators provide services. Any fees paid for these services by the distributor will be reimbursed by the adviser. The Glass-Steagall Act limits the ability of a depository institution (such as a commercial bank or a savings and loan association) to become an underwriter or distributor of securities. In the event the Glass-Steagall Act is deemed to prohibit depository institutions from acting in the capacities described above or should Congress relax current restrictions on depository institutions, the Board of Trustees will consider appropriate changes in the administrative services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state law. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services, Inc., provides these at approximate cost. CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and dividend disbursing agent for the Fund. LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania. 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 adding the interest of the Shares in the value of all securities and other assets of the Fund, subtracting the interest of the Shares in the liabilities of the Fund and those attributable to Shares, and dividing the remainder by the total number of Shares outstanding. The Fund, of course, cannot guarantee that its net asset value will always remain at $1.00 per Share. INVESTING IN INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- SHARE PURCHASES Shares are sold on days on which the New York Stock Exchange and the Federal Reserve wire system are open for business. Shares may be purchased either by wire or by mail. The Fund reserves the right to reject any purchase request. To purchase Shares, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken over the telephone. BY WIRE. To purchase Shares by Federal Reserve wire, call 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 same day. Federal funds should be wired as follows: State Street Bank and Trust Company, Boston, Massachusetts; 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 days on which the New York Stock Exchange is closed and on federal holidays restricting wire transfers. BY MAIL. To purchase Shares by mail, send a check made payable to Massachusetts Municipal Cash Trust--Institutional Service Shares to the Trust's transfer agent, Federated Services Company, c/o State Street Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are considered received when payment by check is converted by State Street Bank into federal funds. This is normally the next business day after State Street Bank receives the check. MINIMUM INVESTMENT REQUIRED The minimum initial investment in the Shares is $25,000. However, an account may be opened with a smaller amount as long as the $25,000 minimum is reached within 90 days. An institutional investor's minimum investment will be calculated by combining all accounts it maintains with the Fund. Individual accounts established through a bank or broker may be subject to a different minimum investment requirement. WHAT SHARES COST Shares are sold at their net asset value next determined after an order is received. There is no sales charge imposed by the Fund. Investors who purchase Shares through a bank or broker may be charged an additional service fee by that bank or broker. The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m. (Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no Shares are tendered for redemption and no orders to purchase Shares are received; or (iii) the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. SUBACCOUNTING SERVICES Institutions are encouraged to open single master accounts. However, certain institutions may wish to use the transfer agent's subaccounting system to minimize their internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Financial institutions holding Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Shares. This prospectus should, therefore, be read together with any agreement between the customer and the financial institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Monthly confirmations are sent to report transactions such as purchases and redemptions as well as dividends paid during the month. DIVIDENDS Dividends are declared daily and paid monthly. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends on the day after the check is converted, upon instruction of the transfer agent, into federal funds. Dividends are automatically reinvested on payment dates in additional Shares unless cash payments are requested by contacting the Fund. CAPITAL GAINS Capital gains, if any, could result in an increase in dividends. Capital losses, if any, could result in a decrease in dividends. If, for some extraordinary reason, the Fund realizes net long-term or short-term capital gains, it will distribute them at least once every 12 months. REDEEMING INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares 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 by telephone request or by written request. TELEPHONE REDEMPTION Shareholders may redeem their Shares by telephoning the Fund. Redemption requests received before 12:00 noon (Eastern time) are not entitled to that day's dividend. A daily dividend will be paid on Shares redeemed if the redemption request is received after 12:00 noon (Eastern time). However, the proceeds are not wired until the following business day. If, at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders will be promptly notified. An authorization form permitting the Fund to accept redemption requests by telephone must first be completed. Authorization forms and information on this service are available from Federated Securities Corp. Telephone redemption instructions may be recorded. 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, shareholders may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption, such as Written Requests, should be considered. WRITTEN REQUESTS Shares may also be redeemed by sending a written request to the Fund. Call the Fund for specific instructions before redeeming by letter. The shareholder will be asked to provide in the request his name, the Fund name and class of shares, his account number, and the Share or dollar amount requested. If Share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, 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 signatures on written redemption requests guaranteed by: a trust company or commercial bank whose deposits are insured by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance Corporation ("FDIC"); a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; a savings bank or savings and loan association whose deposits are insured by the Savings Association Insurance Fund ("SAIF"), which is administered by the FDIC; 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. The Fund and its transfer agent have 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 and its transfer agent reserve the right to amend these standards at any time without notice. RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper, written redemption request. CHECKWRITING. At the shareholder's request, State Street Bank will establish a checking account for redeeming Shares. For further information, contact Federated Securities Corp. A fee may be charged for this service. With a Fund checking account, Shares may be redeemed simply by writing a check. The redemption will be made at the net asset value on the date that State Street Bank presents the check to the Fund. A check may not be written to close an account. If a shareholder wishes to redeem Shares and have the proceeds available, a check may be written and negotiated through the shareholder's bank. Checks should never be sent to State Street Bank to redeem Shares. Cancelled checks are returned to the shareholder each month. REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR When Shares are purchased by check, the proceeds from the redemption of those Shares are not available, and the Shares may not be exchanged, until the Fund or its agents are is reasonably certain that the purchase check has cleared, which could take up to ten calendar days. 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. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only shares of that Fund or class are entitled to vote. As a Massachusetts business trust, 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 for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of all series in the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders of the Fund, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such 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 of the Fund is held personally liable for the Trust's obligations, the Trust is required 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 cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. 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 some municipal bonds may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The alternative minimum tax, equal to up to 28% of alternative minimum taxable income for individuals and 20% for corporations, 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. The Tax Reform Act of 1986 treats interest on certain "private activity" bonds issued after August 7, 1986, as a tax preference item for both individuals and corporations. Unlike traditional governmental purpose municipal bonds, which finance roads, schools, libraries, prisons and other public facilities, private activity bonds provide benefits to private parties. The Fund may purchase all types of municipal bonds, including private activity bonds. Thus, should it purchase any such bonds, a portion of the Fund's dividends may be treated as a tax preference item. In addition, in the case of a corporate shareholder, dividends of the Fund which represent interest on municipal bonds may be subject to the 20% corporate alternative minimum tax because the dividends are included in a corporation's "adjusted current earnings." The corporate alternative minimum tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's alternative minimum taxable income as a tax preference item. "Adjusted current earnings" is based upon the concept of a corporation's "earnings and profits." Since "earnings and profits" generally includes the full amount of any Fund dividend, and alternative minimum taxable income does not include the portion of the Fund's dividend attributable to municipal bonds which are not private activity bonds, 75% of the difference will be included in the calculation of the corporation's alternative minimum 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. Information on the tax status of dividends and distributions is provided annually. MASSACHUSETTS TAX CONSIDERATIONS Under existing Massachusetts law, dividends paid by the Fund will be exempt from Massachusetts personal income tax if such dividends are directly attributable to interest earned on (i) obligations issued by the Commonwealth of Massachusetts, its political subdivisions or agencies; or (ii) 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 dividends paid by the Fund are derived from other types of obligations, such dividends will not be exempt from Massachusetts personal income tax. 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 regular state income taxes in states other than Massachusetts or from personal property taxes. State laws differ on this issue and 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 the Fund advertises its yield, effective yield, and tax-equivalent yield for Institutional Service Shares. The yield of Institutional Service Shares represents the annualized rate of income earned on an investment in Institutional Service Shares 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 in Institutional Service Shares 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 of Institutional Service Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the Institutional Service Shares would have had to earn to equal their actual yield, assuming a specific tax rate. Advertisements and other sales literature may also refer to total return. Total return represents the change, over a specified period of time, in the value of an investment in Institutional Service 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, and tax-equivalent yield will be calculated separately for Institutional Service Shares and BayFunds Shares. Because BayFunds Shares are subject to a shareholder servicing fee, the yield, the effective yield, and the tax-equivalent yield for Institutional Service Shares will exceed the yield, the effective yield, and the tax-equivalent yield for BayFunds Shares for the same period. From time to time, the Fund may advertise the performance of Institutional Service Shares using certain reporting services and/or compare the performance of Institutional Service Shares to certain indices. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- BayFunds Shares are sold primarily to retail customers of the banking subsidiaries of BayBanks, Inc. BayFunds Shares are sold at net asset value. Investments in BayFunds Shares are subject to a minimum initial investment of $2,500. The Distributor may pay a fee to a financial institution or broker for shareholder services provided to the BayFunds Shares class, and may pay an administrative fee to a financial institution or broker for administrative services provided to the Institutional Service Shares class. Any fee paid by the Distributor for administrative services will not be an expense of either class, but will be reimbursed to the distributor by the investment adviser. The amount of dividends payable to Institutional Service Shares will exceed the amount of dividends payable to BayFunds Shares by an amount equal to the shareholder services and sub-transfer agent fees allocated to the BayFunds Shares. The stated advisory fee is the same for both classes of the Fund. MASSACHUSETTS MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--BAYFUNDS SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Reference is made to the Report of Independent Public Accountants on page 33.
PERIOD ENDED OCTOBER 31, 1993* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 - ------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------------------------------------------------------ Net investment income 0.01 ------- - ------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------------------------------------------------------------ Dividends to shareholders from net investment income (0.01) ------- - ------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $ 1.00 ------- - ------------------------------------------------------------------------------------------------ TOTAL RETURN** 1.25%(a) - ------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------------------------------------ Expenses 0.65%(b) - ------------------------------------------------------------------------------------------------ Net investment income 1.85%(b) - ------------------------------------------------------------------------------------------------ Expense waiver/reimbursement(c) 0.43%(b) - ------------------------------------------------------------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------ Net assets, end of period (000 omitted) $18,143 - ------------------------------------------------------------------------------------------------
* Reflects operations for the period from March 8, 1993 (date of initial public investment) to October 31, 1993. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1993 - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ------------- -------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--99.5% - ----------------------------------------------------------------------------------- MASSACHUSETTS--88.2% -------------------------------------------------------------------- $ 2,000,000 Boston, MA, 2.75% Certificates of Participation (Fleet National Bank LOC), 4/1/94 P-1 $ 2,000,000 -------------------------------------------------------------------- 3,900,000 Boston, MA, Water & Sewer Commission Weekly VRDNs (Series 1985A)/(Dai-Ichi Kangyo Bank Ltd. LOC) VMIG1 3,900,000 -------------------------------------------------------------------- 1,860,000 Chelmsford, MA, 2.75% RANs, 2/18/94 NR(3) 1,860,534 -------------------------------------------------------------------- 1,000,000 Commonwealth of Massachusetts Dedicated Income Tax Daily VRDNs (Series B)/(National Westminster Bank PLC LOC) A-1+ 1,000,000 -------------------------------------------------------------------- 1,500,000 Dighton-Rehoboth, MA, Regional School District, 2.65% RANs, 11/24/93 NR 1,500,045 -------------------------------------------------------------------- 1,265,000 Fairhaven, MA, 2.98% RANs, 1/7/94 NR(3) 1,265,404 -------------------------------------------------------------------- 3,200,000 Framingham, MA, IDA Weekly VRDNs (Perin Corp.)/ (Barclays Bank PLC LOC) A-1+ 3,200,000 -------------------------------------------------------------------- 1,615,082 Greenfield, MA, 2.45% BANs, 12/1/93 NR(3) 1,615,146 -------------------------------------------------------------------- 650,000 Ludlow, MA, Weekly VRDNs (Advanced Drainage Systems, Inc.)/(FNB, Chicago LOC) P-1 650,000 -------------------------------------------------------------------- 1,800,000 Massachusetts Municipal Wholesale Electric Company VRDCs Trust, Weekly VRDNs (Series 1993D)/(AMBAC Insured, Hong Kong Shanghai Banking Corp. BPA) A-1 1,800,000 -------------------------------------------------------------------- 4,000,000 Massachusetts Bay Transit Authority, 2.85% Semi-Annual TOBs (Long Term Credit Bank of Japan Ltd. LOC), 3/1/94 A-1 4,000,000 -------------------------------------------------------------------- 2,000,000 Massachusetts Commonwealth Weekly VRDNs GO Bonds (Series PA13)/(MBIA and FGIC Insured) VMIG1 2,000,000 --------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ------------- -------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- MASSACHUSETTS--CONTINUED -------------------------------------------------------------------- $ 7,480,000 Massachusetts HEFA Weekly VRDNs (Harvard University Guaranty) A-1+ $ 7,480,000 -------------------------------------------------------------------- 3,400,000 Massachusetts HEFA Weekly VRDNs (Berkshire Consolidated Realty)/(Banque Paribas LOC) A-1 3,400,000 -------------------------------------------------------------------- 1,940,000 Massachusetts HEFA Weekly VRDNs (Newbury College)/ (Barclays Bank PLC LOC) P-1 1,940,000 -------------------------------------------------------------------- 200,000 Massachusetts HEFA Weekly VRDNs (Series A)/(Brigham & Women's Hospital)/(Sanwa Bank Ltd. LOC) P-1 200,000 -------------------------------------------------------------------- 1,500,000 Massachusetts HEFA Weekly VRDNs (Series B)/(Clark University)/(Sanwa Bank Ltd. LOC) VMIG1 1,500,000 -------------------------------------------------------------------- 4,600,000 Massachusetts HEFA Weekly VRDNs (Series E)/(Capital Asset Program)/(Sanwa Bank Ltd. LOC) A-1+ 4,600,000 -------------------------------------------------------------------- 3,700,000 Massachusetts HEFA Weekly VRDNs (Series F)/(Boston College)/(Sanwa Bank Ltd. LOC) VMIG1 3,700,000 -------------------------------------------------------------------- 2,500,000 Massachusetts HEFA Weekly VRDNs (Series G)/(Massachusetts Institute of Technology Guaranty) NR(1) 2,500,000 -------------------------------------------------------------------- 7,500,000 Massachusetts HEFA, 2.60% CP, (Series E)/(Tufts University Guaranty), Mandatory Tender 12/14/93 A-1+ 7,500,000 -------------------------------------------------------------------- 1,500,000 Massachusetts HEFA, 2.85% Serial Bond (Series E)/ (Brigham & Women's Hospital Guaranty), 7/1/94 NR(2) 1,500,000 -------------------------------------------------------------------- 600,000 Massachusetts HEFA, 2.90% Serial Bond (Morton Hospital & Medical Center)/(Connie Lee Insured), 7/1/94 NR(1) 599,604 -------------------------------------------------------------------- 1,000,000 Massachusetts HFA SFH, 2.95% Annual TOBs (Series 25)/ (Bayerische Landesbank LOC), Mandatory Tender 9/1/94 A-1+ 1,000,000 -------------------------------------------------------------------- 2,000,000 Massachusetts IDA Weekly VRDNs (Williston Northampton School)/(National Westminster Bank PLC LOC) P-1 2,000,000 --------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ------------- -------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- MASSACHUSETTS--CONTINUED -------------------------------------------------------------------- $ 300,000 Massachusetts IFA PCR Weekly VRDNs (Series 1992A)/ (Holyoke Water Power Co.)/(Canadian Imperial Bank of Commerce LOC) VMIG1 $ 300,000 -------------------------------------------------------------------- 4,000,000 Massachusetts IFA PCR, 2.65% CP (Series A)/ (New England Power Company Guaranty), Mandatory Tender 1/11/94 A-1 4,000,000 -------------------------------------------------------------------- 1,000,000 Massachusetts IFA Weekly VRDNs (Berkshire School)/ (National Westminster Bank PLC LOC) VMIG1 1,000,000 -------------------------------------------------------------------- 5,525,000 Massachusetts IFA Weekly VRDNs (Kendall Square, Inc.)/ (National Westminster Bank PLC LOC) P-1 5,525,000 -------------------------------------------------------------------- 4,000,000 Massachusetts IFA Weekly VRDNs (Series 1992A)/(Ogden Haverhill)/(Union Bank of Switzerland LOC) VMIG1 4,000,000 -------------------------------------------------------------------- 2,000,000 Massachusetts IFA Weekly VRDNs (Series 1993B)/(New England Deaconess Association)/(Banque Paribas LOC) A-1 2,000,000 -------------------------------------------------------------------- 925,000 Massachusetts IFA Weekly VRDNs (Series A)/(Hockomock YMCA)/(Westpac Banking Corp. LOC) P-1 925,000 -------------------------------------------------------------------- 1,700,000 New Bedford, MA, 3.40% RANs (Fleet National Bank BPA), 1/14/94 P-1 1,702,716 -------------------------------------------------------------------- 2,000,000 New Bedford, MA, 4.75% BANs (Fleet National Bank BPA), 11/12/93 P-1 2,000,787 -------------------------------------------------------------------- 3,330,000 North Andover, MA, 3.00% BANs, 6/29/94 NR 3,335,321 -------------------------------------------------------------------- 1,923,000 Northampton, MA, 2.47% BANs, 6/29/94 NR 1,923,862 -------------------------------------------------------------------- 1,080,000 Norwood, MA, IDRB, 3.125% Annual TOBs (Dash Realty Trust)/(Fleet National Bank LOC), Mandatory Tender 7/1/94 SP-1 1,080,000 -------------------------------------------------------------------- --------------- Total 90,503,419 -------------------------------------------------------------------- ---------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ------------- -------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- PUERTO RICO--11.4% -------------------------------------------------------------------- $ 5,400,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit Suisse and Sumitomo Bank Ltd. LOCs) A-1+ $ 5,400,000 -------------------------------------------------------------------- 4,000,000 Puerto Rico Industrial Medical and Environmental Pollution Authority, 2.70% Annual TOBs (Abbott Laboratories, Inc. Guaranty), 3/1/94 NR(1) 4,000,000 -------------------------------------------------------------------- 2,290,000 Puerto Rico Industrial, Medical and Environmental PCA, 2.90% Annual TOBs (Series 1983A)/(Reynolds Metals Co.)/(ABN AMRO Bank N.V. LOC), Optional Tender 9/1/94 A-1+ 2,291,850 -------------------------------------------------------------------- --------------- Total 11,691,850 -------------------------------------------------------------------- --------------- TOTAL INVESTMENTS, (AT AMORTIZED COST) $ 102,195,269\ -------------------------------------------------------------------- ---------------
* See Notes to Portfolio of Investments. \ Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($102,667,192) at October 31, 1993. The following abbreviations may be used in this portfolio: AMBAC--American Municipal Bond Assurance Corporation BANs--Bond Anticipation Notes BPA--Bond Purchase Agreement CP--Commercial Paper FGIC--Financial Guaranty Insurance Company GO--General Obligation HEFA--Health and Education Facilities Authority HFA--Housing Finance Authority/Agency IDA--Industrial Development Authority IDRB--Industrial Development Revenue Bonds IFA--Industrial Finance Authority/Agency LOC--Letter of Credit LOCs--Letters of Credit MBIA--Municipal Bond Investors Assurance PCA--Pollution Control Authority PCR--Pollution Control Revenue RANs--Revenue Anticipation Notes SFH--Single Family Housing TOBs--Tender Option Bonds VRDCs--Variable Rate Demand Certificates VRDNs--Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST NOTES TO PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL OBLIGATION RATINGS S&P A Standard & Poor's 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 (+) designation. SP-2 Satisfactory capacity to pay principal and interest. MOODY'S Moody's short-term ratings are designated Moody's Investment Grade (MIG or VMIG (see below)). The purpose of the MIG of 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. FITCH Fitch's short-term ratings place greater emphasis on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. F-1 Strongest degree of assurance for timely payment. Those issues determined to provide exceptionally strong credit quality are given a plus (+) designation. F-2 Notes reflecting a degree of assurance for timely payment only slightly less in degree than the highest category. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P Standard & Poor's 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 MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- characteristics. Several examples are AAA/A-1+, AA/A-1K, and A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) MOODY'S 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. FITCH Fitch usually assigns two ratings to long-term debt issues that include provisions for a variable rate demand feature. The long-term rating addresses the ability of the obligor to pay debt service and the short-term rating addresses the timely payment of the demand feature. Examples of rating designation are as follows: AAA/F-1+, AA/F-1K, and A/F-1. (The definitions for the long-term and short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS S&P A Standard & Poor's 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 designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign designation. A-2 Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated "A-1." MOODY'S P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. The following is an explanation of the Fitch ratings. These ratings are not referenced in the Portfolio of Investments. MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- FITCH F-1 Issues assigned this rating reflect a stong degree of assurance for timely payment. Those issuers determined to possess the strongest degree of assurance for timely payment are denoted with a plus (+) sign designation. F-2 Issuers carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as the "F-1+" and "F-1" categories. LONG-TERM DEBT RATINGS (INVESTMENT GRADE) S&P AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the 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. BBB Debt rated "BBB" is regarding as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest than debt rated in higher ratings categories. MOODY'S Aaa Bonds that 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 edge." Interest payments are protected by a large margin and principal is secure. While the various protective elements are likely to change, such changes which can be foreseen are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds that 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 that 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 MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- adequate, but elements may be present that suggest a susceptibility to impairment some time in the future. Baa Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. FITCH AAA Bonds that are rated AAA are of the highest credit quality. The obligor has an exceptionally strong ability to pay debt service. AA Bonds that are rated AA are of very high quality. The obligor has a very strong ability to pay debt service. Debt rated in this category may also have a (+) or (-) sign with a rating to indicate the relative position within the rating category. A Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. NR indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P, Moody's, or Fitch with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated in one of the two highest short-term ratings categories by a nationally recognized statistical ratings organization. NR(1)The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by Fitch. NR(2)The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch. NR(3)The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "A" by Standard & Poor's, Moody's, or Fitch. NR(4)The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by Fitch. MASSACHUSETTS MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1993 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------------------------- Investments, at amortized cost and value (Note 2A) $ 102,195,269 - ------------------------------------------------------------------------------------------------- Cash 707,029 - ------------------------------------------------------------------------------------------------- Interest receivable 527,874 - ------------------------------------------------------------------------------------------------- Deferred expenses (Note 2E) 5,931 - ------------------------------------------------------------------------------------------------- --------------- Total assets 103,436,103 - ------------------------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------------ Payable for investments purchased $ 602,891 - ------------------------------------------------------------------------------------ Dividends payable 117,456 - ------------------------------------------------------------------------------------ Accrued expenses and other liabilities 48,564 - ------------------------------------------------------------------------------------ ----------- Total liabilities 768,911 - ------------------------------------------------------------------------------------------------- --------------- NET ASSETS for 102,667,192 shares of beneficial interest outstanding $ 102,667,192 - ------------------------------------------------------------------------------------------------- --------------- NET ASSET VALUE, Offering Price, and Redemption Price Per Share: - ------------------------------------------------------------------------------------------------- Institutional Service Shares ($84,524,347 / 84,524,347 shares of beneficial interest outstanding) $1.00 - ------------------------------------------------------------------------------------------------- --------------- BayFunds Shares ($18,142,845 / 18,142,845 shares of beneficial interest 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, 1993 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------------------------- Interest income (Note 2B) $ 2,488,073 - --------------------------------------------------------------------------------------------------- EXPENSES: - -------------------------------------------------------------------------------------- Investment advisory fee (Note 5) $ 498,975 - -------------------------------------------------------------------------------------- Administrative personnel and services fees (Note 5) 253,380 - -------------------------------------------------------------------------------------- Custodian, transfer and dividend disbursing agent fees and expenses 87,177 - -------------------------------------------------------------------------------------- Trustees' fees 2,245 - -------------------------------------------------------------------------------------- Auditing fees 16,507 - -------------------------------------------------------------------------------------- Legal fees 12,985 - -------------------------------------------------------------------------------------- Printing and postage 30,065 - -------------------------------------------------------------------------------------- Fund share registration costs 41,287 - -------------------------------------------------------------------------------------- Insurance premiums 7,890 - -------------------------------------------------------------------------------------- Taxes 773 - -------------------------------------------------------------------------------------- Miscellaneous 5,961 - -------------------------------------------------------------------------------------- ----------- Total expenses 957,245 - -------------------------------------------------------------------------------------- Deduct--Waiver of investment advisory fee (Note 5) 427,232 - -------------------------------------------------------------------------------------- ----------- Net expenses 530,013 - --------------------------------------------------------------------------------------------------- ------------- Net investment income $ 1,958,060 - --------------------------------------------------------------------------------------------------- -------------
(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, 1993 1992 INCREASE (DECREASE) IN NET ASSETS: - ----------------------------------------------------------------------------- OPERATIONS-- - ----------------------------------------------------------------------------- Net investment income $ 1,958,060 $ 2,512,473 - ----------------------------------------------------------------------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - ----------------------------------------------------------------------------- Dividends to shareholders from net investment income: - ----------------------------------------------------------------------------- Institutional Service Shares (1,874,757) (2,512,460) - ----------------------------------------------------------------------------- Cash Series Shares -- (13) - ----------------------------------------------------------------------------- BayFunds Shares (83,303) -- - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets from distributions to shareholders (1,958,060) (2,512,473) - ----------------------------------------------------------------------------- ---------------- ---------------- FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - ----------------------------------------------------------------------------- Proceeds from sale of shares 277,390,674 188,432,361 - ----------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of dividends declared 451,819 194,403 - ----------------------------------------------------------------------------- Cost of shares redeemed (260,744,847) (184,738,219) - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets from Fund share transactions 17,097,646 3,888,545 - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets 17,097,646 3,888,545 - ----------------------------------------------------------------------------- NET ASSETS: - ----------------------------------------------------------------------------- Beginning of period 85,569,546 81,681,001 - ----------------------------------------------------------------------------- ---------------- ---------------- End of period $ 102,667,192 $ 85,569,546 - ----------------------------------------------------------------------------- ---------------- ----------------
(See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1993 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company with several 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. From December 31, 1990, until May 17, 1992 the Fund provided two classes of shares ("Institutional Service Shares" and "Cash Series Shares"). Cash Series Shares were identical in all respects to Institutional Service Shares except that Cash Series Shares were sold pursuant to a distribution plan ("Plan") adopted in accordance with Investment Company Act Rule 12b-1. Under the Plan, the Fund paid Federated Securities Corp. (the "distributor") a fee at an annual rate up to .40 of 1% of the average daily net asset value of Cash Series Shares to finance any activity which was principally intended to result in the sale of Cash Series Shares. As of May 17, 1992, the Plan was terminated by the Board of Trustees ("Trustees") of the Trust. As a result of the termination of the Plan, fee accruals under the Plan have been discontinued. Effective March 8, 1993 (date of initial public offering), the Fund provided an additional class of shares ("BayFunds Shares"). BayFunds Shares are identical in all respects to Institutional Service Shares except that BayFunds Shares were sold pursuant to a shareholder servicing fee of up to .25 of 1% of average daily net assets of BayFunds Shares and a sub-transfer agent fee. (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. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--The Trustees has determined that the best method currently available for valuing portfolio securities is amortized cost. The Fund's use of the amortized cost method to value its portfolio securities is conditioned on its compliance with Rule 2a-7 under the Investment Company Act of 1940. Since the Fund may invest 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 general tax-exempt mutual fund. In order to reduce the risk associated with such factors, at October 31, 1993, 85.1% 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 aggregate percentages by financial institution ranged from 0.3% to 9.8% of total investments. B. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest earned net of premium, and original issue discount as required by the Internal Revenue Code. MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal Revenue Code (the "Code") applicable to investment companies and to distribute to shareholders each year all of its net income. Accordingly, no provision for federal tax is necessary. Dividends paid by the Fund representing net interest received on tax-exempt municipal securities are not includable by shareholders as gross income for federal income tax purposes because the Fund intends to meet certain requirements of the Code applicable to regulated investment companies which will enable the Fund to pay exempt-interest dividends. The portion of such interest, if any, earned on private activity bonds issued after August 7, 1986 may be considered a tax preference item to shareholders for the purpose of computing the alternative minimum tax. D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objectives and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain 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. E. DEFERRED EXPENSES--Costs incurred by the Fund in connection with its initial share registration, other than organization expenses, were deferred and are being amortized on a straight-line basis through May 1995. F. EXPENSES--Expenses of the Fund (other than shareholder servicing fees and sub-transfer agent fees) and waivers and reimbursements, if any, are allocated to each class of shares based on its relative daily average net assets for the period. Expenses incurred by the Trust which do not specifically relate to an individual Fund are allocated among all Funds based on a Fund's relative net asset value size or as deemed appropriate by the administrator. G. OTHER--Investment transactions are accounted for on the date of the transaction. (3) DIVIDENDS The Fund computes its net income daily and, immediately prior to the calculation of its net asset value at the close of business, declares and records dividends to shareholders of record at the time of the previous computation of the Fund's net asset value. Payment of dividends is made monthly in cash, or in additional shares at the net asset value on the payable date. (4) 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, 1993, capital paid-in aggregated $102,667,192. Transactions in Fund shares were as follows: MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
INSTITUTIONAL SERVICE SHARES YEAR ENDED OCTOBER 31, 1993 1992 Shares outstanding, beginning of period 85,569,546 81,680,650 - ----------------------------------------------------------------------------------- Shares sold 254,082,837 188,432,361 - ----------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 367,572 194,402 - ----------------------------------------------------------------------------------- Shares redeemed (255,495,608) (184,737,867) - ----------------------------------------------------------------------------------- ---------------- ---------------- Shares outstanding, end of period 84,524,347 85,569,546 - ----------------------------------------------------------------------------------- ---------------- ----------------
CASH SERIES SHARES YEAR ENDED OCTOBER 31, 1993 1992 Shares outstanding, beginning of period -- 351 - -------------------------------------------------------------------------------------- Shares sold -- -- - -------------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared -- 1 - -------------------------------------------------------------------------------------- Shares redeemed -- (352) - -------------------------------------------------------------------------------------- ------------- ------------- Shares outstanding, end of period -- -- - -------------------------------------------------------------------------------------- ------------- -------------
BAYFUNDS SHARES YEAR ENDED OCTOBER 31, 1993 1992 Shares outstanding, beginning of period -- -- - -------------------------------------------------------------------------------------- Shares sold 23,307,837 -- - -------------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 84,247 -- - -------------------------------------------------------------------------------------- Shares redeemed (5,249,239) -- - -------------------------------------------------------------------------------------- ------------- ------------- Shares outstanding, end of period 18,142,845 -- - -------------------------------------------------------------------------------------- ------------- -------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Federated Management, the Fund's investment adviser ("Adviser"), receives for its services an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. Adviser has voluntarily agreed to waive a portion of its fee. Adviser can modify or terminate this voluntary waiver of expense at any time at its sole discretion. For the fiscal year ended October 31, 1993, the investment advisory fee amounted to $498,975, of which $427,232 was waived in accordance with such undertaking. Organizational expenses ($44,840) and start-up administrative services expenses ($43,014) were borne initially by the Adviser. The Fund has agreed to pay the Adviser, at an annual rate of .005 of 1% of average daily net assets and .01 of 1% of average daily net assets for organization expenses and start-up administrative expenses, respectively, until the expenses borne initially by the Adviser are reimbursed, or the expiration of five years from May 18, 1990, the date the Trust's portfolio became effective, whichever MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- occurs earlier. During the fiscal year ended October 31, 1993, the Fund paid Adviser $4,917 and $9,835, respectively, pursuant to this agreement. During the fiscal year ended October 31, 1993, the Fund engaged in purchase and sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7 of the Investment Company Act of 1940 amounting to $123,934,015 and $129,750,000, respectively. These purchases and sales were conducted on an arms-length basis insofar as they were transacted for cash consideration only, at independent current market prices and without brokerage commission, fee or other remuneration. Administrative personnel and services were provided at approximate cost by Federated Administrative Services, Inc. Certain Officers and Trustees of the Trust are Officers and Directors of the above corporations. (6) CURRENT CREDIT RATINGS Current credit ratings and related notes are unaudited. 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, 1993, 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 17 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 the securities owned as of October 31, 1993, 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 Massachusetts Municipal Cash Trust, an investment portfolio of Federated Municipal Trust, as of October 31, 1993, 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 & CO. Pittsburgh, Pennsylvania December 13, 1993 ADDRESSES - -------------------------------------------------------------------------------- Massachusetts Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8602 Trust Company Boston, Massachusetts 02266-8602 - --------------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, D.C. 20037 - --------------------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen & Co. 2100 One PPG Place Pittsburgh, Pennsylvania 15222 - ---------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST INSTITUTIONAL SERVICE SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company December 31, 1993 [LOGO] FEDERATED SECURITIES CORP. Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 0032603A-ISS (12/93) 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 for Institutional Service Shares of Massachusetts Municipal Cash Trust (the "Fund") dated December 31, 1993. This Statement is not a prospectus itself. To receive a copy of the prospectus, write or call Federated Municipal Trust. FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 Statement dated December 31, 1993 [LOGO] FEDERATED SECURITIES CORP. --------------------------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS TABLE OF CONTENTS - -------------------------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND 1 - --------------------------------------------------------------- INVESTMENT OBJECTIVE AND POLICIES 1 - --------------------------------------------------------------- Acceptable Investments 1 When-Issued and Delayed Delivery Transactions 1 Temporary Investments 2 Investment Limitations 2 Massachusetts Investment Risks 4 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 - --------------------------------------------------------------- Officers and Trustees 5 The Funds 7 Fund Ownership 7 Trustee Liability 7 INVESTMENT ADVISORY SERVICES 7 - --------------------------------------------------------------- Adviser to the Fund 7 Advisory Fees 8 ADMINISTRATIVE SERVICES 8 - --------------------------------------------------------------- BROKERAGE TRANSACTIONS 8 - --------------------------------------------------------------- PURCHASING SHARES 9 - --------------------------------------------------------------- Conversion to Federal Funds 9 DETERMINING NET ASSET VALUE 9 - --------------------------------------------------------------- Use of the Amortized Cost Method 9 REDEEMING SHARES 10 - --------------------------------------------------------------- Redemption in Kind 10 TAX STATUS 10 - --------------------------------------------------------------- The Fund's Tax Status 10 Massachusetts State Income Tax 10 YIELD 11 - --------------------------------------------------------------- EFFECTIVE YIELD 11 - --------------------------------------------------------------- TAX-EQUIVALENT YIELD 11 - --------------------------------------------------------------- Tax-Equivalency Table 12 PERFORMANCE COMPARISONS 12 - --------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND - -------------------------------------------------------------------------------- The Fund is a portfolio in Federated Municipal Trust (the "Trust"), which was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. Shares of the Fund are offered in two classes, known as Institutional Service Shares ("Shares") and BayFunds Shares. This Statement of Additional Information relates to the Institutional Service Shares of the Fund. INVESTMENT OBJECTIVE AND POLICIES - -------------------------------------------------------------------------------- The Fund's investment objective is to provide current income 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. ACCEPTABLE INVESTMENTS The Fund invests primarily in debt obligations issued by or on behalf of Massachusetts and 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 both federal regular income tax and Massachusetts state income tax imposed upon non-corporate taxpayers. When determining whether a Massachusetts municipal security presents minimal credit risks, the investment adviser considers the creditworthiness of the issuer of the security, the issuer of a demand feature if the Fund has the unconditional right to demand payment for the security, or the guarantor of payment by either of those issuers. If a security loses its rating or the security's rating is reduced below the required minimum after the Fund purchased it, the Fund is not required to sell the security. The investment adviser considers this event, however, in its determination of whether the Fund should continue to hold the security in its portfolio. If ratings made by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") change because of changes in those organizations or in their rating systems, the Fund will try to use comparable ratings as standards in accordance with the investment policies described in the Fund's prospectus. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests which represent undivided proportional interests in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure the payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. In particular, lease obligations may be subject to periodic appropriation. If the entity does not appropriate funds for future lease payments, the entity cannot be compelled to make such payments. 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. Under the criteria currently established by the Board of Trustees ("Trustees"), the Fund's investment adviser must consider the following factors in determining the liquidity of municipal lease securities: (1) the frequency of trades and quotes for the security; (2) the volatility of quotations and trade prices for the security; (3) the number of dealers willing to purchase or sell the security and the number of potential purchasers; (4) dealer undertakings to make a market in the security; (5) the nature of the security and the nature of the marketplace trades; (6) the rating of the security and the financial condition and prospects of the issuer of the security; (7) such other factors as may be relevant to the Fund's ability to dispose of the security; (8) whether the lease can be terminated by the lessee; (9) the potential recovery, if any, from a sale of the leased property upon termination of the lease; (10) the lessee's general credit strength; (11) the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations; and (12) any credit enhancement or legal recourse provided upon an event of nonappropriation or other termination of the lease. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The Fund engages in when-issued and delayed delivery transactions only for the purpose of acquiring portfolio securities consistent with the Fund's investment objective and policies, not for investment leverage. These transactions are made to secure what is considered to be an advantageous price and yield for the Fund. 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. - -------------------------------------------------------------------------------- No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. The Fund may engage in these transactions to an extent that would cause the segregation of an amount up to 20% of the value of its assets. TEMPORARY INVESTMENTS The Fund may also invest in high quality temporary investments during times of unusual market conditions for defensive purposes and to maintain liquidity. REPURCHASE AGREEMENTS Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities or other securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price within one year from the date of acquisition. 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 investment adviser to be creditworthy, pursuant to guidelines established by the Trustees. From time to time, such as when suitable Massachusetts municipal securities are not available, the Fund may maintain a portion of its assets in cash. Any portion of the Fund's assets maintained in cash will reduce the amount of assets in Massachusetts municipal securities and thereby reduce the Fund's yield. 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 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 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, instrumentalities, 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 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. - -------------------------------------------------------------------------------- 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 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. 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. LENDING CASH OR SECURITIES The Fund will not lend any of its assets except that it may acquire publicly or nonpublicly issued Massachusetts municipal securities or temporary investments or enter into repurchase agreements, 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 total assets in cash or cash items (including instruments issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment), 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 Fund does not consider the issuance of separate classes of shares to involve the issuance of "senior securities" within the meaning of the investment limitation set forth above. 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 IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in industrial development bonds or other municipal securities where the principal and interest are the responsibility of companies (or guarantors, where applicable) with 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 the Fund's investment adviser, owning individually more than 1/2 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. DEALING IN PUTS AND CALLS The Fund will not purchase or sell 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 MINERALS The Fund will not purchase or sell oil, gas, or other mineral exploration or development programs, or leases. - -------------------------------------------------------------------------------- INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in securities which are illiquid, including repurchase agreements providing for settlement in more than seven days after notice, certain restricted securities not determined by the Trustees to be liquid, and non-negotiable fixed time deposits with maturities over seven days. 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 does not expect to borrow money or pledge securities in excess of 5% of the value of its net assets during the coming fiscal year. 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. Throughout the early to mid-1980's Massachusetts had a strong economy which was evidenced by low unemployment and high personal income growth as compared to national averages. However, beginning in the late 1980's, economic growth in the New England region and Massachusetts, in particular, slowed and has shown pronounced deterioration in the construction, real estate, financial and manufacturing sectors. Between 1988 and 1992 there has been extensive job losses that have resulted in a 10% reduction in the work force. 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 Prop 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 decreased from Aa and AA+, respectively, to a low of Baa and BBB. Over the past year the Commonwealth has had its debt ratings raised by the two rating agencies to A and A+ (Moody's and S&P) reflecting its 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 Officers and Trustees are listed with their addresses, principal occupations, and present positions, including any affiliation with Federated Management, Federated Investors, Federated Securities Corp., Federated Services Company, and Federated Administrative Services, Inc., and the Funds (as defined below).
POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS John F. Donahue\* Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated Investors Tower Trustee Federated Advisers, Federated Management, and Federated Research; Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds; formerly, Director, The Standard Fire Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice President of the Trust. John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President, Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate Department Village Development Corporation; General Partner or Trustee in private John R. Wood and real estate ventures in Southwest Florida; Director, Trustee, or Associates, Inc., Realtors Managing General Partner of the Funds; formerly, President, Naples 3255 Tamiami Trail North Property Management, Inc. Naples, FL William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; One PNC Plaza-- Director, Trustee, or Managing General Partner of the Funds; formerly, 23rd Floor Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Pittsburgh, PA Director, Ryan Homes, Inc. James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, 571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Concord, MA Blue Cross of Massachusetts, Inc. Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore 3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds. Pittsburgh, PA Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park 5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson* President and Trustee, Federated Investors; President and/or Trustee of some of the Federated Investors Tower Trustee Funds; staff member, Federated Securities Corp. and Federated Pittsburgh, PA Administrative Services, Inc. Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; 225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly, Boston, MA President, State Street Bank & Trust Company and State Street Boston Corporation and Trustee, Lahey Clinic Foundation Inc. Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.; 5916 Penn Mall Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A.
- --------------------------------------------------------------------------------
POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie 1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer Learning Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak University of Pittsburgh Management Center; Director, Trustee, or Managing General Partner of the Pittsburgh, PA Funds; President Emeritus, University of Pittsburgh; formerly, Chairman, National Advisory Council for Environmental Policy and Technology. Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing 4905 Bayard Street General Partner of the Funds. Pittsburgh, PA J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Investors Tower Federated Management, and Federated Research; Trustee, Federated Pittsburgh, PA Services Company; President and Director, Federated Administrative Services, Inc.; President or Vice President of the Funds; Director, Trustee or Managing General Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Trust. Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Federated Investors Tower Director, Federated Securities Corp.; President or Vice President of the Pittsburgh, PA Funds; Director or Trustee of some of the Funds. Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated Investors; Vice Federated Investors Tower and Treasurer President and Treasurer, Federated Advisers, Federated Management, and Pittsburgh, PA Federated Research; Trustee, Federated Services Company; Executive Vice President, Treasurer, and Director, Federated Securities Corp.; Chairman, Treasurer, and Director, Federated Administrative Services, Inc.; Trustee or Director of some of the Funds; Vice President and Treasurer of the Funds. John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated Federated Investors Tower and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers, Pittsburgh, PA Federated Management, and Federated Research; Trustee, Federated Services Company; Executive Vice President, Secretary, and Director, Federated Administrative Services, Inc.; Director and Executive Vice President, Federated Securities Corp.; Vice President and Secretary of the Funds. John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Federated Pittsburgh, PA Advisers, Federated Management, and Federated Research; Vice President of the Funds; Director, Trustee, or Managing General Partner of some of the Funds; formerly, Vice President, The Standard Fire Insurance Compa- ny and President of its Federated Research Division.
*This Trustee is deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940, as amended. \Member of the Trust's Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. THE FUNDS "The Funds" and "Funds" mean the following investment companies: A.T. Ohio Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust; Automated Government Money Trust; The Boulevard Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.; - -------------------------------------------------------------------------------- DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds; The Passageway Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; and Trust for U.S. Treasury Obligations. FUND OWNERSHIP Officers and Trustees, as a group, own more than 1% of the Fund's outstanding Shares as of November 29, 1993. As of November 29, 1993, the following shareholders of record owned 5% or more of the outstanding Institutional Service Shares of the Fund: State Street Bank and Trust Company, North Quincy, Massachusetts, owned approximately 28,909,810 Shares (33.66%); John & Company, Burlington, Massachusetts, owned approximately 20,932,775 Shares (24.37%); and Scaup & Company, Boston, Massachusetts, owned approximately 12,466,302 Shares (14.51%). As of November 29, 1993, the following shareholder of record owned 5% or more of the outstanding BayFunds Shares of the Fund: John & Company, Burlington, Massachusetts, owned approximately 20,423,104 Shares (99.99%). 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. 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, his wife, and his son, J. Christopher Donahue. John F. Donahue is Chairman and Trustee, Federated Management; Chairman and Trustee, Federated Investors; and Chairman and Trustee of the Trust. John A. Staley, IV, is President and Trustee, Federated Management; Vice President and Trustee, Federated Investors; Executive Vice President, Federated Securities Corp.; and Vice President of the Trust. J. Christopher Donahue is Trustee, Federated Management; President and Trustee, Federated Investors; President and Director, Federated Administrative Services, Inc.; Trustee, Federated Services Company; and Vice President of the Trust. John W. McGonigle is Vice President, Secretary and Trustee, Federated Management; Trustee, Vice President, Secretary, and General Counsel, Federated Investors; Director, Executive Vice President, and Secretary, Federated Administrative Services, Inc.; Director and Executive Vice President, Federated Securities Corp.; Trustee, Federated Services Company; and Vice President and Secretary of the Trust. 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. During the fiscal years ended October 31, 1993, 1992, and 1991, the Fund's adviser earned $498,975, $445,783, and $379,567, respectively, of which $427,232, $445,783, and $379,567, respectively, were voluntarily waived, because of undertakings to limit the Fund's expenses. - -------------------------------------------------------------------------------- STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitation established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this expense limitation, the investment advisory fee paid will be reduced by the amount of the excess, subject to an annual adjustment. If the expense limitation is exceeded, the amount to be reimbursed by the adviser will be limited, in any single fiscal year, by the amount of the investment advisory fee. These arrangements are not part of the advisory contract and have been established only to comply with applicable state authorities. They may be amended or rescinded in the future. ADMINISTRATIVE SERVICES - -------------------------------------------------------------------------------- Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides administrative personnel and services to the Fund at approximate cost. For the fiscal years ended October 31, 1993, 1992, and 1991, the Fund incurred costs for administrative services of $253,380, $197,636, and $194,694, respectively. John A. Staley, IV, an officer of the Trust, and Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, each hold approximately 15% and 20%, respectively, of the outstanding common stock and serve as directors of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services, Inc. For the fiscal years ended October 31, 1993, 1992, and 1991, Federated Administrative Services, Inc. paid approximately $165,431, $189,741, and $187,677, respectively, for services 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 investment 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 review 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. 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. Research services provided by brokers may be used by the adviser or by affiliates of Federated Investors in advising Federated funds 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. PURCHASING SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value without a sales charge on days the New York Stock Exchange and the Federal Reserve wire system are open for business. The procedure for purchasing Shares is explained in the prospectus under "Investing in Institutional Service Shares." CONVERSION TO FEDERAL FUNDS It is the Fund's policy to be as fully invested as possible so that maximum interest may be earned. To this end, all payments from shareholders must be in federal funds or be converted into federal funds. State Street Bank and Trust Company acts as the shareholder's agent in depositing checks and converting them to federal funds. DETERMINING NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the value of a share at $1.00. The days on which net asset value is calculated by the Fund are described in the prospectus. USE OF THE AMORTIZED COST METHOD 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. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7, as amended (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. Under the Rule, the Fund is permitted to purchase instruments which are subject to demand features or standby commitments. As defined by the Rule, a demand feature entitles the Fund to receive the principal amount of the instrument from the issuer or a third party (1) on no more than 30 days' notice or (2) at specified intervals not exceeding one year on no more than 30 days' notice. A standby commitment entitles the Fund to achieve same day settlement and to receive an exercise price equal to the amortized cost of the underlying instrument plus accrued interest at the time of exercise. Although demand features and standby commitments are techniques and are defined as "puts" under the Rule, the Fund does not consider them to be "puts" as that term is used in the Fund's investment limitations. Demand features and standby commitments are features which enhance an instrument's liquidity, and the investment limitation which proscribes puts is designed to prohibit the purchase and sale of put and call options and is not designed to prohibit the Fund from using techniques which enhance the liquidity of portfolio instruments. MONITORING PROCEDURES The Trustees' 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% 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. INVESTMENT RESTRICTIONS The Rule requires that the Fund limit its investments to instruments that, in the opinion of the Trustees, present minimal credit risk and have received the requisite rating from one or more nationally recognized statistical rating organizations. If the instruments are not rated, the Trustees must determine that they are of comparable quality. The Rule also requires the Fund to maintain a dollar-weighted average portfolio maturity (not more than 90 days) appropriate to the objective of maintaining a stable net asset value of $1.00 per share. In addition, no instrument with a remaining maturity of more than 397 days can be purchased by the Fund. For a discussion of the treatment of variable rate municipal securities with demand features, refer to "Variable Rate Demand Notes" in the prospectus. Should the disposition of a portfolio security result in a dollar-weighted average portfolio maturity of more than 90 days, the Fund will invest its available cash to reduce the average maturity to 90 days or less as soon as possible. The Fund may attempt to increase yield by trading portfolio securities to take advantage of short-term market variations. This policy may, from time to time, result in high portfolio turnover. Under the amortized cost method of valuation, 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 indicated daily yield on Shares of the Fund computed the same way may tend to be lower than a similar computation made by using a method of calculation based upon market prices and estimates. REDEEMING SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares at the next computed net asset value after the Fund receives the redemption request. Redemption procedures are explained in the prospectus under "Redeeming Institutional Service Shares." Although State Street Bank does not charge for telephone redemptions, it reserves the right to charge a fee for the cost of wire-transferred redemptions of less than $5,000. REDEMPTION IN KIND Although the Trust intends to redeem Shares in cash, it reserves the right under certain circumstances to pay the redemption price in whole or in part by a distribution of securities from the respective Fund's portfolio. To the extent available, such securities will be readily marketable. Redemption in kind will be made in conformity with applicable Securities and Exchange Commission rules, taking such securities at the same value employed in determining net asset value and selecting the securities in a manner the Trustees determine to be fair and equitable. The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act of 1940 under which the Fund is obligated to redeem Shares for any one shareholder in cash only up to the lesser of $250,000 or 1% of the net asset value of the respective class during any 90-day period. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders receiving their securities and selling them before their maturity could receive less than the redemption value of their securities and could incur certain transaction costs. TAX STATUS - -------------------------------------------------------------------------------- THE FUND'S TAX STATUS The Fund will pay no federal income tax because it expects to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. To qualify for this treatment, 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 is 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. YIELD - -------------------------------------------------------------------------------- The Fund's yield for Institutional Service Shares for the seven-day period ended October 31, 1993 was 1.98%. The yield for BayFunds Shares was 1.88% for the same period. The Fund calculates the yield for both classes of Shares daily, 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 (on funds that pay dividends daily) 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). To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in either class of shares, the performance will be reduced for those shareholders paying those fees. EFFECTIVE YIELD - -------------------------------------------------------------------------------- The Fund's effective yield for Institutional Service Shares for the seven-day period ended October 31, 1993 was 2.00%. The effective yield for BayFunds Shares was 1.89% for the same period. The Fund's effective yield for both classes of Shares is computed 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. TAX-EQUIVALENT YIELD - -------------------------------------------------------------------------------- The Fund's tax-equivalent yield for Institutional Service Shares for the seven-day period ended October 31, 1993 was 3.30%. The tax-equivalent yield for BayFunds Shares was 3.13% for the same period. The tax-equivalent yield for both classes of Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that Institutional Service Shares would have had to earn to equal its actual yield, assuming a 28% 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. - -------------------------------------------------------------------------------- TAX-EQUIVALENCY TABLE Both classes of Shares may also use a tax-equivalency table 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 from the regular personal income tax imposed by Massachusetts.* 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 1993 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 RETURN: $1- $36,901- $89,151- $140,001- Over 36,900 89,150 140,000 250,000 $250,000 SINGLE RETURN: $1- $22,101- $53,501- $115,001- Over 22,100 53,500 115,000 250,000 $250,000 - ---------------------------------------------------------------------------------------- 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
The above chart is for illustrative purposes only. It is not an indicator of past or future performance of either class of Shares. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local regular or alternative minimum taxes. Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Futhermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. PERFORMANCE COMPARISONS - -------------------------------------------------------------------------------- The performance of Institutional Service Shares depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates on money market instruments; changes in the Fund's or either class of shares' expenses; and the relative amount of Fund cash flow. From time to time, the Fund may advertise the performance of Institutional Service Shares compared to similar funds or portfolios using certain indices, reporting services, and financial publications. These may include the following: LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by making comparative calculations using total return. Total return assumes the reinvestment of all income dividends and capital gains distributions, if any. From time to time, the Fund will quote its Lipper ranking in the "money market funds" category in advertising and sales literature. Investors may use such an index in addition to the prospectus of Institutional Service Shares to obtain a more complete view of the performance before investing. Of course, when comparing performance of Institutional Service Shares to any index, factors such as composition of the index and prevailing market conditions should be considered in assessing the significance of such comparisons. - -------------------------------------------------------------------------------- When comparing funds using reporting services, or total return and yield, investors should take into consideration any relevant differences in funds such as permitted portfolio composition and methods used to value portfolio securities and compute offering price. Advertisements and other sales literature for Institutional Service Shares may refer to total return. Total return is the historic change in the value of an investment in Institutional Service Shares based on the monthly reinvestment of dividends over a specified period of time. 0032603B-ISS (12/93) MASSACHUSETTS MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) BAYFUNDS SHARES PROSPECTUS The BayFunds Shares of Massachusetts Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified investment portfolio of Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. 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. 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 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 and Massachusetts state income tax. Shareholders can invest, reinvest, or redeem BayFunds Shares at any time with no sales loads or redemption fees imposed by the Fund. Shareholders have access to other portfolios in BayFunds. THE BAYFUNDS SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF BAYBANKS, INC., OR ITS SUBSIDIARIES, ARE NOT ENDORSED OR GUARANTEED BY BAYBANKS, INC., OR ITS 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. This prospectus contains the information you should read and know before you invest in BayFunds Shares. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information for BayFunds Shares dated December 31, 1993, with the Securities and Exchange Commission. 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 free of charge by calling 1-800-235-4669. To obtain other information or to make inquiries about the Fund, contact the Fund at the address listed at the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1993 - -------------------------------------------------------------------------------- TABLE OF CONTENTS Synopsis.......................................................................1 Summary of Fund Expenses.......................................................3 Financial Highlights--BayFunds Shares..........................................4 General Information............................................................5 Investment Information.........................................................5 Investment Objective.........................................................5 Investment Policies..........................................................5 Acceptable Investments.......................................................6 Variable Rate Demand Notes................................................6 Participation Interests...................................................6 Municipal Leases..........................................................7 Ratings...................................................................7 Credit Enhancement........................................................7 Demand Features...........................................................7 Restricted and Illiquid Securities........................................7 When-Issued and Delayed Delivery Transactions...................................................8 Temporary Investments.....................................................8 Massachusetts Municipal Securities...........................................8 Standby Commitments..........................................................9 Massachusetts Investment Risks...............................................9 Non-Diversification..........................................................9 Investment Limitations......................................................10 Regulatory Compliance.......................................................10 Federated Municipal Trust Information.........................................10 Management of Federated Municipal Trust.....................................10 Board of Trustees........................................................10 Investment Adviser.......................................................10 Advisory Fees..........................................................10 Adviser's Background...................................................11 Distribution of BayFunds Shares.............................................11 Administrative Arrangements..............................................11 Administration of the Fund..................................................12 Administrative Services..................................................12 Custodian................................................................12 Transfer Agent and Dividend Disbursing Agent.......................................................12 Sub-Transfer Agent.......................................................12 Shareholder Servicing Arrangements.......................................12 Legal Counsel............................................................12 Independent Public Accountants...........................................12 Net Asset Value...............................................................13 Pricing of Shares...........................................................13 Investing in BayFunds Shares..................................................13 Minimum Investment..........................................................13 When You May Purchase Shares................................................13 When Your Purchase Is Effective.............................................13 Purchases By Mail...........................................................14 Purchases By Phone..........................................................14 Purchases By Wire...........................................................14 Purchases Through BayBanks Offices..........................................15 Systematic Investment Program...............................................15 Exchanging Securities For Shares............................................15 Exchange Privileges...........................................................16 Exchanges By Telephone......................................................16 Written Exchanges...........................................................17 Exchanges Through BayBanks Offices..........................................17 Redeeming BayFunds Shares.....................................................17 When You May Redeem Shares..................................................17 When Redemptions are Paid...................................................17 Signature Guarantees...................................................18 Redemptions By Mail.........................................................18 Redemptions By Phone........................................................18 Redemptions By Wire.........................................................18 Redemptions Through BayBanks Offices........................................19 Redemptions Before Purchase Instruments Clear.........................................................................19 Shareholder Information.......................................................19 Balances in Accounts........................................................19 Dividends and Distributions.................................................19 Certificates................................................................20 Confirmations and Statements................................................20 Corporate Customers.........................................................20 Voting Rights...............................................................20 Tax Information...............................................................21 Federal Income Tax..........................................................21 Massachusetts Tax Considerations............................................22 Other State and Local Taxes.................................................22 Performance Information.......................................................22 Tax Equivalent Yield..........................................................23 Tax-Equivalency Table.......................................................24 Other Classes of Shares.......................................................25 Financial Highlights-- Institutional Service Shares.............................................26 Financial Statements..........................................................27 Report of Independent Public Accountants..........................................................42 Addresses......................................................Inside Back Cover - -------------------------------------------------------------------------------- SYNOPSIS INVESTMENT OBJECTIVE This prospectus relates only to the BayFunds Shares class (the "Shares") of Massachusetts Municipal Cash Trust, a professionally managed, non-diversified portfolio in Federated Municipal Trust, which seeks to provide current income which is exempt from federal regular income tax and Massachusetts state income tax consistent with stability of principal by investing primarily in short-term Massachusetts municipal securities. As a shareholder of the Shares of the Fund, you have access to all of the portfolios of BayFunds, an open-end, management investment company. BayFunds consists of five separate, professionally managed investment portfolios with distinct investment objectives and policies. As of the date of this prospectus, BayFunds offers shares in five portfolios: BAYFUNDS MONEY MARKET PORTFOLIO SEEKS TO PROVIDE CURRENT INCOME CONSISTENT WITH STABILITY OF PRINCIPAL AND LIQUIDITY, BY INVESTING IN A PORTFOLIO OF MONEY MARKET INSTRUMENTS WITH REMAINING MATURITIES OF 397 DAYS OR LESS; BAYFUNDS U.S. TREASURY MONEY MARKET PORTFOLIO SEEKS TO PROVIDE CURRENT INCOME CONSISTENT WITH STABILITY OF PRINCIPAL AND LIQUIDITY, BY INVESTING, UNDER NORMAL MARKET CONDITIONS, AT LEAST 65% OF THE VALUE OF ITS TOTAL ASSETS IN U.S. TREASURY OBLIGATIONS WITH REMAINING MATURITIES OF 397 DAYS OR LESS; BAYFUNDS SHORT TERM YIELD PORTFOLIO SEEKS A HIGH LEVEL OF CURRENT INCOME CONSISTENT WITH PRESERVATION OF CAPITAL, BY INVESTING IN A DIVERSIFIED PORTFOLIO OF HIGH-GRADE DEBT OBLIGATIONS. THE FUND WILL MAINTAIN A DOLLAR-WEIGHTED AVERAGE MATURITY OF THREE YEARS OR LESS; BAYFUNDS BOND PORTFOLIO SEEKS TO ACHIEVE HIGH CURRENT INCOME AND CAPITAL APPRECIATION, BY INVESTING, UNDER NORMAL MARKET AND ECONOMIC CONDITIONS, AT LEAST 65% OF THE VALUE OF ITS TOTAL ASSETS IN BONDS; AND BAYFUNDS EQUITY PORTFOLIO SEEKS TO PROVIDE LONG-TERM CAPITAL APPRECIATION, BY INVESTING, UNDER NORMAL MARKET AND ECONOMIC CONDITIONS, AT LEAST 65% OF THE VALUE OF ITS TOTAL ASSETS IN A BROADLY DIVERSIFIED PORTFOLIO OF EQUITY SECURITIES, WITH CURRENT INCOME AS A SECONDARY CONSIDERATION. Shareholders may redeem Shares in the Fund and purchase shares in the other BayFunds portfolios, without any redemption fee or other charge. (See "Exchange Privileges" at pages 16-17). VALUING SHARES The Fund attempts to maintain a stable net asset value (or market value) of $1.00 per share, although there is no assurance that it will be able to do so. (See "Net Asset Value" at page 13.) An investment in the Fund is neither insured nor guaranteed by the U.S. government. In addition, the Shares offered by this prospectus are not guaranteed or endorsed by BayBanks, Inc. or its subsidiaries, are not deposits or obligations of the banking subsidiaries of BayBanks, Inc., and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board nor any other governmental agency. Investing in these Shares involves investment risks including the possible loss of principal. BUYING AND REDEEMING SHARES You can conveniently buy and redeem Shares on any business day. (See "Investing in BayFunds Shares" at pages 13-15 and "Redeeming BayFunds Shares" at pages 17-19.) Shares of the Fund are bought and redeemed at net asset value without a sales load or redemption fees. The minimum initial investment in the Fund is $2,500 or $500 if you participate in the Systematic Investment Program. (See "Systematic Investment Program" at page 15.) Subsequent investments must be in amounts of at least $100, or $50 if you participate in the Systematic Investment Program. FUND MANAGEMENT The Fund's investment adviser is Federated Management (the "Adviser"), which makes investment decisions for the Fund. (See "Federated Municipal Trust Information" at pages 10-11.) SHAREHOLDER SERVICES When you become a shareholder, you can easily obtain information about your account, and about the Fund and BayFunds' portfolios by calling toll-free 1-800-BAYFUND (1-800-229-3863.) (See "Corporate/Capital Markets Customers" at page 20 if you are a Corporate and/or Capital Markets customer at BayBanks.) RISK FACTORS An investment in the Fund may involve certain risks that are explained more fully in the sections of this prospectus discussing the Fund's investment policies and its acceptable investments (See "Acceptable Investments" at pages 6-10.) - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES BAYFUNDS SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................................... None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)........................ None Deferred Sales Load (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 BAYFUNDS SHARES OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)............................................................................. 0.10% 12b-1 Fee..................................................................................................... None Total Other Expenses.......................................................................................... 0.55% Shareholder Servicing Fee (2)........................................................................0.00% Total BayFunds Shares 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 maximum Shareholder Servicing Fee is 0.25%. (3) The Total BayFunds Shares Operating Expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1994. The Total BayFunds Shares Operating Expenses were 0.65% for the fiscal year ended October 31, 1993 and were 1.08% 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 BAYFUNDS SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN BAYFUNDS SHARES"AND "FEDERATED MUNICIPAL TRUST INFORMATION." Wire-transferred redemptions may be subject to additional fees.
EXAMPLE: 1 YEAR 3 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. As noted in the table above, the Fund charges no redemption fee for BayFunds Shares............................................................... $ 7 $ 21
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the foregoing table and example relates only to the BayFunds Shares of the Fund. The Fund also offers another class of shares called Institutional Service Shares. BayFunds Shares and Institutional Service Shares are subject to certain of the same expenses; however, Institutional Service Shares are not subject to a Shareholder Servicing Fee or a Sub-Transfer Agent Fee. Certain expenses are allocated as incurred by each class. These expenses are greater for BayFunds Shares than for Institutional Service Shares. All other expenses are allocated based upon the average daily net assets of each class. See "Other Classes of Shares." MASSACHUSETTS MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--BAYFUNDS SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Reference is made to the Report of Independent Public Accountants on page 42.
PERIOD ENDED OCTOBER 31, 1993* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 - ---------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ---------------------------------------------------------------------------------------------------- Net investment income 0.01 ------- - ---------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS - ---------------------------------------------------------------------------------------------------- Dividends to shareholders from net investment income (0.01) ------- - ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 1.00 ------- - ---------------------------------------------------------------------------------------------------- TOTAL RETURN** 1.25%(a) - ---------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------------------------------------------------------------------------- Expenses 0.65%(b) - ---------------------------------------------------------------------------------------------------- Net investment income 1.85%(b) - ---------------------------------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.43%(b) - ---------------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $18,143 - ----------------------------------------------------------------------------------------------------
* Reflects operations for the period from March 8, 1993 (date of initial public investment) to October 31, 1993. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (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 of beneficial interest 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, BayFunds Shares and Institutional Service Shares. This prospectus relates only to BayFunds Shares of the Fund (the "Shares"). Shares are designed primarily for individuals, partnerships and corporations who seek a convenient means of accumulating an interest in a professionally managed, non-diversified 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. The Fund attempts to stabilize the value of a Share at $1.00. Shares are currently sold and redeemed at that price. For information on how to purchase Shares, please refer to "Investing in BayFunds Shares." A minimum initial investment of $2,500 is required. This minimum requirement may be reduced to $500 in connection with participation in the Systematic Investment Program. Information on redeeming Shares may be found under "Redeeming BayFunds Shares." INVESTMENT INFORMATION IF YOU ARE SEEKING CURRENT INCOME WHICH IS EXEMPT FROM FEDERAL REGULAR INCOME TAX AND MASSACHUSETTS STATE INCOME TAX CONSISTENT WITH LIQUIDITY AND STABILITY OF PRINCIPAL, THEN THE FUND MAY BE A SUITABLE INVESTMENT. THE FUND SEEKS TO MAINTAIN A STABLE $1.00 SHARE PRICE, REFERRED TO AS THE NET ASSET VALUE PER SHARE, BY INVESTING IN A PORTFOLIO OF SHORT-TERM MASSACHUSETTS MUNICIPAL SECURITIES. WHILE THE FUND CANNOT GUARANTEE A STABLE SHARE PRICE, THE SHORT-TERM NATURE OF ITS INVESTMENTS HELPS TO MINIMIZE PRICE FLUCTUATIONS. 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. 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 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. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in a portfolio of Massachusetts municipal securities with remaining maturities of 13 months or less at the time of purchase by the Fund. As a matter of investment policy, which cannot be changed without the approval of shareholders, the Fund invests its assets so that at least 80% of its annual interest income is exempt from federal regular income tax and Massachusetts state income tax. 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 the approval of shareholders. 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 imposed upon non-corporate taxpayers. Examples of Massachusetts municipal securities include, but are not limited to: tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes ("BANs") 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. At least 80% of the value of the Fund's total assets will be invested in Massachusetts municipal securities. VARIABLE RATE DEMAND NOTES Variable rate demand notes are long-term municipal securities 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 adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS The Fund may purchase interests in municipal securities from financial institutions such as commercial and investment banks, savings and loan associations and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying municipal securities. MUNICIPAL LEASES Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities and may be considered to be illiquid. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation certificate on any of the above. RATINGS The Massachusetts municipal securities in which the Fund invests must either 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 Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1 and FIN-2 by Fitch Investors Service ("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." CREDIT ENHANCEMENT Certain of the Fund's acceptable investments may have been credit-enhanced by a guaranty, letter of credit or insurance. 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. The bankruptcy, receivership or default of the credit enhancer will adversely affect the quality and marketability of the underlying security. 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. 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 laws. Under criteria established by the Trustees, certain restricted securities are considered liquid. To the extent restricted securities are deemed to be illiquid, the Fund will limit their purchase, together with other securities considered to be illiquid, to 10% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS The Fund may purchase Massachusetts municipal securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. TEMPORARY INVESTMENTS From time to time, during periods of other than normal market conditions, the Fund may invest in short-term, non-Massachusetts municipal tax-exempt obligations or other taxable temporary investments. All temporary investments will satisfy the same credit quality standards as the Fund's acceptable investments. See "Ratings" above. Temporary investments include: notes issued by or on behalf of municipal or corporate issuers; marketable obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; other debt securities; commercial paper; certificates of deposit of banks; and repurchase agreements (arrangements in which banks, broker/dealers, and other recognized financial institutions sell the Fund a temporary investment and agree 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 of generating income subject to federal regular income tax or Massachusetts state income 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. ISSUERS OF GENERAL OBLIGATION BONDS INCLUDE STATES, COUNTIES, CITIES, TOWNS, AND OTHER GOVERNMENTAL UNITS. The two principal classifications of 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. STANDBY COMMITMENTS Some securities dealers are willing to sell municipal securities to the Fund accompanied by their commitments to repurchase the municipal securities prior to maturity, at the Fund's option, for the amortized cost of the municipal securities at the time of repurchase. These arrangements are not used to protect against changes in the market value of municipal securities. They permit the Fund, however, to remain fully invested and still provide liquidity to satisfy redemptions. The cost of municipal securities accompanied by these "standby" commitments could be greater than the cost of municipal securities without such commitments. Standby commitments are not marketable or otherwise assignable and have value only to the Fund. The default or bankruptcy of a securities dealer giving such a commitment would not affect the quality of the municipal securities purchased. However, without a standby commitment, these securities could be more difficult to sell. The Fund enters into standby commitments only with those dealers whose credit the Adviser believes to be of high quality. 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 and maturity of the particular offering; the maturity of the obligations; and the rating of the issue. Further, any adverse economic conditions or developments affecting the Commonwealth of Massachusetts or its municipalities could impact the Fund's portfolio. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Massachusetts municipal securities and demand features, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. Investing in Massachusetts municipal securities which meet the Fund's quality standards may not be possible if the Commonwealth of Massachusetts or its municipalities do not maintain their high quality, short-term current credit ratings. In addition, certain Massachusetts constitutional amendments, legislative measures, executive orders, administrative regulations, and voter initiatives could result in adverse consequences affecting Massachusetts municipal securities. An expanded discussion of the current economic risks associated with the purchase of Massachusetts municipal securities is contained in the Statement of Additional Information. NON-DIVERSIFICATION The Fund is a non-diversified investment portfolio. As such, there is no limit on the percentage of assets which can be invested in any single issuer. An investment in the Fund, therefore, will entail greater risk than would exist in a diversified investment portfolio because the higher percentage of investments among fewer issuers may result in greater fluctuation in the total market value of the Fund's portfolio. Any economic, political, or regulatory developments affecting the value of the securities in the Fund's portfolio will have a greater impact on the total value of the portfolio than would be the case if the portfolio were diversified among more issuers. The Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that at the end of each quarter of the taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer; beyond that, no more than 25% of its total assets are invested in securities of a single issuer. 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. This investment limitation cannot be changed without shareholder approval. The Fund will not invest more than 5% of its total assets in industrial development bonds or other municipal securities when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. This limitation can be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in this limitation becomes effective. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in this prospectus and the 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, as amended (the "ICA"). In particular, the Fund will comply with the various requirements of Rule 2a-7 under the ICA, 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 INFORMATION MANAGEMENT OF FEDERATED MUNICIPAL TRUST BOARD OF TRUSTEES A BOARD OF TRUSTEES SUPERVISES FEDERATED MUNICIPAL 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 ACTING UNDER THE DIRECTION OF THE TRUSTEES, THE ADVISER MAKES INVESTMENT DECISIONS FOR THE FUND. Pursuant to an investment advisory contract (the "Advisory Contract") with the Trust, investment decisions for the Fund are made by Federated Management, the Fund's investment adviser (the "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, for which it receives an annual fee from the Fund. ADVISORY FEES The Adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. Under the Advisory Contract, which provides for the voluntary waiver of the advisory fee by the Adviser, the Adviser may voluntarily waive some or all of the advisory fee. This does not include reimbursement to the Fund of any expenses incurred by shareholders who use the transfer agent's sub-accounting facilities. The Adviser can terminate this voluntary waiver of expenses at any time in its sole discretion. The Adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. ADVISER'S BACKGROUND THE ADVISER HAS EXTENSIVE INVESTMENT EXPERIENCE. 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. Total assets under management or administration by these and other subsidiaries of Federated Investors are approximately $70 billion. Federated Investors, which was founded in 1956 as Federated Investors, Inc., develops and manages mutual funds primarily for the financial industry. Federated Investors' track record of competitive performance and its disciplined, risk-averse investment philosophy serve approximately 3,500 client institutions nationwide. Through these same client institutions, individual shareholders also have access to this same level of investment expertise. DISTRIBUTION OF BAYFUNDS SHARES FEDERATED SECURITIES CORP. IS THE PRINCIPAL DISTRIBUTOR FOR SHARES OF THE FUND. 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. ADMINISTRATIVE ARRANGEMENTS The Distributor may select brokers and dealers to provide distribution and administrative services. The Distributor may also select administrators (including depository institutions such as commercial banks and savings and loan associations) to provide administrative services. These administrative services include, but are not limited to, distributing prospectuses and other information, providing accounting assistance and communicating or facilitating purchases and redemptions of Shares. Brokers, dealers, and administrators will receive fees from the Distributor based upon shares owned by their clients or customers. The fees are calculated as a percentage of the average aggregate net asset value of shareholder accounts during the period for which the brokers, dealers, and administrators provide services. The current annual rate of such fees is .25 of 1%. Any fees paid for these services by the Distributor will be reimbursed by the Adviser. The Glass-Steagall Act prohibits a depository institution (such as a commercial bank or a savings and loan association) from being an under- writer 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 below or should Congress relax current restrictions on depository institutions, the Trustees will consider appropriate changes in the services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state law. ADMINISTRATION OF THE FUND VARIOUS ORGANIZATIONS PROVIDE SERVICES TO THE FUND. ADMINISTRATIVE SERVICES Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund and the separate classes. Such services include certain legal and accounting services. Federated Administrative Services, Inc., provides these at approximate cost. CUSTODIAN State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT Federated Services Company ("Transfer Agent"), Pittsburgh, Pennsylvania, a subsidiary of Federated Investors, is transfer agent for the Shares of the Fund and dividend disbursing agent for the Fund. SUB-TRANSFER AGENT Supervised Service Company, Inc. (the "Sub-Transfer Agent"), Kansas City, Missouri, is the sub-transfer agent for the Shares of the Fund. The Institutional Service Shares class has no sub-transfer agent. SHAREHOLDER SERVICING ARRANGEMENTS BayBank Systems, Inc., Waltham, Massachusetts, is the Fund's shareholder servicing agent (the "Shareholder Servicing Agent"). 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 1% 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. LEGAL COUNSEL Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania. - ------------------------------------------------------- NET ASSET VALUE THE TERM "NET ASSET VALUE" PER SHARE REFERS TO THE VALUE OF ONE FUND SHARE. 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. Net asset value per Share for purposes of pricing purchases and redemptions is calculated by dividing the value of all securities and other assets belonging to the Fund, less the liabilities charged to the Fund by the number of outstanding Shares of the Fund. The Fund cannot guarantee that its net asset value will always remain at $1.00 per Share. PRICING OF SHARES The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m. (Eastern time), and the close of regular trading hours on the New York Stock Exchange, currently 4:00 p.m. (Eastern time), Monday through Friday, except on the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. - ------------------------------------------------------- INVESTING IN BAYFUNDS SHARES SHARES ARE SOLD "NO-LOAD"--WITHOUT A SALES CHARGE. YOUR MINIMUM INITIAL INVESTMENT IS ONLY $2,500 OR $500 IF YOU PARTICIPATE IN THE SYSTEMATIC INVESTMENT PROGRAM. MINIMUM INVESTMENT You can become a shareholder with an initial investment of $2,500 or $500 if you participate in the Systematic Investment Program. Subsequent investments must be in amounts of at least $100, or if you participate in the Systematic 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 accounts. WHEN YOU MAY PURCHASE SHARES 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 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. WHEN YOUR PURCHASE IS EFFECTIVE If your purchase order is received in good order and accepted by the Fund from 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. You must submit a completed application at the time of your initial purchase. The Shareholder Servicing Agent is responsible for the prompt transmission of purchase orders received in good order to the Transfer Agent. YOU MAY BUY SHARES BY MAIL, TELEPHONE, WIRE, OR IN PERSON THROUGH BAYBANKS OFFICES. PURCHASES 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: BayFunds P.O. Box 665 Waltham, MA 02254-9614 You may obtain an application by calling 1-800-BAYFUND. You may make subsequent investments in the Fund at any time by sending a check for a minimum of $100 payable to the Fund at the following address: BayFunds P.O. Box 5-0900 Woburn, MA 01815-0900 along with either (a) the detachable form that regularly accompanies confirmation of a prior transaction, (b) a subsequent order form that may be obtained by calling 1-800-BAYFUND, 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. PURCHASES BY PHONE Once you are a shareholder, you may purchase additional Shares by calling 1-800-BAYFUND. You must have previously authorized the Fund in writing to accept telephone requests. If you have not done so, call 1-800-BAYFUND to receive the necessary form and information on this Fund feature. The establishment of certain types of deposit account relationships with BayBanks may permit the direct deduction of your purchase price from your BayBanks deposit account. Please call 1-800-BAYFUND to determine whether your BayBanks deposit account qualifies. For the protection of investors, all phone communications may be recorded where not otherwise prohibited by law. PURCHASES BY WIRE If you are a shareholder, you may purchase additional Shares by wire to BayBanks, as agent for the Shareholder Servicing Agent, as follows: BayBanks ABA Number: 0110-0174-2 Attention: Mutual Funds Services For Credit to: (shareholder name and account number) Further Credit to: BayFunds Shares, Massachusetts Municipal Cash Trust 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: Columbus Day, Veterans' Day, Martin Luther King Day, or Patriots' Day. PURCHASES THROUGH BAYBANKS OFFICES You may place an order to purchase Shares in person through designated BayBanks offices. Purchase orders placed through BayBanks 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 "Purchases By Phone." SYSTEMATIC INVESTMENT PROGRAM YOU CAN BUY SHARES CONVENIENTLY THROUGH THE SYSTEMATIC INVESTMENT PROGRAM. When you participate in the Systematic Investment Program, you can purchase additional Shares in minimum amounts of $50. You must previously have authorized in writing the amount of funds to be deducted automatically from eligible BayBanks 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 accounts. 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 and must be liquid. 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. - ------------------------------------------------------- EXCHANGE PRIVILEGES IF YOUR INVESTMENT NEEDS CHANGE, YOU CAN EASILY REDEEM FUND SHARES AND PURCHASE SHARES OF ANY BAYFUNDS' PORTFOLIO AT NO CHARGE. BayFunds consists of the BayFunds Money Market Portfolio, the BayFunds U.S. Treasury Money Market Portfolio, the BayFunds Short Term Yield Portfolio, the BayFunds Bond Portfolio and the BayFunds Equity Portfolio. As a shareholder, you have access to all of these portfolios ("Participating Funds") of BayFunds. Because the BayFunds offer separate classes of shares, Fund shareholders (other than certain trust and institutional investors, including qualified employee benefit plans) must purchase shares of the Investment Shares class of these Participating Funds. You may redeem Shares having a net asset value of at least $100 and purchase shares of any other Participating Funds in which you have an account. The minimum initial investment to establish an account in any other Participating Fund is $2,500 or $500 if you participate in the Systematic Investment Program. BayFunds does not charge any fees for these transactions. Shares will be redeemed at the net asset value next determined 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 request by the Transfer Agent 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-BAYFUND 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-BAYFUND. The exchange privilege is available to shareholders resident in any state in which Participating Funds' shares being acquired may be sold. BayFunds reserves the right to terminate this privilege at any time on 60 days' notice. 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-or long-term capital gain or loss for federal income tax purposes. EXCHANGES BY TELEPHONE You may provide instructions to redeem Shares and purchase shares of any Participating Funds by calling 1-800-BAYFUND. You must have previously authorized the Fund in writing to accept telephone requests. If you have not done so, call 1-800-BAYFUND 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. WRITTEN EXCHANGES You may send a written request to redeem Shares and purchase shares of any Participating Funds to: BayFunds P.O. Box 5-0900 Woburn, MA 01815-0900 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. EXCHANGES THROUGH BAYBANKS OFFICES You may place an order to redeem Shares and purchase shares of any Participating Funds in person through designated BayBanks offices. Orders received through designated BayBanks offices typically would be received by the Transfer Agent within two Business Days. For more prompt processing, you should consider another method, such as "Exchanges By Telephone." - ------------------------------------------------------- REDEEMING BAYFUNDS SHARES WHEN YOU SELL YOUR SHARES--"REDEEM" THEM--YOU RECEIVE THE NET ASSET VALUE PER SHARE NEXT DETERMINED AFTER YOU'VE MADE THE REQUEST. THERE ARE NO FEES OR OTHER REDEMPTION CHARGES (EXCEPT FOR REDEMPTIONS BY WIRE). YOU MAY REDEEM SOME OR ALL OF YOUR INVESTMENT. WHEN YOU MAY 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. The Fund will not process any redemptions until a completed application has been received. WHEN REDEMPTIONS ARE PAID Redemption proceeds may be credited to an eligible BayBanks 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 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. 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 $10,000 (no limitation if the proceeds are being credited to your BayBanks 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 and loan 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. 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-BAYFUND. YOU MAY REDEEM SHARES BY MAIL, PHONE, WIRE OR THROUGH BAYBANKS OFFICES. REDEMPTIONS BY MAIL You may redeem Shares by submitting a written request for redemption to: BayFunds P.O. Box 5-0900 Woburn, MA 01815-0900 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. REDEMPTIONS BY PHONE You may redeem Shares by calling 1-800-BAYFUND. You must have previously authorized the Fund in writing to accept telephone requests. If you have not done so, call 1-800-BAYFUND 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 "Redemptions by Mail" or "Redemptions by Wire." 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. REDEMPTIONS BY WIRE You may redeem Shares by wire (see "Purchases By Wire") or by calling 1-800-BAYFUND. Redemption proceeds of at least $1,000 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 "Redemptions By Wire" or "Redemptions By Phone" 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. REDEMPTIONS THROUGH BAYBANKS OFFICES You may place an order to redeem Shares in person through designated BayBanks offices. Redemption orders received through designated BayBanks offices typically would be received by the Transfer Agent within two Business Days. For more prompt processing, you should consider another method, such as "Redemptions By Phone." REDEMPTIONS BEFORE PURCHASE INSTRUMENTS CLEAR If any portion of the Shares to be redeemed represents an investment made with uncollected funds, the Fund reserves the right to delay payment of proceeds until the Shareholder Servicing Agent is reasonably certain that the funds have been collected, which could take up to ten calendar days. - ------------------------------------------------------- SHAREHOLDER INFORMATION BALANCES IN ACCOUNTS 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 ICA. DIVIDENDS AND DISTRIBUTIONS YOU EARN DIVIDENDS DAILY AND RECEIVE THEM MONTHLY AS AN AUTOMATIC REINVESTMENT IN ADDITIONAL SHARES. 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. CERTIFICATES The Fund's Transfer Agent maintains a Share account for each shareholder of record. Share certificates are not issued. 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. CORPORATE CUSTOMERS/CAPITAL MARKETS CUSTOMERS Corporate and/or Capital Markets customers of BayBanks interested in purchasing Shares should consult their account relationship managers for procedures applicable to their accounts or call 1-800-554-3311. This prospectus should be read in conjunction with any materials provided by BayBanks regarding such procedures. VOTING RIGHTS AS A SHAREHOLDER, YOU ARE ENTITLED TO VOTE ON CERTAIN MATTERS. Each Share of the Fund gives the 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 Fund or class, only shares of that particular Fund or class are entitled to vote. As of November 29, 1993, John & Company, Burlington, Massachusetts, owned 99.99% of the voting securities of the BayFunds Shares of the Fund, and, therefore, may, for certain purposes, be deemed to control the BayFunds Shares of the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. As a Massachusetts business trust, 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 all series of the Trust entitled to vote. - ------------------------------------------------------- TAX INFORMATION THIS DISCUSSION OF TAXES IS FOR GENERAL INFORMATION ONLY. PLEASE CONSULT YOUR OWN TAX ADVISER ABOUT YOUR PARTICULAR SITUATION. FEDERAL INCOME TAX The Fund intends to meet the requirements of the Internal Revenue Code in order not to be liable for any federal income taxes on income and gains distributed to Fund shareholders. The Fund will distribute substantially all of its net investment income and realized gains at least annually. The Fund will be treated as a single, separate entity for federal income tax purposes. INTEREST ON SOME MUNICIPAL SECURITIES MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX. 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 some municipal bonds may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The alternative minimum tax, equal to up to 28% of alternative minimum taxable income for individuals and 20% for corporations, 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. The Tax Reform Act of 1986 treats interest on certain "private activity" bonds issued after August 7, 1986, as a tax preference item for both individuals and corporations. Unlike traditional governmental purpose municipal bonds, which finance roads, schools, libraries, prisons and other public facilities, private activity bonds provide benefits to private parties. The Fund may purchase all types of municipal bonds, including private activity bonds. Should the Fund purchase any such bonds, a portion of the Fund's dividends may be treated as a tax preference item. In addition, in the case of a corporate shareholder, dividends of the Fund which represent interest on municipal bonds may be subject to the 20% corporate alternative minimum tax because the dividends are included in a corporation's "adjusted current earnings." The corporate alternative minimum tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's alternative minimum taxable income as a tax preference item. "Adjusted current earnings" is based upon the concept of a corporation's "earnings and profits." Since "earnings and profits" generally includes the full amount of any Fund dividend, and alternative minimum taxable income does not include the portion of the Fund's dividend attributable to municipal bonds which are not private activity bonds, the difference will be included in the calculation of the corporation's alternative minimum 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 to dividends received as additional Shares. Information on the tax status of dividends and distributions is provided annually. MASSACHUSETTS TAX CONSIDERATIONS Under existing Massachusetts law, dividends paid by the Fund will be exempt from Massachusetts personal income tax if such dividends are directly attributable to interest earned on (i) obligations issued by the Commonwealth of Massachusetts, its political subdivisions or agencies; or (ii) 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 dividends paid by the Fund are derived from other types of obligations, such dividends will not be exempt from Massachusetts personal income tax. 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 corporate excise tax. OTHER STATE AND LOCAL TAXES Income from the Fund is not necessarily free from state income taxes in states other than Massachusetts or from personal property taxes. State laws differ on this issue, and shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. - ------------------------------------------------------- PERFORMANCE INFORMATION YOU CAN FOLLOW THE FUND'S PERFORMANCE. From time to time, in advertisements or in reports to shareholders, the performance 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 and yield of the Fund. The yield of the Shares represents the annualized rate of income earned on an investment in the Shares 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 in the Shares 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 of the BayFunds Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the BayFunds Shares would have had to earn to equal their actual yield, assuming a specific tax rate. Advertisements and other sales literature may also refer to 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 BayFunds Shares and Institutional Service Shares. The yield, effective yield, tax-equivalent yield and total return for Institutional Service Shares will exceed that of BayFunds Shares due to the difference in Class Expenses. From time to time, the Fund may advertise the performance of BayFunds Shares using certain reporting services and/or compare its performance of BayFunds Shares to certain indices. TAX-EQUIVALENT YIELD The tax-equivalent yield for BayFunds Shares for the seven-day period ended October 31, 1993 was 3.13%. The tax-equivalent yield for Institutional Service Shares was 3.30% for the same period. The tax-equivalent yield for both classes of shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that BayFunds Shares would have had to earn to equal its actual yield, assuming a 28% 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. TAX-EQUIVALENCY TABLE Both classes of Shares may also use a tax-equivalency table 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 from the regular personal income taxes imposed by Massachusetts.* 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 1993 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 RETURN: $1- $36,901- $89,151- $140,001- Over 36,900 89,150 140,000 250,000 $ 250,000 SINGLE RETURN: $1- $22,101- $53,501- $115,001- Over 22,100 53,500 115,000 250,000 $ 250,000 - ------------------------------------------------------------------------------------ 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 above chart is for illustrative purposes only. It is not an indicator of past or future performance of either class of Shares. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local regular or alternative minimum taxes. - ------------------------------------------------------- OTHER CLASSES OF 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. The Distributor may pay an administrative fee to a financial institution or broker for administrative services provided to the Institutional Service Shares class, and may pay such a fee for administrative services provided to the BayFunds Shares class. Any fee paid by the Distributor for administrative services will not be an expense of either class, but will be reimbursed to the Distributor by the Adviser. The amount of dividends payable to Institutional Service Shares will exceed the amount of dividends payable to BayFunds Shares by an amount equal to the shareholder service and sub-transfer agent fees allocated to the BayFunds Shares. The stated advisory fee is the same for both classes of the Fund. 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 42.
YEAR ENDED OCTOBER 31, 1993 1992 1991 1990* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------------------------------------------- Net investment income 0.02 0.03 0.05 0.03 - --------------------------------------------------------------------------- --------- --------- --------- --------- LESS DISTRIBUTIONS - --------------------------------------------------------------------------- Dividends to shareholders from net investment income (0.02) (0.03) (0.05) (0.03) - --------------------------------------------------------------------------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------------------------------------------------------------------- --------- --------- --------- --------- TOTAL RETURN** 1.99% 2.87% 4.63% 2.59%(a) - --------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------------------------------------- Expenses 0.53% 0.34% 0.30% 0.17%(b) - --------------------------------------------------------------------------- Net investment income 1.97% 2.82% 4.48% 5.66%(b) - --------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.43% 0.55% 0.69% 0.57%(b) - --------------------------------------------------------------------------- SUPPLEMENTAL DATA - --------------------------------------------------------------------------- Net assets, end of period (000 omitted) $84,524 $85,570 $81,681 $63,483 - ---------------------------------------------------------------------------
* Reflects operations for the period from May 18, 1990 (date of initial public investment) to October 31, 1990. ** Based on net asset value which does not reflect sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1993 - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ------------- ------------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--99.5% - ---------------------------------------------------------------------------------------- MASSACHUSETTS--88.2% ------------------------------------------------------------------------- $ 2,000,000 Boston, MA, 2.75% Certificates of Participation (Fleet National Bank LOC), 4/1/94 P-1 $ 2,000,000 ------------------------------------------------------------------------- 3,900,000 Boston, MA, Water & Sewer Commission Weekly VRDNs (Series 1985A)/(Dai-Ichi Kangyo Bank Ltd. LOC) VMIG1 3,900,000 ------------------------------------------------------------------------- 1,860,000 Chelmsford, MA, 2.75% RANs, 2/18/94 NR(3) 1,860,534 ------------------------------------------------------------------------- 1,000,000 Commonwealth of Massachusetts Dedicated Income Tax Daily VRDNs (Series B)/(National Westminster Bank PLC LOC) A-1+ 1,000,000 ------------------------------------------------------------------------- 1,500,000 Dighton-Rehoboth, MA, Regional School District, 2.65% RANs, 11/24/93 NR 1,500,045 ------------------------------------------------------------------------- 1,265,000 Fairhaven, MA, 2.98% RANs, 1/7/94 NR(3) 1,265,404 ------------------------------------------------------------------------- 3,200,000 Framingham, MA, IDA Weekly VRDNs (Perin Corp.)/(Barclays Bank PLC LOC) A-1+ 3,200,000 ------------------------------------------------------------------------- 1,615,082 Greenfield, MA, 2.45% BANs, 12/1/93 NR(3) 1,615,146 ------------------------------------------------------------------------- 650,000 Ludlow, MA, Weekly VRDNs (Advanced Drainage Systems, Inc.)/(FNB, Chicago LOC) P-1 650,000 ------------------------------------------------------------------------- 1,800,000 Massachusetts Municipal Wholesale Electric Company VRDCs Trust, Weekly VRDNs (Series 1993D)/(AMBAC Insured, Hong Kong Shanghai Banking Corp. BPA) A-1 1,800,000 ------------------------------------------------------------------------- 4,000,000 Massachusetts Bay Transit Authority, 2.85% Semi-Annual TOBs (Long Term Credit Bank of Japan Ltd. LOC), 3/1/94 A-1 4,000,000 ------------------------------------------------------------------------- 2,000,000 Massachusetts Commonwealth Weekly VRDNs GO Bonds (Series PA13)/(MBIA and FGIC Insured) VMIG1 2,000,000 ------------------------------------------------------------------------- 7,480,000 Massachusetts HEFA Weekly VRDNs (Harvard University Guaranty) A-1+ 7,480,000 ------------------------------------------------------------------------- $ 3,400,000 Massachusetts HEFA Weekly VRDNs (Berkshire Consolidated Realty)/(Banque Paribas LOC) A-1 $ 3,400,000 -------------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ------------- ------------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ---------------------------------------------------------------------------------------- MASSACHUSETTS--CONTINUED ------------------------------------------------------------------------- 1,940,000 Massachusetts HEFA Weekly VRDNs (Newbury College)/ (Barclays Bank PLC LOC) P-1 1,940,000 ------------------------------------------------------------------------- 200,000 Massachusetts HEFA Weekly VRDNs (Series A)/(Brigham & Women's Hospital)/(Sanwa Bank Ltd. LOC) P-1 200,000 ------------------------------------------------------------------------- 1,500,000 Massachusetts HEFA Weekly VRDNs (Series B)/(Clark University)/(Sanwa Bank Ltd. LOC) VMIG1 1,500,000 ------------------------------------------------------------------------- 4,600,000 Massachusetts HEFA Weekly VRDNs (Series E)/(Capital Asset Program)/(Sanwa Bank Ltd. LOC) A-1+ 4,600,000 ------------------------------------------------------------------------- 3,700,000 Massachusetts HEFA Weekly VRDNs (Series F)/(Boston College)/(Sanwa Bank Ltd. LOC) VMIG1 3,700,000 ------------------------------------------------------------------------- 2,500,000 Massachusetts HEFA Weekly VRDNs (Series G)/(Massachusetts Institute of Technology Guaranty) NR(1) 2,500,000 ------------------------------------------------------------------------- 7,500,000 Massachusetts HEFA, 2.60% CP, (Series E)/(Tufts University Guaranty), Mandatory Tender 12/14/93 A-1+ 7,500,000 ------------------------------------------------------------------------- 1,500,000 Massachusetts HEFA, 2.85% Serial Bond (Series E)/(Brigham & Women's Hospital Guaranty), 7/1/94 NR(2) 1,500,000 ------------------------------------------------------------------------- 600,000 Massachusetts HEFA, 2.90% Serial Bond (Morton Hospital & Medical Center)/(Connie Lee Insured), 7/1/94 NR(1) 599,604 ------------------------------------------------------------------------- 1,000,000 Massachusetts HFA SFH, 2.95% Annual TOBs (Series 25)/ (Bayerische Landesbank LOC), Mandatory Tender 9/1/94 A-1+ 1,000,000 ------------------------------------------------------------------------- 2,000,000 Massachusetts IDA Weekly VRDNs (Williston Northampton School)/(National Westminster Bank PLC LOC) P-1 2,000,000 ------------------------------------------------------------------------- 300,000 Massachusetts IFA PCR Weekly VRDNs (Series 1992A)/ (Holyoke Water Power Co.)/(Canadian Imperial Bank of Commerce LOC) VMIG1 300,000 ------------------------------------------------------------------------- $ 4,000,000 Massachusetts IFA PCR, 2.65% CP (Series A)/(New England Power Company Guaranty), Mandatory Tender 1/11/94 A-1 $ 4,000,000 ------------------------------------------------------------------------- 1,000,000 Massachusetts IFA Weekly VRDNs (Berkshire School)/ (National Westminster Bank PLC LOC) VMIG1 1,000,000 -------------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ------------- ------------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ---------------------------------------------------------------------------------------- MASSACHUSETTS--CONTINUED ------------------------------------------------------------------------- 5,525,000 Massachusetts IFA Weekly VRDNs (Kendall Square, Inc.)/ (National Westminster Bank PLC LOC) P-1 5,525,000 ------------------------------------------------------------------------- 4,000,000 Massachusetts IFA Weekly VRDNs (Series 1992A)/(Ogden Haverhill)/(Union Bank of Switzerland LOC) VMIG1 4,000,000 ------------------------------------------------------------------------- 2,000,000 Massachusetts IFA Weekly VRDNs (Series 1993B)/(New England Deaconess Association)/(Banque Paribas LOC) A-1 2,000,000 ------------------------------------------------------------------------- 925,000 Massachusetts IFA Weekly VRDNs (Series A)/(Hockomock YMCA)/(Westpac Banking Corp. LOC) P-1 925,000 ------------------------------------------------------------------------- 1,700,000 New Bedford, MA, 3.40% RANs (Fleet National Bank BPA), 1/14/94 P-1 1,702,716 ------------------------------------------------------------------------- 2,000,000 New Bedford, MA, 4.75% BANs (Fleet National Bank BPA), 11/12/93 P-1 2,000,787 ------------------------------------------------------------------------- 3,330,000 North Andover, MA, 3.00% BANs, 6/29/94 NR 3,335,321 ------------------------------------------------------------------------- 1,923,000 Northampton, MA, 2.47% BANs, 6/29/94 NR 1,923,862 ------------------------------------------------------------------------- 1,080,000 Norwood, MA, IDRB, 3.125% Annual TOBs (Dash Realty Trust)/(Fleet National Bank LOC), Mandatory Tender 7/1/94 SP-1 1,080,000 ------------------------------------------------------------------------- --------------- Total 90,503,419 ------------------------------------------------------------------------- --------------- PUERTO RICO--11.4% ------------------------------------------------------------------------- 5,400,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit Suisse and Sumitomo Bank Ltd. LOCs) A-1+ 5,400,000 ------------------------------------------------------------------------- 4,000,000 Puerto Rico Industrial Medical and Environmental Pollution Authority, 2.70% Annual TOBs (Abbott Laboratories, Inc. Guaranty), 3/1/94 NR(1) 4,000,000 ------------------------------------------------------------------------- $ 2,290,000 Puerto Rico Industrial, Medical and Environmental PCA, 2.90% Annual TOBs (Series 1983A)/(Reynolds Metals Co.)/(ABN AMRO Bank N.V. LOC), Optional Tender 9/1/94 A-1+ $ 2,291,850 ------------------------------------------------------------------------- --------------- Total 11,691,850 ------------------------------------------------------------------------- --------------- TOTAL INVESTMENTS (AT AMORTIZED COST) $ 102,195,269\ ------------------------------------------------------------------------- ---------------
* See Notes to Portfolio of Investments. \ Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($102,667,192) at October 31, 1993. The following abbreviations are used in this portfolio: AMBAC--American Municipal Bond Assurance Corporation BANs--Bond Anticipation Notes BPA--Bond Purchase Agreement CP--Commercial Paper FGIC--Financial Guaranty Insurance Company GO--General Obligation HEFA--Health and Education Facilities Authority HFA--Housing Finance Authority/Agency IDA--Industrial Development Authority IDRB--Industrial Development Revenue Bonds IFA--Industrial Finance Authority/Agency LOC--Letter of Credit LOCs--Letters of Credit MBIA--Municipal Bond Investors Assurance PCA--Pollution Control Authority PCR--Pollution Control Revenue RANs--Revenue Anticipation Notes SFH--Single Family Housing TOBs--Tender Option Bonds VRDCs--Variable Rate Demand Certificates VRDNs--Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST NOTES TO PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL OBLIGATION RATINGS S&P A Standard & Poor's 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 (+) designation. SP-2 Satisfactory capacity to pay principal and interest. MOODY'S Moody's short-term ratings are designated Moody's Investment Grade (MIG or VMIG (see below)). The purpose of the MIG of 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. FITCH Fitch's short-term ratings place greater emphasis on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. F-1 Strongest degree of assurance for timely payment. Those issues determined to provide exceptionally strong credit quality are given a plus (+) designation. F-2 Notes reflecting a degree of assurance for timely payment only slightly less in degree than the highest category. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P Standard & Poor's 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-1+, AA/A-1K, and A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) MOODY'S MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- 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. FITCH Fitch usually assigns two ratings to long-term debt issues that include provisions for a variable rate demand feature. The long-term rating addresses the ability of the obligor to pay debt service and the short-term rating addresses the timely payment of the demand feature. Examples of rating designation are as follows: AAA/F-1+, AA/F-1K, and A/F-1. (The definitions for the long-term and short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS S&P A Standard & Poor's 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 designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) designation. A-2 Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated "A-1." MOODY'S P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. The following is an explanation of the Fitch ratings. These ratings are not referenced in the Portfolio of Investments. MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- FITCH F-1 Issues assigned this rating reflect a stong degree of assurance for timely payment. Those issuers determined to possess the strongest degree of assurance for timely payment are denoted with a plus (+) sign designation. F-2 Issuers carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as the "F-1+" and "F-1" categories. LONG-TERM DEBT RATINGS (INVESTMENT GRADE) S&P AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A Debt rated "A" has a strong capacity to pay interest and principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest than debt rated in higher ratings categories. MOODY'S Aaa Bonds that 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 edge." Interest payments are protected by a large margin and principal is secure. While the various protective elements are likely to change, such changes which can be foreseen are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds that 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 that 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 that suggest a susceptibility to impairment some time in the future. Baa Bonds which are rated Baa are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. FITCH AAA Bonds that are rated AAA are of the highest credit quality. The obligor has an exceptionally strong ability to pay debt service. AA Bonds that are rated AA are of very high quality. The obligor has a very strong ability to pay debt service. Debt rated in this category may also have a (+) or (-) sign with a rating to indicate the relative position within the rating category. A Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. NR indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P, Moody's, or Fitch with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated in one of the two highest short-term ratings categories by a nationally recognized statistical ratings organization. NR(1) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by Fitch. NR(2) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch. NR(3) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "A" by Standard & Poor's, Moody's, or Fitch. NR(4) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by Fitch. MASSACHUSETTS MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1993 - -------------------------------------------------------------------------------- ASSETS: - ----------------------------------------------------------------------------------------------------- Investments, at amortized cost and value (Note 2A) $ 102,195,269 - ----------------------------------------------------------------------------------------------------- Cash 707,029 - ----------------------------------------------------------------------------------------------------- Interest receivable 527,874 - ----------------------------------------------------------------------------------------------------- Deferred expenses (Note 2E) 5,931 - ----------------------------------------------------------------------------------------------------- --------------- Total assets 103,436,103 - ----------------------------------------------------------------------------------------------------- LIABILITIES: - ----------------------------------------------------------------------------------------------------- Payable for investments purchased $ 602,891 - ---------------------------------------------------------------------------------------- Dividends payable 117,456 - ---------------------------------------------------------------------------------------- Accrued expenses and other liabilities 48,564 - ---------------------------------------------------------------------------------------- ----------- Total liabilities 768,911 - ----------------------------------------------------------------------------------------------------- --------------- NET ASSETS for 102,667,192 shares of beneficial interest outstanding $ 102,667,192 - ----------------------------------------------------------------------------------------------------- --------------- NET ASSET VALUE, Offering Price, and Redemption Price Per Share: - ----------------------------------------------------------------------------------------------------- Institutional Service Shares ($84,524,347 / 84,524,347 shares of beneficial interest outstanding) $1.00 - ----------------------------------------------------------------------------------------------------- --------------- BayFunds Shares ($18,142,845 / 18,142,845 shares of beneficial interest 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, 1993 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - -------------------------------------------------------------------------------------------------------- Interest income (Note 2B) $ 2,488,073 - -------------------------------------------------------------------------------------------------------- EXPENSES: - -------------------------------------------------------------------------------------------------------- Investment advisory fee (Note 5) $ 498,975 - ------------------------------------------------------------------------------------------- Administrative personnel and services fees (Note 5) 253,380 - ------------------------------------------------------------------------------------------- Custodian, transfer and dividend disbursing agent fees and expenses 87,177 - ------------------------------------------------------------------------------------------- Trustees' fees 2,245 - ------------------------------------------------------------------------------------------- Auditing fees 16,507 - ------------------------------------------------------------------------------------------- Legal fees 12,985 - ------------------------------------------------------------------------------------------- Printing and postage 30,065 - ------------------------------------------------------------------------------------------- Fund share registration costs 41,287 - ------------------------------------------------------------------------------------------- Insurance premiums 7,890 - ------------------------------------------------------------------------------------------- Taxes 773 - ------------------------------------------------------------------------------------------- Miscellaneous 5,961 - ------------------------------------------------------------------------------------------- ----------- Total expenses 957,245 - ------------------------------------------------------------------------------------------- Deduct--Waiver of investment advisory fee (Note 5) 427,232 - ------------------------------------------------------------------------------------------- ----------- Net expenses 530,013 - -------------------------------------------------------------------------------------------------------- ------------- Net investment income $ 1,958,060 - -------------------------------------------------------------------------------------------------------- -------------
(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, 1993 1992 INCREASE (DECREASE) IN NET ASSETS: - ---------------------------------------------------------------------------------- OPERATIONS-- - ---------------------------------------------------------------------------------- Net investment income $ 1,958,060 $ 2,512,473 - ---------------------------------------------------------------------------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - ---------------------------------------------------------------------------------- Dividends to shareholders from net investment income: - ---------------------------------------------------------------------------------- Institutional Service Shares (1,874,757) (2,512,460) - ---------------------------------------------------------------------------------- Cash Series Shares -- (13) - ---------------------------------------------------------------------------------- BayFunds Shares (83,303) -- - ---------------------------------------------------------------------------------- ---------------- ---------------- Change in net assets from distributions to shareholders (1,958,060) (2,512,473) - ---------------------------------------------------------------------------------- ---------------- ---------------- FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - ---------------------------------------------------------------------------------- Proceeds from sale of shares 277,390,674 188,432,361 - ---------------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of dividends declared 451,819 194,403 - ---------------------------------------------------------------------------------- Cost of shares redeemed (260,744,847) (184,738,219) - ---------------------------------------------------------------------------------- ---------------- ---------------- Change in net assets from Fund share transactions 17,097,646 3,888,545 - ---------------------------------------------------------------------------------- ---------------- ---------------- Change in net assets 17,097,646 3,888,545 - ---------------------------------------------------------------------------------- NET ASSETS: - ---------------------------------------------------------------------------------- Beginning of period 85,569,546 81,681,001 - ---------------------------------------------------------------------------------- ---------------- ---------------- End of period $ 102,667,192 $ 85,569,546 - ---------------------------------------------------------------------------------- ---------------- ----------------
(See Notes which are an integral part of the Financial Statements) MASSACHUSETTS MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1993 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company with several 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. From December 31, 1990, until May 17, 1992 the Fund provided two classes of shares ("Institutional Service Shares" and "Cash Series Shares"). Cash Series Shares were identical in all respects to Institutional Service Shares except that Cash Series Shares were sold pursuant to a distribution plan ("Plan") adopted in accordance with Investment Company Act Rule 12b-1. Under the Plan, the Fund paid Federated Securities Corp. (the "distributor") a fee at an annual rate up to .40 of 1% of the average daily net asset value of Cash Series Shares to finance any activity which was principally intended to result in the sale of Cash Series Shares. As of May 17, 1992, the Plan was terminated by the Board of Trustees ("Trustees") of the Trust. As a result of the termination of the Plan, fee accruals under the Plan have been discontinued. Effective March 8, 1993 (date of initial public offering), the Fund provided an additional class of shares ("BayFunds Shares"). BayFunds Shares are identical in all respects to Institutional Service Shares except that BayFunds Shares were sold pursuant to a shareholder servicing fee of up to .25 of 1% of average daily net assets of BayFunds Shares and a sub-transfer agent fee. (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. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--The Trustees has determined that the best method currently available for valuing portfolio securities is amortized cost. The Fund's use of the amortized cost method to value its portfolio securities is conditioned on its compliance with Rule 2a-7 under the Investment Company Act of 1940. Since the Fund may invest 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 general tax-exempt mutual fund. In order to reduce the risk associated with such factors, at October 31, 1993, 85.1% 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 aggregate percentages by financial institution ranged from 0.3% to 9.8% of total investments. B. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest earned net of premium, and original issue discount as required by the Internal Revenue Code. C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal Revenue Code (the "Code") applicable to investment companies and to distribute to shareholders each year all of its MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- net income. Accordingly, no provision for federal tax is necessary. Dividends paid by the Fund representing net interest received on tax-exempt municipal securities are not includable by shareholders as gross income for federal income tax purposes because the Fund intends to meet certain requirements of the Code applicable to regulated investment companies which will enable the Fund to pay exempt-interest dividends. The portion of such interest, if any, earned on private activity bonds issued after August 7, 1986 may be considered a tax preference item to shareholders for the purpose of computing the alternative minimum tax. D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objectives and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain 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. E. DEFERRED EXPENSES--Costs incurred by the Fund in connection with its initial share registration, other than organization expenses, were deferred and are being amortized on a straight-line basis through May 1995. F. EXPENSES--Expenses of the Fund (other than shareholder servicing fees and sub-transfer agent fees) and waivers and reimbursements, if any, are allocated to each class of shares based on its relative daily average net assets for the period. Expenses incurred by the Trust which do not specifically relate to an individual Fund are allocated among all Funds based on a Fund's relative net asset value size or as deemed appropriate by the administrator. G. OTHER--Investment transactions are accounted for on the date of the transaction. (3) DIVIDENDS The Fund computes its net income daily and, immediately prior to the calculation of its net asset value at the close of business, declares and records dividends to shareholders of record at the time of the previous computation of the Fund's net asset value. Payment of dividends is made monthly in cash, or in additional shares at the net asset value on the payable date. (4) 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, 1993, capital paid-in aggregated $102,667,192. Transactions in Fund shares were as follows: MASSACHUSETTS MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, INSTITUTIONAL SERVICE SHARES 1993 1992 Shares outstanding, beginning of period 85,569,546 81,680,650 - ----------------------------------------------------------------------------------- Shares sold 254,082,837 188,432,361 - ----------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 367,572 194,402 - ----------------------------------------------------------------------------------- Shares redeemed (255,495,608) (184,737,867) - ----------------------------------------------------------------------------------- ---------------- ---------------- Shares outstanding, end of period 84,524,347 85,569,546 - ----------------------------------------------------------------------------------- ---------------- ----------------
YEAR ENDED OCTOBER 31, CASH SERIES SHARES 1993 1992 Shares outstanding, beginning of period -- 351 - ----------------------------------------------------------------------------------- Shares sold -- -- - ----------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared -- 1 - ----------------------------------------------------------------------------------- Shares redeemed -- (352) - ----------------------------------------------------------------------------------- ---------------- ---------------- Shares outstanding, end of period -- -- - ----------------------------------------------------------------------------------- ---------------- ----------------
YEAR ENDED OCTOBER 31, BAYFUNDS SHARES 1993 1992 Shares outstanding, beginning of period -- -- - ----------------------------------------------------------------------------------- Shares sold 23,307,837 -- - ----------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 84,247 -- - ----------------------------------------------------------------------------------- Shares redeemed (5,249,239) -- - ----------------------------------------------------------------------------------- ---------------- ---------------- Shares outstanding, end of period 18,142,845 -- - ----------------------------------------------------------------------------------- ---------------- ----------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Federated Management, the Fund's investment adviser ("Adviser"), receives for its services an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. Adviser has voluntarily agreed to waive a portion of its fee. Adviser can modify or terminate this voluntary waiver of expense at any time at its sole discretion. For the fiscal year ended October 31, 1993, the investment advisory fee amounted to $498,975, of which $427,232 was waived in accordance with such undertaking. Organizational expenses ($44,840) and start-up administrative services expenses ($43,014) were borne initially by the Adviser. The Fund has agreed to pay the Adviser, at an annual rate of .005 of 1% of average daily net assets and .01 of 1% of average daily net assets for organization expenses and start-up administrative expenses, respectively, until the expenses borne initially by the Adviser are reimbursed, or the expiration of five years from May 18, 1990, the date the Trust's portfolio became effective, whichever occurs earlier. During the fiscal year ended October 31, 1993, the Fund paid Adviser $4,917 and $9,835, respectively, pursuant to this agreement. MASSACHUSETTS MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- During the fiscal year ended October 31, 1993, the Fund engaged in purchase and sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7 of the Investment Company Act of 1940 amounting to $123,934,015 and $129,750,000, respectively. These purchases and sales were conducted on an arms-length basis insofar as they were transacted for cash consideration only, at independent current market prices and without brokerage commission, fee or other remuneration. Administrative personnel and services were provided at approximate cost by Federated Administrative Services, Inc. Certain Officers and Trustees of the Trust are Officers and Directors of the above corporations. (6) CURRENT CREDIT RATINGS Current credit ratings and related notes are unaudited. 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, 1993, the related statement of operations for the year then ended, and the statement of changes in net assets, and the financial highlights (see pages 4 and 26 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 the securities owned as of October 31, 1993, 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 Massachusetts Municipal Cash Trust, an investment portfolio of Federated Municipal Trust, as of October 31, 1993, 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 & CO. Pittsburgh, Pennsylvania December 13, 1993 THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK - -------------------------------------------------------------------------------- ADDRESSES Massachusetts Municipal Cash Trust BayFunds Shares Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 DISTRIBUTOR Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 INVESTMENT ADVISER Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 CUSTODIAN State Street Bank and Trust Company P.O. Box 1119 Boston, Massachusetts 02266 TRANSFER AGENT AND DIVIDEND DISBURSING AGENT Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 SUB-TRANSFER AGENT Supervised Service Company, Inc. 811 Main Street Kansas City, Missouri 64105 SHAREHOLDER SERVICING AGENT BayBank Systems, Inc. One BayBank Technology Place Waltham, Massachusetts 02154 LEGAL COUNSEL Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 LEGAL COUNSEL Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, D.C. 20037 INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen & Co. 2100 One PPG Place Pittsburgh, Pennsylvania 15222 BAYFUNDS SHARES MASSACHUSETTS MUNICIPAL CASH TRUST PROSPECTUS FEDERATED SECURITIES CORP. - -------------------------- Distributor MUTUAL FUNDS AT BAYBANK DECEMBER 31, 1993 0032603A-BS (12/93) MASSACHUSETTS MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) BAYFUNDS SHARES STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus for BayFunds Shares of Massachusetts Municipal Cash Trust (the "Fund") dated December 31, 1993. This Statement is not a prospectus. To receive a copy of the prospectus, write to the Fund or call toll-free 1-800-BAYFUND (1-800-229-3863). FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 Statement dated December 31, 1993 [LOGO] FEDERATED SECURITIES CORP. --------------------------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS TABLE OF CONTENTS - -------------------------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND 1 - --------------------------------------------------------------- INVESTMENT OBJECTIVE AND POLICIES 1 - --------------------------------------------------------------- Acceptable Investments 1 When-Issued and Delayed Delivery Transactions 1 Temporary Investments 2 Investment Limitations 2 Massachusetts Investment Risks 4 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 - --------------------------------------------------------------- Officers and Trustees 5 The Funds 7 Fund Ownership 7 Trustee Liability 7 INVESTMENT ADVISORY SERVICES 7 - --------------------------------------------------------------- Adviser to the Fund 7 Advisory Fees 8 ADMINISTRATIVE SERVICES 8 - --------------------------------------------------------------- BROKERAGE TRANSACTIONS 8 - --------------------------------------------------------------- PURCHASING BAYFUNDS SHARES 9 - --------------------------------------------------------------- Conversion to Federal Funds 9 DETERMINING NET ASSET VALUE 9 - --------------------------------------------------------------- Use of the Amortized Cost Method 9 REDEEMING BAYFUNDS SHARES 10 - --------------------------------------------------------------- Redemption in Kind 10 MASSACHUSETTS LAW 10 - --------------------------------------------------------------- TAX STATUS 11 - --------------------------------------------------------------- The Fund's Tax Status 11 Massachusetts State Income Tax 11 YIELD 11 - --------------------------------------------------------------- EFFECTIVE YIELD 11 - --------------------------------------------------------------- PERFORMANCE COMPARISONS 12 - --------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND - -------------------------------------------------------------------------------- The Fund is a portfolio in Federated Municipal Trust (the "Trust"). The Trust was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. Shares of the Fund are offered in two classes known as BayFunds Shares and Institutional Service Shares. This Statement of Additional Information relates to the BayFunds Shares ("Shares") of the Fund. INVESTMENT OBJECTIVE AND POLICIES - -------------------------------------------------------------------------------- The Fund's investment objective 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. ACCEPTABLE INVESTMENTS The Fund invests primarily in debt obligations issued by or on behalf of Massachusetts and 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 both federal regular income tax and Massachusetts state income tax imposed upon non-corporate taxpayers. When determining whether a Massachusetts municipal security presents minimal credit risks, the investment adviser considers the creditworthiness of the issuer of the security, the issuer of a demand feature if the Fund has the unconditional right to demand payment for the security, or the guarantor of payment by either of those issuers. If a security loses its rating or the security's rating is reduced below the required minimum after the Fund purchases it, the Fund is not required to sell the security. The investment adviser considers this event, however, in its determination of whether the Fund should continue to hold the security in its portfolio. If ratings made by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") change because of changes in those organizations or in their ratings systems, the Fund will try to use comparable short-term ratings as standards in accordance with the investment policies described in the Fund's prospectus. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests which represent undivided proportional interests in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure the payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. In particular, lease obligations may be subject to periodic appropriation. If the entity does not appropriate funds for future lease payments, the entity cannot be compelled to make such payments. 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. Under the criteria currently established by the Board of Trustees ("Trustees"), the Fund's investment adviser must consider the following factors in determining the liquidity of municipal lease securities: (1) the frequency of trades and quotes for the security; (2) the volatility of quotations and trade prices for the security; (3) the number of dealers willing to purchase or sell the security and the number of potential purchasers; (4) dealer undertakings to make a market in the security; (5) the nature of the security and the nature of the marketplace trades; (6) the rating of the security and the financial condition and prospects of the issuer of the security; (7) such other factors as may be relevant to the Fund's abililty to dispose of the security; (8) whether the lease can be terminated by the lessee; (9) the potential recovery, if any, from a sale of the leased property upon termination of the lease; (10) the lessee's general credit strength; (11) the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations; and (12) any credit enhancement or legal recourse provided upon an event of nonappropriation or other termination of the lease. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The Fund engages in when-issued and delayed delivery transactions only for the purpose of acquiring portfolio securities connected with the Fund's investment objective and policies, not for investment leverage. These transactions are made to secure what is considered to be an advantageous price and yield for the Fund. 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. - -------------------------------------------------------------------------------- No fees or other expenses, other than normal transaction costs, are incurred. However, assets of the Fund sufficient to make payment for the securities to be purchased are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. The Fund may engage in these transactions to an extent that would cause the segregation of an amount up to 20% of the total value of its assets. TEMPORARY INVESTMENTS The Fund may also invest in high quality, temporary investments during times of unusual market conditions for defensive purposes and to maintain liquidity. REPURCHASE AGREEMENTS Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities or other securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price within one year from the date of acquisition. 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. From time to time, such as when suitable Massachusetts municipal securities are not available, the Fund may maintain a portion of its assets in cash. Any portion of the Fund's assets maintained in cash will reduce the amount of assets in Massachusetts municipal securities and thereby reduce the Fund's yield. 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 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 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, instrumentalities, 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 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. - -------------------------------------------------------------------------------- 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 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. 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. LENDING CASH OR SECURITIES The Fund will not lend any of its assets except that it may acquire publicly or nonpublicly issued Massachusetts municipal securities or temporary investments or enter into repurchase agreements 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 total assets in cash or cash items (including instruments issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment), 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 Fund does not consider the issuance of separate classes of shares to involve the issuance of "senior securities" within the meaning of the investment limitation set forth above. 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 IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in industrial development bonds or other municipal securities where the principal and interest are the responsibility of companies (or guarantors, where applicable) with 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 the Fund's investment adviser, owning individually more than 1/2 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. DEALING IN PUTS AND CALLS The Fund will not purchase or sell 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 MINERALS The Fund will not purchase or sell oil, gas, or other mineral exploration or development programs or leases. - -------------------------------------------------------------------------------- INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in securities which are illiquid, including repurchase agreements providing for settlement in more than seven days after notice, certain restricted securities not determined by the Trustees to be liquid, and non-negotiable fixed time deposits with maturities over seven days. 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 does not expect to borrow money or pledge securities in excess of 5% of the value of its net assets during the coming fiscal year. 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 prestigous universities. In addition to a highly skilled and educated workforce, the Commonwealth has one of the higher average per capita incomes in this country. Throughout the early to mid-1980's Massachusetts had a strong economy which was evidenced by low unemployment and high personal income growth as compared to national averages. However, beginning in the late 1980's, economic growth in the New England region and Massachusetts, in particular, slowed and has shown pronounced deterioration in the construction, real estate, financial and manufacturing sectors. Between 1988 and 1992 there has been extensive job losses that have resulted in a 10% reduction in the work force. 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 Prop 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 decreased from Aa and AA+, respectively, to a low of Baa and BBB. Over the past year the Commonwealth has had its debt ratings raised by the two rating agencies to A and A+ (Moody's and S&P) reflecting its 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 Trustees and officers are listed with their addresses, principal occupations, and present positions, including any affiliation with Federated Management, Federated Investors, Federated Securities Corp., Federated Services Company, Federated Administrative Services, Inc., and the Funds (as defined below).
POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS John F. Donahue\* Chairman Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated Investors Tower and Trustee Federated Advisers, Federated Management, and Federated Research; Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds; formerly, Director, The Standard Fire Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice President of the Trust. John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President, Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate Department Village Development Corporation; General Partner or Trustee in private John R. Wood and real estate ventures in Southwest Florida; Director, Trustee or Managing Associates, Inc., General Partner of the Funds; formerly, President, Naples Property Realtors Management, Inc. 3255 Tamiami Trail North Naples, FL William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; One PNC Plaza-- Director, Trustee, or Managing General Partner of the Funds; formerly, 23rd Floor Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Pittsburgh, PA Director, Ryan Homes, Inc. James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, 571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Concord, MA Blue Cross of Massachusetts, Inc. Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore 3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds. Pittsburgh, PA Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park 5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson* President and Trustee, Federated Investors; President and/or Trustee of some of the Federated Investors Tower Trustee Funds; staff member, Federated Securities Corp., and Federated Pittsburgh, PA Administrative Services, Inc. Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; 225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly, Boston, MA President, State Street Bank and Trust Company and State Street Boston Corporation and Trustee, Lahey Clinic Foundation Inc. Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.; 5916 Penn Mall Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A.
- --------------------------------------------------------------------------------
POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie 1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer Learning Library Center, Inc. and U.S. Space Foundation; Chairman; Czecho Slovak University of Pittsburgh Management Center; Director, Trustee, or Managing General Partner of the Pittsburgh, PA Funds; President Emeritus, University of Pittsburgh; formerly, Chairman, National Advisory Council for Environmental Policy and Technology. Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing 4905 Bayard Street General Partner of the Funds. Pittsburgh, PA J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Investors Tower Federated Advisers, Federated Management, and Federated Research; Pittsburgh, PA Trustee, Federated Services Company; President and Director, Federated Administrative Services, Inc.; President or Vice President of the Funds; Director, Trustee or Managing General Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Trust. Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Federated Investors Tower Director, Federated Securities Corp.; President or Vice President of the Pittsburgh, PA Funds; Director or Trustee of some of the Funds. Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated Investors; Vice Federated Investors Tower and Treasurer President and Treasurer, Federated Advisers, Federated Management, and Pittsburgh, PA Federated Research; Trustee, Federated Services Company; Executive Vice President, Treasurer, and Director, Federated Securities Corp.; Chairman, Treasurer, and Director, Federated Administrative Services and Federated Administrative Services, Inc.; Trustee or Director of some of the Funds; Vice President and Treasurer of the Funds. John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated Investors Tower and Secretary Federated Investors; Vice President, Secretary and Trustee, Federated Pittsburgh, PA Advisers, Federated Management, and Federated Research; Trustee, Federated Services Company; Executive Vice President, Secretary, and Director, Federated Administrative Services and Federated Administrative Services, Inc.; Director and Executive Vice President, Federated Securities Corp.; Vice President and Secretary of the Funds. John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Federated Pittsburgh, PA Advisers, Federated Management, and Federated Research; Vice President of the Funds; Director, Trustee, or Managing General Partner of some of the Funds; formerly, Vice President, The Standard Fire Insurance Company and President of its Federated Research Division.
*This Trustee is deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940, as amended. \Member of the Trust's Executive Committee. The Executive Committee handles the responsibilities of the Trustees between meetings of the Board. - -------------------------------------------------------------------------------- THE FUNDS The Funds" and "Funds" mean the following investment companies: A.T. Ohio Tax-Free Money Fund; American Leaders Fund, Inc.; Automated Cash Management Trust; Automated Government Money Trust; The Boulevard Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust; Federated Short-Intermediate Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; FT Series, Inc.; Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust, Inc.--1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds; The Passageway Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Fund; Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; and Trust for U.S. Treasury Obligations. FUND OWNERSHIP Officers and Trustees, as a group, own more than 1% of the Fund's outstanding Shares as of November 29, 1993.. As of November 29, 1993, the following shareholder of record owned 5% or more of the outstanding BayFunds Shares of the Fund: John & Company, Burlington, Massachusetts, owned approximately 20,423,104 Shares (99.99%). As of November 29, 1993, the following shareholders of record owned 5% or more of the outstanding Institutional Service Shares of the Fund: State Street Bank and Trust Company, North Quincy, Massachusetts, owned approximately 28,909,810 Shares (33.66%); John & Company, Burlington, Massachusetts, owned approximately 20,932,775 Shares (24.37%); and Scaup & Company, Boston, Massachusetts, owned approximately 12,466,302 (14.51%). 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"), 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, his wife, and his son, J. Christopher Donahue. John F. Donahue is Chairman and Trustee, Federated Management; Chairman and Trustee, Federated Investors; and Chairman and Trustee of the Trust. John A. Staley, IV, is President and Trustee, Federated Management; Vice President and Trustee, Federated Investors; Executive Vice President, Federated Securities Corp.; and Vice President of the Trust. J. Christopher Donahue is Trustee, Federated Management; President and Trustee, Federated Investors; President and Director, Federated Administrative Services, Inc.; Trustee, Federated Services Company; and Vice President of the Trust. John W. McGonigle is Vice President, Secretary, and Trustee, Federated Management; Trustee, Vice President, Secretary, and General Counsel, Federated Investors; Director, Executive Vice President, and Secretary, Federated Administrative Services, Inc.; Director and Executive Vice President, Federated Securities Corp.; Trustee, Federated Services Company, and Vice President and Secretary of the Trust. 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. During the fiscal years ended October 31, 1993, 1992, and 1991, the Fund's adviser earned $498,975, $445,783, and $379,567, respectively of which $427,232, $445,783, and $379,567, respectively, were voluntarily waived because of undertakings to limit the Fund's expenses. STATE EXPENSE LIMITATIONS The Adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the Adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this expense limitation, the investment advisory fee paid will be reduced by the amount of the excess, subject to an annual adjustment. If the expense limitation is exceeded, the amount to be reimbursed by the adviser will be limited by the amount of the investment advisory fee. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. ADMINISTRATIVE SERVICES - -------------------------------------------------------------------------------- Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides administrative personnel and services to the Fund at approximate cost. For the fiscal years ended October 31, 1993, 1992, and 1991, the Fund incurred costs for administrative services of $253,380, $197,636, and $194,694, respectively. John A. Staley, IV, an officer of the Trust, and Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, hold approximately 15% and 20%, respectively, of the outstanding common stock and serve as directors of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services, Inc. For the fiscal years ended October 31, 1993, 1992, and 1991, Federated Administrative Services, Inc. paid approximately $165,431, $189,741, and $187,677, respectively, for services provided by Commercial Data Services, Inc. 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 review 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. 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. Research services provided by brokers may be used by the Adviser or by affiliates of Federated Investors in advising Federated funds 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. PURCHASING BAYFUNDS SHARES - -------------------------------------------------------------------------------- Investors may purchase Shares of the Fund on days on which the New York Stock Exchange and the Federal Reserve Bank of Boston are open for business. The procedure for purchasing Shares is explained in the prospectus under "Investing in BayFunds Shares." - -------------------------------------------------------------------------------- CONVERSION TO FEDERAL FUNDS It is the Fund's policy to be as fully invested as possible so that maximum interest may be earned. To this end, all payments from shareholders must be in Federal funds or be converted into Federal funds. The Shareholder Servicing Agent (as defined in the prospectus) acts as the shareholder's agent in depositing checks and converting them to Federal funds. DETERMINING NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the value of a share at $1.00. The days on which net asset value is calculated by the Fund are described in the prospectus. USE OF THE AMORTIZED COST METHOD 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. 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. Under the Rule, the Fund is permitted to purchase instruments which are subject to demand features or standby commitments. As defined by the Rule, a demand feature entitles the Fund to receive the principal amount of the instrument from the issuer or a third party on (1) no more than 30 days' notice or (2) specified intervals not exceeding thirteen months on no more than 30 days' notice. A standby commitment entitles the Fund to achieve same-day settlement and to receive an exercise price equal to the amortized cost of the underlying instrument plus accrued interest at the time of exercise. Although demand features and standby commitments are techniques and are defined as "puts" under the Rule, the Fund does not consider them to be "puts" as that term is used in the Fund's investment limitations. Demand features and standby commitments are features which enhance an instrument's liquidity, and the investment limitation which proscribes puts is designed to prohibit the purchase and sale of put and call options and is not designed to prohibit the Fund from using techniques which enhance the liquidity of portfolio instruments. MONITORING PROCEDURES The Trustees' 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% 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. INVESTMENT RESTRICTIONS The Rule requires that the Fund limit its investments to instruments that, in the opinion of the Trustees, present minimal credit risk and have received the requisite rating from one or more nationally recognized statistical rating organizations. If the instruments are not rated, the Trustees must determine that they are of comparable quality. The Rule also requires the Fund to maintain a dollar-weighted average portfolio maturity (not more than 90 days) appropriate to the objective of maintaining a stable net asset value of $1.00 per share. In addition, no instrument with a remaining maturity of more than 397 days can be purchased by the Fund. For a discussion of the treatment of variable rate municipal securities with demand features, refer to "Variable Rate Demand Notes" in the prospectus. Should the disposition of a portfolio security result in a dollar-weighted average portfolio maturity of more than 90 days, the Fund will invest its available cash so as to reduce the average maturity to 90 days or less as soon as possible. The Fund may attempt to increase yield by trading portfolio securities to take advantage of short-term market variations. This policy may, from time to time, result in high portfolio turnover. Under the amortized cost method of valuation, 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 indicated daily yield on Shares of the Fund computed the same way may tend to be lower than a similar computation made by using a method of calculation based upon market prices and estimates. REDEEMING BAYFUNDS SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares at the next computed net asset value after the Fund receives the redemption request from the Transfer Agent in proper form. Redemption procedures are explained in the prospectus under "Redeeming BayFunds Shares." REDEMPTION IN KIND Although the Fund intends to redeem shares in cash, it reserves the right under certain circumstances to pay the redemption price in whole or in part by a distribution of securities from the Fund's portfolio. To the extent available, such securities will be readily marketable. Redemption in kind will be made in conformity with applicable Securities and Exchange Commission rules, taking such securities at the same value employed in determining net asset value and selecting the securities in a manner the Trustees determine to be fair and equitable. The Trust has elected to be governed by Rule 18f-1 under the Investment Company Act of 1940 which obligates the Fund to redeem shares for any one shareholder in cash only up to the lesser of $250,000 or 1% of the net asset value of the respective class during any 90-day period. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders receiving their securities and selling them before their maturity could receive less than the redemption value of their securities and could incur certain transaction costs. MONTHLY STATEMENTS Shareholders of the Fund who have eligible BayBanks deposit accounts will receive combined monthly statements containing all information relating to their deposit account(s) and BayFunds transactions. COMPANION ACCOUNT AVAILABILITY Certain BayBanks deposit account customers may elect to open a companion BayFunds account to facilitate BayFunds transactions. MASSACHUSETTS 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 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 cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. TAX STATUS - -------------------------------------------------------------------------------- THE FUND'S TAX STATUS The Fund will pay no federal income tax because it expects to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. To qualify for this treatment, 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. YIELD - -------------------------------------------------------------------------------- The Fund's yield for BayFunds Shares for the seven-day period ended October 31, 1993 was 1.88%. The yield for Institutional Service Shares was 1.98% for the same period. The Fund calculates the yield for both classes of shares daily, 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 (on funds that pay dividends daily) 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). To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in any class of shares, the performance will be reduced for those shareholders paying those fees. EFFECTIVE YIELD - -------------------------------------------------------------------------------- The Fund's effective yield for BayFunds Shares for the seven-day period ended October 31, 1993 was 1.89%.The effective yield for Institutional Service Shares was 2.00% for the same period. The Fund's effective yield for both classes of Shares is computed 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. PERFORMANCE COMPARISONS - -------------------------------------------------------------------------------- The performance of Shares depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates on money market instruments; changes in the Fund's or any class of Shares' expenses; and the relative amount of Fund cash flow. From time to time, the Fund may advertise the performance of BayFunds Shares compared to similar funds or portfolios using certain indices, reporting services, and financial publications. These may include the following: LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by making comparative calculations using total return. Total return assumes the reinvestment of all income dividends and capital gains distributions, if any. From time to time, the Fund will quote its Lipper ranking in the "money market funds" category in advertising and sales literature. Investors may use such services in addition to the prospectus of BayFunds shares to obtain a more complete view of the class's performance before investing. Of course, when comparing performance of BayFunds Shares, factors such as portfolio composition and prevailing market conditions should be considered in assessing the significance of such comparisons. When comparing funds using reporting services, or total return and yield, investors should take into consideration any relevant differences in funds such as permitted portfolio composition and methods used to value portfolio securities and compute offering price. Advertisements and other sales literature for BayFunds Shares may refer to total return. Total return is the historic change in the value of an investment in BayFunds Shares based on the monthly reinvestment of dividends over a specified period of time. 0032603B-BS (12/93) 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 non-diversified portfolio of securities which is one of a series of investment portfolios in Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The investment objective of the Fund is to provide 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. The Fund invests primarily in short-term Minnesota municipal securities. 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 the State of Minnesota or its political subdivisions and financing authorities, which are exempt from the federal regular income tax and the regular personal income taxes imposed by the State of Minnesota. Cash Series Shares are sold at net asset value, without a sales load. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. 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. THE CASH SERIES 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 BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. This prospectus contains the information you should read and know before you invest in Cash Series Shares. Keep this prospectus for future reference. The Fund has also filed a Combined Statement of Additional Information for Cash Series Shares and Institutional Shares dated December 31, 1993, with the Securities and Exchange Commission. The information contained in the Combined Statement of Additional Information is incorporated by reference in this prospectus. You may request a copy of the Combined Statement of Additional Information free of charge by calling 1-800-235-4669. To obtain other information or make inquiries about the Fund contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1993 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 Acceptable Investments 4 Variable Rate Demand Notes 4 Participation Interests 4 Municipal Leases 4 Ratings 4 Credit Enhancement 5 Demand Features 5 Restricted and Illiquid Securities 5 When-Issued and Delayed Delivery Transactions 5 Temporary Investments 5 Minnesota Municipal Securities 6 Standby Commitments 6 Minnesota Investment Risks 7 Non-Diversification 7 Investment Limitations 7 Regulatory Compliance 8 FEDERATED MUNICIPAL TRUST INFORMATION 8 - ------------------------------------------------------ Management of Federated Municipal Trust 8 Board of Trustees 8 Investment Adviser 8 Advisory Fees 8 Adviser's Background 8 Distribution of Cash Series Shares 9 Distribution Plan 9 Administrative Arrangements 10 Administration of the Fund 10 Administrative Services 10 Custodian 10 Transfer Agent and Dividend Disbursing Agent 10 Legal Counsel 10 Independent Public Accountants 10 NET ASSET VALUE 10 - ------------------------------------------------------ INVESTING IN CASH SERIES SHARES 11 - ------------------------------------------------------ Share Purchases 11 Through a Financial Institution 11 Directly from the Distributor 11 Minimum Investment Required 11 What Shares Cost 11 Systematic Investment Program 12 Automatic Investments 12 Subaccounting Services 12 Certificates and Confirmations 12 Dividends 12 Capital Gains 13 REDEEMING CASH SERIES SHARES 13 - ------------------------------------------------------ Through a Financial Institution 13 Receiving Payment 13 By Check 13 By Wire 13 Directly from the Fund 14 By Mail 14 Signatures 14 Checkwriting 14 VISA Card 14 Redemption Before Purchase Instruments Clear 15 Accounts with Low Balances 15 SHAREHOLDER INFORMATION 15 - ------------------------------------------------------ Voting Rights 15 Massachusetts Partnership Law 15 TAX INFORMATION 16 - ------------------------------------------------------ Federal Income Tax 16 Minnesota Tax Considerations 17 Other State and Local Taxes 17 PERFORMANCE INFORMATION 17 - ------------------------------------------------------ OTHER CLASSES OF SHARES 18 - ------------------------------------------------------ Financial Highlights-- Institutional Shares 19 FINANCIAL STATEMENTS 20 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 37 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- CASH SERIES SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................ None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).................................................................. None Deferred Sales Load (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 CASH SERIES SHARES OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)...................................................................... 0.06% 12b-1 Fee (after waiver) (2)........................................................................... 0.40% Other Expenses......................................................................................... 0.25% Total Cash Series Shares 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 maximum 12b-1 fee is 0.50%. (3) The Total Cash Series Shares Operating Expenses would have been 1.15% absent the voluntary waiver of a portion of the management fee and a portion 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 CASH SERIES SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN CASH SERIES SHARES" AND "FEDERATED MUNICIPAL TRUST 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 charge permitted under the rules of the National Association of Securities Dealers, Inc. ("NASD"). However, in order for a Cash Series Share investor to exceed the NASD's maximum front-end sales charge of 6.25%, a continuous investment in the Cash Series Shares of the Fund for 42 years would be required.
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. As noted in the table above, the Fund charges no redemption fee for Cash Series Shares............................................ $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. The information set forth in the foregoing table and example relates only to Cash Series Shares of the Fund. The Fund also offers another class of shares called Institutional Shares. Cash Series Shares and Institutional Shares are subject to certain of the same expenses; however, Institutional Shares are not subject to a 12b-1 fee. See "Other Classes of Shares." 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 37.
YEAR ENDED OCTOBER 31, 1993 1992 1991* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------------------------------------------------- Net investment income 0.02 0.03 0.04 - ----------------------------------------------------------------------------------- --------- --------- --------- LESS DISTRIBUTIONS - ----------------------------------------------------------------------------------- Dividends to shareholders from net investment income (0.02) (0.03) (0.04) - ----------------------------------------------------------------------------------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------------------------------------------------- --------- --------- --------- TOTAL RETURN** 2.02% 2.78% 3.60%(a) - ----------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------------------------------------------------- Expenses 0.71% 0.71% 0.64%(b) - ----------------------------------------------------------------------------------- Net investment income 2.01% 2.75% 4.11%(b) - ----------------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.44% 0.44% 0.59%(b) - ----------------------------------------------------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $67,521 $75,044 $69,747 - -----------------------------------------------------------------------------------
* Reflects operations for the period from January 7, 1991 (date of initial public investment) to October 31, 1991. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) The voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (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 of beneficial interest 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") have established two classes of shares, known as Cash Series Shares and Institutional Shares. This prospectus relates only to Cash Series Shares of the Fund. Cash Series Shares ("Shares") of the Fund are designed primarily for the retail customers of financial institutions. A minimum initial investment of $10,000 over a 90-day period is required. The Fund may not be a suitable investment for non-Minnesota taxpayers or retirement plans since it invests primarily in Minnesota municipal securities. The Fund attempts to stabilize the value of a Share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to provide current income exempt from federal regular income tax and the regular personal income taxes imposed by the State of Minnesota 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 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 Minnesota. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in a portfolio of Minnesota municipal securities with remaining maturities of 13 months or less at the time of purchase by the Fund. As a matter of investment policy which cannot be changed without the approval of shareholders, the Fund invests its assets so that: (1) at least 80% of its annual interest income is exempt from federal regular income tax and Minnesota regular personal income tax ("exempt interest dividends") and (2) at least 95% of the exempt interest dividends that the Fund pays to its shareholders will derive from interest income from Minnesota municipal securities. The remaining 5% of such exempt interest dividends paid to shareholders will derive either from interest income on Minnesota municipal securities or interest income which is exempt from both federal regular and Minnesota regular personal income taxes. 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 the approval of shareholders. 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 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 both federal regular income tax and Minnesota state income tax imposed upon non-corporate taxpayers. Examples of Minnesota municipal securities include, but are not limited to: tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes ("BANs") 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 municipal securities 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 day's 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 adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in municipal securities from financial institutions such as commercial and investment banks, savings and loan associations and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying municipal securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities and may be considered to be illiquid. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation certificate on any of the above. RATINGS. The Minnesota municipal securities in which the Fund invests must either 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 Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1 and FIN-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 categories. See "Regulatory Compliance." CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been credit-enhanced by a guaranty, letter of credit or insurance. 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. The bankruptcy, receivership or default of the credit enhancer will adversely affect the quality and marketability of the underlying security. 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. 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 laws. Under criteria established by the Trustees, certain restricted securities are considered to be liquid. To the extent restricted securities are deemed to be illiquid, the Fund will limit their purchase, together with other securities considered to be illiquid, to 10% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Minnesota municipal securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in short-term, non-Minnesota municipal tax-exempt obligations or other taxable, temporary investments. All temporary investments will satisfy the same credit quality standards as the Fund's acceptable investments. See "Ratings" above. Temporary investments include: notes issued by or on behalf of municipal or corporate issuers; marketable obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; other debt securities; commercial paper; certificates of deposit of banks; and repurchase agreements (arrangements in which banks, broker/dealers, and other recognized financial institutions sell the Fund a temporary investment and agree 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 of generating income subject to federal regular income tax or Minnesota state regular personal income 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 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. STANDBY COMMITMENTS Some securities dealers are willing to sell municipal securities to the Fund accompanied by their commitments to repurchase the municipal securities prior to maturity, at the Fund's option, for the amortized cost of the municipal securities at the time of repurchase. These arrangements are not used to protect against changes in the market value of municipal securities. They permit the Fund, however, to remain fully invested and still provide liquidity to satisfy redemptions. The cost of municipal securities accompanied by these "standby" commitments could be greater than the cost of municipal securities without such commitments. Standby commitments are not marketable or otherwise assignable and have value only to the Fund. The default or bankruptcy of a securities dealer giving such a commitment would not affect the quality of the municipal securities purchased. However, without a standby commitment, these securities could be more difficult to sell. The Fund enters into standby commitments only with those dealers whose credit the investment adviser believes to be of high quality. MINNESOTA 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 and maturity of the particular offering; the maturity of the obligations; and the rating of the issue. Further, any adverse economic conditions or developments affecting the State of Minnesota or its municipalities could impact the Fund's portfolio. Minnesota escaped the worst part of the recent national economic downturn largely due to the diversified nature of the state's economy. State-wide unemployment remains below the national level and personal income growth continues to reflect favorable economic conditions. Generally, growth in the state should lag behind the nation over the next several years as the economy rebounds. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Minnesota municipal securities and demand features for such securities, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. Investing in Minnesota municipal securities which meet the Fund's quality standards may not be possible if the State of Minnesota or its municipalities do not maintain their high quality, short-term credit ratings. An expanded discussion of the current economic risks associated with the purchase of Minnesota municipal securities is contained in the Combined Statement of Additional Information. NON-DIVERSIFICATION The Fund is a non-diversified investment portfolio. As such, there is no limit on the percentage of assets which can be invested in any single issuer. An investment in the Fund, therefore, will entail greater risk than would exist in a diversified investment portfolio because the higher percentage of investments among fewer issuers may result in greater fluctuation in the total market value of the Fund's portfolio. Any economic, political, or regulatory developments affecting the value of the securities in the Fund's portfolio will have a greater impact on the total value of the portfolio than would be the case if the portfolio were diversified among more issuers. The Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that at the end of each quarter of the taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer; beyond that, no more than 25% of its total assets are invested in the securities of a single issuer. 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 above investment limitation cannot be changed without shareholder approval. The following limitation, however, can be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in this limitation becomes effective. The Fund will not invest more than 5% of its total assets in industrial development bonds or other municipal securities when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in this prospectus and its Combined 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, as amended. 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 INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF FEDERATED MUNICIPAL TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of Trustees is 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. The Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, 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, for which it receives an annual fee from the Fund. ADVISORY FEES. The Fund's adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. Under the advisory contract, which provides for the voluntary waiver of the advisory fee by the adviser, the adviser may voluntarily waive some or all of the advisory fee. This does not include reimbursement to the Fund of any expenses incurred by shareholders who use the transfer agent's subaccounting facilities. The adviser can terminate this voluntary waiver of expenses at any time at its sole discretion. The adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. 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. Total assets under management or administration by these and other subsidiaries of Federated Investors are approximately $70 billion. Federated Investors, which was founded in 1956 as Federated Investors, Inc., develops and manages mutual funds primarily for the financial industry. Federated Investors' track record of competitive performance and its disciplined, risk-averse investment philosophy serve approximately 3,500 client institutions nationwide. Through these same client institutions, individual shareholders also have access to this same level of investment expertise. 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. Pursuant to the provisions of a distribution plan adopted in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund will pay to the distributor an amount computed at an annual rate of .50 of 1% of the average daily net asset value of the Shares to finance any activity which is principally intended to result in the sale of Shares subject to the Plan. The distributor may from time to time and for such periods as it deems appropriate, voluntarily reduce its compensation under the Plan to the extent the expenses attributable to the Shares exceed such lower expense limitation as the distributor may, by notice to the Trust, voluntarily declare to be effective. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers ("brokers") to provide sales and/or administrative services as agents for their clients or customers who beneficially own Shares of the Fund. Administrative services may include, but are not limited to, the following functions: 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 regarding the Shares; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as the Fund reasonably requests for Shares. Financial institutions will receive fees from the distributor 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 distributor. The Fund's 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. 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 services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state law. ADMINISTRATIVE ARRANGEMENTS. In addition to the fees paid by the distributor to financial institutions under the Plan as described above, the distributor may also pay financial institutions a fee with respect to the average daily net asset value of Shares held by their customers for providing administrative services. The rate of such fee will be determined by the average net asset value of the shares held by their customers in the Cash Series classes of the Trust and Cash Trust Series, another registered investment company distributed by Federated Securities Corp. This fee is in addition to amounts paid under the Plan and, if paid, will be reimbursed by the adviser and not the Fund. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund and the separate classes. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services, Inc. provides these at approximate cost. CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and dividend disbursing agent for the Fund. LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania. 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 adding the interest of the Shares in the value of all securities and other assets of the Fund, subtracting the interest of the Shares in liabilities of the Fund and those attributable to Shares, and dividing the remainder by the total number of Shares outstanding. The Fund, of course, cannot guarantee that its net asset value will always remain at $1.00 per Share. INVESTING IN CASH SERIES SHARES - -------------------------------------------------------------------------------- SHARE PURCHASES Shares are sold on days on which the New York Stock Exchange and the Federal Reserve wire system are open for business. Shares may be purchased through a financial institution which has a sales agreement with the distributor or directly from the distributor, Federated Securities Corp. The Fund reserves the right to reject any purchase request. THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution (such as a bank or an investment dealer) to place an order to purchase Shares. Orders through a financial institution 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. DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase Shares directly from the distributor. To do so: complete and sign the new account form available from the Fund; enclose a check payable to Minnesota Municipal Cash Trust--Cash Series Shares; and mail both to Minnesota Municipal Cash Trust, P.O. Box 8604, Boston, Massachusetts 02266-8604. The order is considered received when payment by check is converted by State Street Bank and Trust Company into federal funds. This is normally the next business day after State Street Bank receives the check. To purchase Shares by Federal Reserve wire, call 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 same day. Federal funds should be wired as follows: State Street Bank and Trust Company, Boston, Massachusetts; 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; Title or Name of Account; an ABA Number 011000028. Shares cannot be purchased by wire on days on which the New York Stock Exchange is closed and on federal holidays restricting wire transfers. MINIMUM INVESTMENT REQUIRED The minimum initial investment in the Shares is $10,000. However, an account may be opened with a smaller amount as long as the $10,000 minimum is reached within 90 days. An institutional investor's minimum investment will be calculated by combining all accounts it maintains with the Fund. Individual accounts established through a bank or broker may be subject to a different minimum investment requirement. WHAT SHARES COST Shares are sold at their net asset value next determined after an order is received. There is no sales charge imposed by the Fund. Investors who purchase Shares through a bank or broker may be charged an additional service fee by that bank or broker. The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m. (Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no Shares are tendered for redemption and no orders to purchase Shares are received; and (iii) the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. SYSTEMATIC INVESTMENT PROGRAM Once an account has been opened, shareholders may add to their investment on a regular basis in a minimum amount of $100. Under this program, funds may be automatically withdrawn periodically from the shareholder's checking account and invested in Shares. A shareholder may apply for participation in this program through his financial institution. AUTOMATIC INVESTMENTS Investors may wish to establish accounts with their brokers or administrators to have automatic investments made to the Fund. The investments may be made on predetermined dates or when the investor's account reaches a certain level. Participating brokers or administrators are responsible for prompt transmission of orders relating to the program; however, they may charge for this service and other services. Investors should read this prospectus in connection with any broker's or administrator's agreement or literature describing these services and fees. SUBACCOUNTING SERVICES Institutions are encouraged to open single master accounts. However, certain institutions may wish to use the transfer agent's subaccounting system to minimize their internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Financial institutions holding Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Shares. This prospectus should, therefore, be read together with any agreement between the customer and the financial institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Monthly confirmations are sent to report transactions such as purchases and redemptions as well as dividends paid during the month. DIVIDENDS Dividends are declared daily and paid monthly. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends on the day after the check is converted, upon instruction of the transfer agent, into federal funds. Dividends are automatically reinvested on payment dates in additional Shares unless cash payments are requested on an application or by contacting the Fund. CAPITAL GAINS Capital gains, if any, could result in an increase in dividends. Capital losses, if any, could result in a decrease in dividends. If, for some extraordinary reason, the Fund realizes net long-term or short-term capital gains, it will distribute them at least once every 12 months. REDEEMING CASH SERIES SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares 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. Redemptions can be made through a financial institution or directly from the Fund. Redemption requests must be received in proper form. THROUGH A FINANCIAL INSTITUTION A shareholder may redeem Shares by calling his/her financial institution (such as a bank or an investment dealer) to request the redemption. Shares will be redeemed at the net asset value next determined after State Street Bank receives the redemption request from the financial institution. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions to the Fund. The financial institution may charge customary fees and commissions for this service. If, at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders will be promptly notified. An authorization form permitting the Fund to accept redemption requests by telephone must first be completed. Authorization forms and information on this service are available from Federated Securities Corp. Telephone redemption instructions may be recorded. 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, shareholders may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption, such as By Mail, should be considered. RECEIVING PAYMENT. Pursuant to instructions from the financial institution, redemptions will be made by check or by wire. BY CHECK. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper redemption request, provided that the transfer agent has received payment for the Shares from the shareholder. Dividends are paid up to and including the day that a redemption request is processed. BY WIRE. Proceeds for redemption requests received before 12:00 noon (Eastern time) will be wired the same day but will not be entitled to that day's dividend. Redemption requests received after 12:00 noon (Eastern time) will receive that day's dividends and will be wired the following business day. DIRECTLY FROM THE FUND BY MAIL. Any shareholder may redeem Shares by sending a written request to State Street Bank. The written request should include the shareholder's name, the Fund name and class of shares, the account number, and the Share or dollar amount requested. If Share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. Shareholders should call the Fund for assistance in redeeming by mail. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, 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 signatures on written redemption requests guaranteed by: a trust company or commercial bank whose deposits are insured by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance Corporation ("FDIC"); a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; a savings bank or savings and loan association whose deposits are insured by the Savings Association Insurance Fund ("SAIF"), which is administered by the FDIC; 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. The Fund and its transfer agent have 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 and its transfer agent reserve the right to amend these standards at any time without notice. CHECKWRITING. At the shareholder's request, State Street Bank will establish a checking account for redeeming Shares. For further information, contact Federated Securities Corp. A fee may be charged for this service. With a Fund checking account, Shares may be redeemed simply by writing a check. The redemption will be made at the net asset value on the date that State Street Bank presents the check to the Fund. A check may not be written to close an account. If a shareholder wishes to redeem Shares and have the proceeds available, a check may be written and negotiated through the shareholder's bank. Checks should never be sent to State Street Bank to redeem Shares. Cancelled checks are returned to the shareholder each month. VISA CARD. At the shareholder's request, State Street Bank will establish a VISA account. The VISA account allows a shareholder to redeem Shares by using a VISA card. A fee determined by State Street Bank will be charged to the account for this service. For further information, contact Federated Securities Corp. REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR When Shares are purchased by check, the proceeds from the redemption, those Shares are not available, and the Shares may not be exchanged, until the Fund or its agents are reasonably certain that the purchase check has cleared, which could take up to ten calendar days. 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. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights except that in matters affecting only a particular Fund or class, only shares of that Fund or class are entitled to vote. As a Massachusetts business trust, 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 for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of all series of the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders of the Fund, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such 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 of the Fund is held personally liable for the Trust's obligations, the Trust is required 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 cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. 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 some municipal bonds may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The alternative minimum tax, currently equal to up to 28% of alternative minimum taxable income for individuals and 20% for corporations, 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. The Tax Reform Act of 1986 treats interest on certain "private activity" bonds issued after August 7, 1986, as a tax preference item for both individuals and corporations. Unlike traditional governmental purpose municipal bonds, which finance roads, schools, libraries, prisons and other public facilities, private activity bonds provide benefits to private parties. The Fund may purchase all types of municipal bonds, including private activity bonds. Thus, should it purchase any such bonds, a portion of the Fund's dividends may be treated as a tax preference item. In addition, in the case of a corporate shareholder, dividends of the Fund which represent interest on municipal bonds may be subject to the 20% corporate alternative minimum tax because the dividends are included in a corporation's "adjusted current earnings." The corporate alternative minimum tax treats 75% of the excess of a taxpayer's "adjusted current earnings" over the taxpayer's alternative minimum taxable income as a tax preference item. "Adjusted current earnings" is based upon the concept of a corporation's "earnings and profits." Since "earnings and profits" generally includes the full amount of any Fund dividend, and alternative minimum taxable income does not include the portion of the Fund's dividend attributable to municipal bonds which are not private activity bonds, 75% of the difference will be included in the calculation of the corporation's alternative minimum 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. Information on the tax status of dividends and distributions is provided annually. MINNESOTA TAX CONSIDERATIONS Dividends paid by the Fund to shareholders will be exempt from the Minnesota regular personal income tax to the extent that (i) such dividends qualify as exempt interest dividends under the Internal Revenue Code; and (ii) 95% of such dividends 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 ("Minnesota municipal obligations"). Even if the Fund does derive 95% of exempt interest dividends from interest income on Minnesota municipal obligations, shareholders could potentially be liable for Minnesota regular personal income tax to the extent that the remaining exempt interest dividends paid to them are derived from sources of income not exempt from Minnesota regular personal income tax. Dividends of the Fund are not exempt from the Minnesota income taxes payable by corporations. Minnesota only includes tax exempt interest from private activity bonds as a tax preference item for purposes of its alternative minimum tax. OTHER STATE AND LOCAL TAXES Income from the Fund is not necessarily free from regular state income taxes in states other than Minnesota or from personal property taxes. State laws differ on this issue and 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 the Fund advertises its yield, effective yield,and tax-equivalent yield for Cash Series Shares. The yield of Cash Series Shares represents the annualized rate of income earned on an investment in Cash Series Shares 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 in Cash Series Shares 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 of Cash Series Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that Cash Series Shares would have had to earn to equal their actual yield, assuming a specific tax rate. Advertisements and other sales literature may also refer to total return. Total return represents the change, over a specified period of time, in the value of an investment in Cash Series 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, and tax-equivalent yield will be calculated separately for Cash Series Shares and Institutional Shares. Because Cash Series Shares are subject to 12b-1 fees, the yield, the effective yield, and thetax-equivalent yield for Institutional Shares will exceed the yield, the effective yield, and the tax-equivalent yield for Cash Series Shares for the same period. From time to time, the Fund may advertise the performance of Cash Series Shares using certain reporting services and/or compare the performance of Cash Series Shares to certain indices. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- Institutional Shares are sold to accounts for which financial institutions act in a fiduciary capacity. Institutional Shares are sold at net asset value and are subject to a minimum initial investment of $25,000. Institutional Shares are not sold pursuant to a 12b-1 Plan. Financial institutions and brokers providing sales and administrative services may receive different compensation depending upon which class of shares of the Fund is sold. The distributor may pay an administrative fee to a financial institution or broker for administrative services provided to the Institutional Shares class and may pay such a fee for administrative services provided to the Cash Series Shares class, in addition to fees paid pursuant to the 12b-1 Plan. Any fee paid by the distributor for administrative services will not be an expense of the class, but will be reimbursed to the distributor by the investment adviser. The amount of dividends payable to Institutional Shares will exceed that of Cash Series Shares by the difference between class expenses and distribution expenses borne by shares of each respective class. The stated advisory fee is the same for both classes of shares. 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 37.
YEAR ENDED OCTOBER 31, 1993 1992 1991 1990* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------------------------------ Net investment income 0.02 0.03 0.05 0.01 - ------------------------------------------------------------------------ --------- --------- --------- --------- LESS DISTRIBUTIONS - ------------------------------------------------------------------------ Dividends to shareholders from net investment income (0.02) (0.03) (0.05) (0.01) - ------------------------------------------------------------------------ --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------------------------------------ --------- --------- --------- --------- TOTAL RETURN** 2.43% 3.19% 4.89% 0.90%(a) - ------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------------ Expenses 0.31% 0.31% 0.30% 0.01%(b) - ------------------------------------------------------------------------ Net investment income 2.40% 3.10% 4.73% 6.45%(b) - ------------------------------------------------------------------------ Expense waiver/reimbursement (c) 0.34% 0.33% 0.43% 0.69%(b) - ------------------------------------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------------------------------------ Net assets, end of period (000 omitted) $165,865 $245,168 $124,603 $75,904 - ------------------------------------------------------------------------
* Reflects operations for the period from September 10, 1990 (date of initial public investment) to October 31, 1990. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) The voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1993 - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT ISSUE (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--100.2% - ----------------------------------------------------------------------------------- MINNESOTA--99.3% ------------------------------------------------------------------- $ 5,000,000 Anoka City, MN, 2.75% CP Solid Waste Disposal Authority (United Power Associates)/(NRUCFC Guaranty)/(Subject to AMT), Mandatory Tender 12/14/93 A-1 $ 5,000,000 ------------------------------------------------------------------- 3,175,000 Anoka-Hennepin, MN, ISD Pound11, 3.00% GO Bonds, 2/1/94 NR(3) 3,175,000 ------------------------------------------------------------------- 3,750,000 Austin, MN, ISD Pound492, 3.15% (State of Minnesota Guaranty), 9/30/94 NR(2) 3,756,614 ------------------------------------------------------------------- 5,000,000 Bass Brook, MN, PCR, 2.55% CP (Minnesota Power & Light Company)/(Mellon Bank N.A. LOC), 11/9/93 P-1 5,000,000 ------------------------------------------------------------------- 1,300,000 Becker County, MN, 2.90% GO Bonds (Series 1993), 12/6/93 NR(3) 1,300,000 ------------------------------------------------------------------- 4,000,000 Becker, MN, 3.00% GO BANs (Series 1993), 10/1/94 MIG1 4,000,000 ------------------------------------------------------------------- 5,000,000 Becker, MN, PCR, 2.60% CP (Series 1992A)/(Northern States Power Company Guaranty), Mandatory Tender 4/14/94 A-1+ 5,000,000 ------------------------------------------------------------------- 4,000,000 Becker, MN, PCR, 2.70% CP (Series 1993A and 1993B)/ (Northern States Power Company Guaranty), Mandatory Tender 3/22/94 A-1+ 4,000,000 ------------------------------------------------------------------- 9,500,000 Bloomington, MN, 2.84% TANs ISD Pound271, 2/23/94 NR(2) 9,502,581 ------------------------------------------------------------------- 5,000,000 Bloomington, MN, Multi-Family Housing, Weekly VRDNs (Crow/Bloomington Apartments)/(Citibank N.A. LOC) P-1 5,000,000 ------------------------------------------------------------------- 3,850,000 Burnsville Eagan-Savage, ISD Pound191 MN, 2.66% GO TANs (Series 93), 3/30/94 NR(3) 3,850,600 ------------------------------------------------------------------- 8,265,000 Burnsville, MN, Multi-Family Housing Weekly VRDNs (Berkshire of Burnsville)/(Sumitomo Trust & Banking, Corp., Ltd. LOC) A-2 8,265,000 ------------------------------------------------------------------- 1,000,000 Byron, MN, IDB Weekly VRDNs (Schmidt Printing, Inc.)/ (Norwest Bank Minnesota LOC)/(Subject to AMT) A-1+ 1,000,000 -------------------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT ISSUE (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------------------- $ 1,380,000 Chaska, MN, IDA Weekly VRDNs (Aeration Industries)/ (Norwest Bank Minnesota LOC)/(Subject to AMT) A-1+ $ 1,380,000 ------------------------------------------------------------------- 2,000,000 Coon Rapids, MN, Hospital Authority Weekly VRDNs (Series 1985)/(The Health Central System)/(First Bank N.A. LOC) A-1 2,000,000 ------------------------------------------------------------------- 5,450,000 Crystal, MN, IDA Weekly VRDNs (Crystal Gallery Mall)/ (Citibank, N.A. LOC) P-1 5,450,000 ------------------------------------------------------------------- 6,150,000 Duluth, MN, IDA Weekly VRDNs (Lake Superior Paper)/ (National Australia Bank, Ltd. LOC) VMIG1 6,150,000 ------------------------------------------------------------------- 316,536 Eden Prairie, MN, IDA Weekly VRDNs (Series 1987)/ (Minnesota Supply Co.)/(Norwest Bank Minnesota LOC) P-1 316,536 ------------------------------------------------------------------- 890,000 Eden Prairie, MN, IDR PoundS-93 Weekly VRDNs (Richard W Cohen)/(Norwest Bank Minnesota LOC) P-1 890,000 ------------------------------------------------------------------- 2,000,000 Edina, MN, ISD Pound273, 2.91% GO TANs, 3/30/94 NR(3) 2,002,068 ------------------------------------------------------------------- 1,400,000 Elk River, MN, Weekly VRDNs (Tescom Corp. Project)/ (Norwest Bank Minnesota LOC)/(Subject to AMT) P-1 1,400,000 ------------------------------------------------------------------- 5,000,000 Faribault, MN, IDA Weekly VRDNs (Series 1988)/(Jerome Foods, Inc.)/(Norwest Bank Minnesota LOC) P-1 5,000,000 ------------------------------------------------------------------- 3,275,000 Forest Lake, MN, ISD Pound831, 3.04% TANs, 3/8/94 NR(3) 3,275,424 ------------------------------------------------------------------- 1,175,000 Hennepin County, MN, ISD Pound286, 2.80% TANs (Brooklyn Center), 3/25/94 NR(3) 1,175,000 ------------------------------------------------------------------- 2,500,000 Hubbard County, MN, Solid Waste Disposal Weekly VRDNs (Series 1990)/(Potlatch Corp.)/(Credit Suisse LOC)/(Subject to AMT) A-1+ 2,500,000 ------------------------------------------------------------------- 4,220,000 Lakeville, MN, IDS Pound194, 3.00%, 9/30/94 NR 4,220,000 ------------------------------------------------------------------- 4,000,000 Maple Grove, MN, IDA Weekly VRDNs (Series 1991A)/ (Eagle Ridge Apartment)/(Sumitomo Bank, Ltd. LOC) A-1+ 4,000,000 ------------------------------------------------------------------- 3,000,000 Maple Grove, MN, Weekly VRDNs (Series 1991B)/(Eagle Ridge Apartment)/(First Bank N.A. LOC) A-1 3,000,000 ------------------------------------------------------------------- 2,025,000 Maplewood, MN, Multi-Family Housing Weekly VRDNs (Series 1993)/(Silver Ridge)/(Federal Home Loan Bank of Chicago LOC) A-1+ 2,025,000 -------------------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT ISSUE (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------------------- $ 2,700,000 Mendota Heights, MN, Multi-Family Revenue Bonds Weekly VRDNs (Lexington Heights Apartments)/ (Sumitomo Bank, Ltd. LOC) A-1+ $ 2,700,000 ------------------------------------------------------------------- 745,000 Minneapolis, MN, IDA Weekly VRDNs (JTJ Company)/ (First Bank N.A. LOC) P-1 745,000 ------------------------------------------------------------------- 20,000,000 Minneapolis, MN, Special School District, 3.00% TANs (Series 1993), 1/27/94 MIG1 20,014,825 ------------------------------------------------------------------- 990,000 Minneapolis, MN, Weekly VRDNs (Great River Road)/ (Bayerische Vereinsbank BPA) VMIG1 990,000 ------------------------------------------------------------------- 1,000,000 Minnesota Energy & Economic Development Authority Hospital Equipment Revenue, 7.90% Annual TOBs (Series 1985A)/(AMBAC Insured), 12/1/93 NR(1) 1,003,937 ------------------------------------------------------------------- 1,500,000 Minnesota Higher Education Facilities Authority Weekly VRDNs (Carlton College Guaranty) VMIG1 1,500,000 ------------------------------------------------------------------- 8,000,000 Minnesota State Commissioner of Iron Range Resources & Rehabilitation Weekly VRDNs (Series 1991)/(Louisiana Pacific Corp.)/(Wachovia Bank & Trust Co. LOC) P-1 8,000,000 ------------------------------------------------------------------- 2,700,000 Minnesota State Higher Education Coordinating Board Weekly VRDNs (Student Loan Program)/(Series 1990)/ (First Bank, N.A. LOC)/(Subject to AMT) VMIG1 2,700,000 ------------------------------------------------------------------- 2,500,000 Minnesota State Higher Education Coordinating Board Weekly VRDNs (Student Loan Program)/(Series 1992A)/ (Subject to AMT) VMIG1 2,500,000 ------------------------------------------------------------------- 7,000,000 Minnesota State Higher Education Coordinating Board Weekly VRDNs (Student Loan Program)/(Subject to AMT) P-1 7,000,000 ------------------------------------------------------------------- 5,500,000 Minnesota State Higher Education Facilities Authority, 2.60% Semi-annual TOBs (Carlton College Guaranty), Optional Tender 2/1/94 VMIG1 5,500,000 ------------------------------------------------------------------- 3,900,000 Minnesota State Higher Education Facility Authority Weekly VRDNs (Series 3D)/(College of St. Benedict)/ (Sumitomo Bank Ltd. LOC) VMIG1 3,900,000 ------------------------------------------------------------------- 1,120,000 Minnesota State Weekly VRDNs P-Floats VMIG1 1,120,000 -------------------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT ISSUE (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------------------- $ 3,000,000 Minnesota State, 4.90% GO Bonds, 8/1/94 NR(2) $ 3,043,868 ------------------------------------------------------------------- 6,800,000 Minnetonka, MN, Multi-Family Housing Weekly VRDNs (Cliffs at Ridgedale)/(Citibank, N.A. LOC) A-1 6,800,000 ------------------------------------------------------------------- 1,300,000 New Brighton, MN, IDR Weekly VRDNs (Unicare Homes Inc.)/(Banque Paribas LOC) A-1+ 1,300,000 ------------------------------------------------------------------- 4,000,000 New Hope, MN, Weekly VRDNs (Paddock Labs)/ (Norwest Bank Minnesota LOC)/(Subject to AMT) P-1 4,000,000 ------------------------------------------------------------------- 1,000,000 Northern Minnesota Municipal Power Agency, 8.75% Power Supply Revenue Bonds (Escrowed), 1/1/94 NR(1) 1,012,472 ------------------------------------------------------------------- 3,500,000 Perham, MN, IDA Weekly VRDNs (Land O' Lakes, Inc.)/ (Rabobank Nederland LOC)/(Subject to AMT) A-1+ 3,500,000 ------------------------------------------------------------------- 2,200,000 Port of Austin, MN, Weekly VRDNs (Mower House Color Co.)/(Norwest Bank Minnesota LOC)/(Subject to AMT) P-1 2,200,000 ------------------------------------------------------------------- 3,000,000 Rochester, MN, Health Care Facility Authority, 2.55% CP (Series C)/(Mayo Clinic Foundation Guaranty), Mandatory Tender 2/17/94 A-1+ 3,000,000 ------------------------------------------------------------------- 1,750,000 Rogers, MN, IDA Weekly VRDNs (Metal Sales Manufacturing Corp.)/(Union Bank of Switzerland LOC)/ (Subject to AMT) P-1 1,750,000 ------------------------------------------------------------------- 7,000,000 Saint Cloud, MN, Hospital Facility Authority Weekly VRDNs (Series 1990A)/(St. Cloud Hospital)/(Kredeitbank N.V. LOC) A-1+ 7,000,000 ------------------------------------------------------------------- 350,000 St. Louis Park, MN, GO Weekly VRDNs (Series 1987C) VMIG1 350,000 ------------------------------------------------------------------- 2,500,000 Saint Paul Port Authority, MN, Tax Increment Weekly VRDNs (Series 1991)/(First Bank N.A. LOC) A-1 2,500,000 ------------------------------------------------------------------- 1,000,000 Saint Paul, MN, 2.75% GO BANs Riverfront Refunding Bonds, 2/1/94 NR(2) 1,000,000 ------------------------------------------------------------------- 640,000 Saint Paul, MN, 2.75% GO BANs 2/1/94 NR(2) 640,000 ------------------------------------------------------------------- 800,000 Saint Paul, MN, Housing & Redevelopment Authority Weekly VRDNs (Concord Green)/(First Bank N.A. LOC) P-1 800,000 -------------------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT ISSUE (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------------------- $ 5,000,000 Saint Paul, MN, Housing & Redevelopment Authority Weekly VRDNs (District Cooling, Inc.)/(Credit Local de France LOC)/(Subject to AMT) A-1+ $ 5,000,000 ------------------------------------------------------------------- 600,000 Saint Paul, MN, Housing & Redevelopment Authority Weekly VRDNs (United Way)/(First Bank N.A. LOC) A-1 600,000 ------------------------------------------------------------------- 3,000,000 Saint Paul, MN, Independent School District Pound625, 2.85% TANs, 2/28/94 NR(2) 3,000,565 ------------------------------------------------------------------- 5,900,000 South Saint Paul, MN, Housing & Redevelopment Authority Weekly VRDNs (Health East Project)/(Series 1992)/(Sumitomo Trust and Banking Co. Ltd. LOC) VMIG2 5,900,000 ------------------------------------------------------------------- 1,135,000 Staples, MN, ISD, 3.00% GO Bonds (Series 1993), 9/10/94 NR(4) 1,135,000 ------------------------------------------------------------------- 6,500,000 University of Minnesota, 2.65% Semi-Annual TOBs (Series F), Optional Tender 2/1/94 VMIG1 6,500,000 ------------------------------------------------------------------- 1,425,000 Wells, MN, 3.00% Semi-Annual TOBs (Stokely USA, Inc.)/(National Bank of Detroit LOC)/(Subject to AMT), Mandatory Tender 12/1/93 P-1 1,425,000 ------------------------------------------------------------------- 5,925,000 White Bear, MN, Weekly VRDNs (Thermoform Plastics, Inc.)/(Norwest Bank Minnesota LOC)/(Subject to AMT) A-1+ 5,925,000 ------------------------------------------------------------------- 2,000,000 Winsted, MN, IDA Weekly VRDNs (Sterner Lighting Systems)/(Fleet National Bank LOC)/(Subject to AMT) A-1 2,000,000 ------------------------------------------------------------------- --------------- Total 231,689,490 ------------------------------------------------------------------- --------------- PUERTO RICO--0.9% ------------------------------------------------------------------- 2,200,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit Suisse and Sumitomo Bank, Ltd. LOCs) A-1+ 2,200,000 ------------------------------------------------------------------- --------------- TOTAL INVESTMENTS (AT AMORTIZED COST) $ 233,889,490\ ------------------------------------------------------------------- ---------------
\ Also represents cost for federal tax purposes. * See Notes to Portfolio of Investments. Note: The categories of investments are shown as a percentage of net assets ($233,386,545) at October 31, 1993. (See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following abbreviations are used in this portfolio: AMBAC--American Municipal Bond Assurance Corporation AMT--Alternative Minimum Tax BANs--Bond Anticipation Notes BPA--Bond Purchase Agreement CP--Commercial Paper GO--General Obligation IDA--Industrial Development Authority IDR--Industrial Development Revenue ISD--Independent School District LOC--Letter(s) of Credit LOCs--Letters of Credit NRUCFC--National Rural Utilities Cooperative Finance Corporation PCR--Pollution Control Revenue TANs--Tax Anticipation Notes TOBs--Tender Option Bonds VRDNs--Variable Rate Demand Notes MINNESOTA MUNICIPAL CASH TRUST NOTES TO PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL OBLIGATION RATINGS S&P A Standard & Poor's 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 (+) designation. SP-2 Satisfactory capacity to pay principal and interest. MOODY'S Moody's short-term ratings are designated Moody's Investment Grade (MIG OR VMIG (see below)). The purpose of the MIG of 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. FITCH Fitch's short-term ratings place greater emphasis on the existence of liquidity necessary to meet the issuers' obligations in a timely manner. F-1 Strongest degree of assurance for timely payment. Those issues determined to provide exceptionally strong credit quality are given a plus (+) designation. F-2 Notes reflecting a degree of assurance for timely payment only slightly less in degree than the highest category. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P Standard & Poor's 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 MINNESOTA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- characteristics. Several examples are AAA/A-1+, AA/A-1K, and A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) MOODY'S 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. FITCH Fitch usually assigns two ratings to long-term debt issues that include provisions for a variable rate demand feature. The long-term rating addresses the ability of the obligor to pay debt service and the short-term rating addresses the timely payment of the demand feature. Examples of rating designations are as follows: AAA/F-1+, AA/F-1+, and A/F-1. (The definitions for the long-term and short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS S&P A Standard & Poor's 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 designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) designation. A-2 Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated "A-1". MOODY'S P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. MINNESOTA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following is an explanation of the Fitch ratings. These ratings are not referenced in the Portfolio of Investments. FITCH F-1 Issues assigned this rating reflect a strong degree of assurance for timely payment. Those issuers determined to possess the strongest degree of assurance for timely payment are denoted with a plus (+) sign designation. F-2 Issuers carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as the "F-1+" and "F-1" categories. LONG-TERM DEBT RATINGS (INVESTMENT GRADE) S&P AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the 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. BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest than debt rated in higher ratings categories. MOODY'S Aaa Bonds that 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 edge." Interest payments are protected by a large margin and principal is secure. While the various protective elements are likely to change, such changes which can be foreseen are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds that 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. MINNESOTA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- A Bonds that 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 that suggest a susceptibility to impairment some time in the future. Baa Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. FITCH AAA Bonds that are rated AAA are of the highest credit quality. The obligor has an exceptionally strong ability to pay debt service. AA Bonds that are rated AA are of very high quality. The obligor has a very strong ability to pay debt service. Debt rated in this category may also have a (+) or (-) sign with a rating to indicate the relative position within the rating category. A Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. NR indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P, Moody's, or Fitch with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated in one of the two highest short-term ratings categories by a nationally recognized statistical ratings organization. NR(1) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by Fitch. NR(2) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch. NR(3) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "A" by Standard & Poor's, Moody's, or Fitch. NR(4) The underlying issuer/obligor/gurantor has other outstanding long-term debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by Fitch. MINNESOTA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1993 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------------------------ Investments, at amortized cost and value (Note 2A) $ 233,889,490 - ------------------------------------------------------------------------------------------------ Cash 244,164 - ------------------------------------------------------------------------------------------------ Interest receivable 1,634,135 - ------------------------------------------------------------------------------------------------ Receivable for investments sold 76,397 - ------------------------------------------------------------------------------------------------ Receivable for Fund shares sold 4,600 - ------------------------------------------------------------------------------------------------ Deferred expenses (Note 2E) 8,055 - ------------------------------------------------------------------------------------------------ --------------- Total assets 235,856,841 - ------------------------------------------------------------------------------------------------ LIABILITIES: - ------------------------------------------------------------------------------------------------ Payable for investments purchased $ 2,000,145 - --------------------------------------------------------------------------------- Dividends payable 332,125 - --------------------------------------------------------------------------------- Payable for Fund shares redeemed 54,189 - --------------------------------------------------------------------------------- Accrued expenses and other liabilities 83,837 - --------------------------------------------------------------------------------- ------------- Total liabilities 2,470,296 - ------------------------------------------------------------------------------------------------ --------------- NET ASSETS for 233,386,545 shares of beneficial interest outstanding $ 233,386,545 - ------------------------------------------------------------------------------------------------ --------------- NET ASSET VALUE, Offering Price, and Redemption Price Per Share: - ------------------------------------------------------------------------------------------------ Institutional Shares ($165,865,146 / 165,865,146 shares of beneficial interest outstanding) $1.00 - ------------------------------------------------------------------------------------------------ --------------- Cash Series Shares ($67,521,399 / 67,521,399 shares of beneficial interest 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, 1993 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------------------------- Interest income (Note 2B) $ 7,290,313 - --------------------------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------------------------- Investment advisory fee (Note 5) $ 1,077,211 - ------------------------------------------------------------------------------------ Administrative personnel and services fees (Note 5) 333,328 - ------------------------------------------------------------------------------------ Custodian, transfer and dividend disbursing agent fees and expenses 169,851 - ------------------------------------------------------------------------------------ Trustees' fees 3,837 - ------------------------------------------------------------------------------------ Auditing fees 15,945 - ------------------------------------------------------------------------------------ Legal fees 13,281 - ------------------------------------------------------------------------------------ Printing and postage 36,284 - ------------------------------------------------------------------------------------ Fund share registration costs 56,233 - ------------------------------------------------------------------------------------ Distribution services fees (Note 5) 361,675 - ------------------------------------------------------------------------------------ Insurance premiums 12,460 - ------------------------------------------------------------------------------------ Miscellaneous 17,129 - ------------------------------------------------------------------------------------ ------------- Total expenses 2,097,234 - ------------------------------------------------------------------------------------ Deduct-- - ------------------------------------------------------------------------------------ Waiver of investment advisory fee (Note 5) $ 915,191 - ----------------------------------------------------------------------- Waiver of distribution services fees (Note 5) 72,335 987,526 - ----------------------------------------------------------------------- ----------- ------------- Net expenses 1,109,708 - --------------------------------------------------------------------------------------------------- ------------- Net investment income $ 6,180,605 - --------------------------------------------------------------------------------------------------- -------------
(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, 1993 1992 INCREASE (DECREASE) IN NET ASSETS: - ----------------------------------------------------------------------------- OPERATIONS-- - ----------------------------------------------------------------------------- Net investment income $ 6,180,605 $ 6,457,573 - ----------------------------------------------------------------------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - ----------------------------------------------------------------------------- Dividends to shareholders from net investment income: - ----------------------------------------------------------------------------- Institutional Shares (4,723,866) (4,448,140) - ----------------------------------------------------------------------------- Cash Series Shares (1,456,739) (2,009,433) - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets from distributions to shareholders (6,180,605) (6,457,573) - ----------------------------------------------------------------------------- ---------------- ---------------- FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - ----------------------------------------------------------------------------- Net proceeds from sale of shares 856,352,639 761,703,208 - ----------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of dividends declared 1,606,041 2,151,596 - ----------------------------------------------------------------------------- Cost of shares redeemed (944,784,209) (637,992,476) - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets from Fund share transactions (86,825,529) 125,862,328 - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets (86,825,529) 125,862,328 - ----------------------------------------------------------------------------- NET ASSETS: - ----------------------------------------------------------------------------- Beginning of period 320,212,074 194,349,746 - ----------------------------------------------------------------------------- ---------------- ---------------- End of period $ 233,386,545 $ 320,212,074 - ----------------------------------------------------------------------------- ---------------- ---------------- (See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1993 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company with several 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. Effective December 31, 1990, the Fund provides two classes of shares ("Institutional Shares" and "Cash Series Shares"). Cash Series Shares are identical in all respects to Institutional Shares except that Cash Series Shares are sold pursuant to a distribution plan ("Plan") adopted in accordance with Investment Company Act Rule 12b-1. Under the Plan, the Fund paid Federated Securities Corp. ("the distributor") a fee at an annual rate up to .50 of 1% of the average daily net asset value of Cash Series Shares to finance any activity which principally intended to result in the sale of Cash Series 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. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that the best method currently available for valuing portfolio securities is amortized cost. The Fund's use of the amortized cost method to value its portfolio securities is conditioned on its compliance with Rule 2a-7 under the Investment Company Act of 1940. Since the Fund may invest 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 general tax-exempt mutual fund. In order to reduce the risk associated with such factors, at October 31, 1993, 68.7% 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 aggregate percentages by financial institution ranged from 0.4% to 10.6% of total investments. B. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest earned net of premium, and original issue discount as required by the Internal Revenue Code (the "Code"). C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to investment companies and to distribute to shareholders each year all of its net income. Accordingly, no provision for federal tax is necessary. Dividends paid by the Fund representing net interest received on tax-exempt municipal securities are not includable by shareholders as gross income for federal income tax purposes because the Fund intends to meet certain requirements of the Code applicable to regulated investment companies which will enable the Fund to pay exempt- MINNESOTA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- interest dividends. The portion of such interest, if any, earned on private activity bonds issued after August 7, 1986 may be considered a tax preference item to shareholders for the purpose of computing the alternative minimum tax. D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objectives and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain 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. E. 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 the shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. F. EXPENSES--Expenses of the Fund (other than distribution services fees) and waivers and reimbursements, if any, are allocated to each class of shares based on its relative daily average net assets for the period. Expenses incurred by the Trust which do not specifically relate to an individual fund are allocated among all funds based on a fund's relative net asset value size or as deemed appropriate by the administrator. G. OTHER--Investment transactions are accounted for on the date of the transaction. (3) DIVIDENDS The Fund computes its net income daily and, immediately prior to the calculation of its net asset value at the close of business, declares and records dividends to shareholders of record at the time of the previous computation of the Fund's net asset value. Payment of dividends is made monthly in cash, or in additional shares at the net asset value on the payable date. (4) 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, 1993, capital paid-in aggregated $233,386,545. Transactions in Fund shares were as follows: MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, INSTITUTIONAL SERVICE SHARES 1993 1992 - -------------------------------------------------------------------------------- --------------- --------------- Shares outstanding, beginning of period 245,167,786 124,602,806 - -------------------------------------------------------------------------------- Shares sold 610,443,315 531,157,380 - -------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 190,482 188,828 - -------------------------------------------------------------------------------- Shares redeemed (689,936,437) (410,781,228) - -------------------------------------------------------------------------------- --------------- --------------- Shares outstanding, end of period 165,865,146 245,167,786 - -------------------------------------------------------------------------------- --------------- ---------------
YEAR ENDED OCTOBER 31, CASH SERIES SHARES 1993 1992 - -------------------------------------------------------------------------------- --------------- --------------- Shares outstanding, beginning of period 75,044,288 69,746,940 - -------------------------------------------------------------------------------- Shares sold 245,909,324 230,545,828 - -------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 1,415,559 1,962,768 - -------------------------------------------------------------------------------- Shares redeemed (254,847,772) (227,211,248) - -------------------------------------------------------------------------------- --------------- --------------- Shares outstanding, end of period 67,521,399 75,044,288 - -------------------------------------------------------------------------------- --------------- ---------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Federated Management, the Fund's investment adviser ("Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser has voluntarily agreed to waive a portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time in its sole discretion. During the fiscal year ended October 31, 1993 the Adviser earned $1,077,211 as its advisory fee, of which $915,191 was voluntarily waived. Organizational expenses ($40,733) were borne initially by the Adviser. The Fund has agreed to pay the Adviser, at an annual rate .005 of 1% of average daily net assets until the expenses borne initially by the Adviser are reimbursed, or the expiration of five years from August 31, 1990, the date the Trust's portfolio became effective, whichever occurs earlier. During the fiscal year ended October 31, 1993 the Fund paid the Adviser $8,055 pursuant to this agreement. During the fiscal year ended October 31, 1993, pursuant to Rule 17a-7 of the Investment Company Act of 1940, the Fund engaged in purchase and sale transactions with other Funds advised by the Adviser amounting to $378,800,000 and $486,546,962, respectively. These purchases and sales were conducted on an arms-length basis insofar as they were transacted for cash consideration only, at independent current market prices and without brokerage commission, fee or other remuneration. The Trust has adopted a Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Trust will compensate Federated Securities Corp. ("FSC"), the principal distributor, from MINNESOTA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- the assets of the Fund, for fees it paid which relate to the distribution and administration of the Fund's Cash Series Shares. The Plan provides that the Fund may incur distribution expenses up to .50 of 1% of the average daily net assets of the Cash Series Shares, annually, to pay commissions, maintenance fees and to compensate the distributor. During the fiscal year ended October 31, 1993, FSC earned $361,675 in distribution services fees of which $72,335 was voluntarily waived. Administrative personnel and services were provided at approximate cost by Federated Administrative Services, Inc. Certain Officers and Trustees of the Trust are Officers and Directors of the above corporations. (6) CURRENT CREDIT RATINGS Current credit ratings and related notes are unaudited. 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 investments, as of October 31, 1993, the related statement of operations for the year then ended, 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 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 the securities owned as of October 31, 1993, 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 Minnesota Municipal Cash Trust, an investment portfolio of Federated Municipal Trust, as of October 31, 1993, 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 & CO. Pittsburgh, Pennsylvania December 13, 1993 ADDRESSES - -------------------------------------------------------------------------------- Minnesota Municipal Cash Trust Cash Series Shares Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8604 Trust Company Boston, Massachusetts 02266-8604 - --------------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, D.C. 20037 - --------------------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen & Co. 2100 One PPG Place Pittsburgh, Pennsylvania 15222 - ---------------------------------------------------------------------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST CASH SERIES SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company December 31, 1993 0082715A-CSS (12/93) 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 non-diversified portfolio of securities which is one of a series of investment portfolios in Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The investment objective of the Fund is to provide 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. The Fund invests primarily in short-term Minnesota municipal securities. 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 the State of Minnesota or its political subdivisions and financing authorities, which are exempt from the federal regular income tax and the regular personal income taxes imposed by the State of Minnesota. Institutional Shares are sold at net asset value, without a sales load. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. 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. THE INSTITUTIONAL 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 BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. This prospectus contains the information you should read and know before you invest in Institutional Shares. Keep this prospectus for future reference. The Fund has also filed a Combined Statement of Additional Information for Institutional Shares and Cash Series Shares dated December 31, 1993, with the Securities and Exchange Commission. The information contained in the Combined Statement of Additional Information is incorporated by reference in this prospectus. You may request a copy of the Combined Statement of Additional Information free of charge by calling 1-800-235-4669. To obtain other information or make inquiries about the Fund contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1993 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 Acceptable Investments 4 Variable Rate Demand Notes 4 Participation Interests 4 Municipal Leases 4 Ratings 4 Credit Enhancement 5 Demand Features 5 Restricted and Illiquid Securities 5 When-Issued and Delayed Delivery Transactions 5 Temporary Investments 5 Minnesota Municipal Securities 6 Standby Commitments 6 Minnesota Investment Risks 7 Non-Diversification 7 Investment Limitations 7 Regulatory Compliance 8 FEDERATED MUNICIPAL TRUST INFORMATION 8 - ------------------------------------------------------ Management of Federated Municipal Trust 8 Board of Trustees 8 Investment Adviser 8 Advisory Fees 8 Adviser's Background 8 Distribution of Institutional Shares 9 Administrative Arrangements 9 Administration of the Fund 9 Administrative Services 9 Custodian 9 Transfer Agent and Dividend Disbursing Agent 10 Legal Counsel 10 Independent Public Accountants 10 NET ASSET VALUE 10 - ------------------------------------------------------ INVESTING IN INSTITUTIONAL SHARES 10 - ------------------------------------------------------ Share Purchases 10 By Wire 10 By Mail 10 Minimum Investment Required 10 What Shares Cost 11 Subaccounting Services 11 Certificates and Confirmations 11 Dividends 11 Capital Gains 11 REDEEMING INSTITUTIONAL SHARES 12 - ------------------------------------------------------ Telephone Redemption 12 Written Requests 12 Signatures 12 Receiving Payment 13 Checkwriting 13 Redemption Before Purchase Instruments Clear 13 Accounts with Low Balances 13 SHAREHOLDER INFORMATION 13 - ------------------------------------------------------ Voting Rights 13 Massachusetts Partnership Law 14 TAX INFORMATION 14 - ------------------------------------------------------ Federal Income Tax 14 Minnesota Tax Considerations 15 Other State and Local Taxes 15 PERFORMANCE INFORMATION 15 - ------------------------------------------------------ OTHER CLASSES OF SHARES 16 - ------------------------------------------------------ Financial Highlights--Cash Series Shares 17 FINANCIAL STATEMENTS 18 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 36 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................................................................... None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)................................................................... None Deferred Sales Load (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 INSTITUTIONAL SHARES OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)....................................................................... 0.06% 12b-1 Fee............................................................................................... None Other Expenses.......................................................................................... 0.25% Total Institutional Shares Operating Expenses (2)............................................. 0.31%
(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 Total Institutional Shares Operating Expenses would have been 0.65% absent the voluntary waiver of a portion of the management fee. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL SHARES" AND "FEDERATED MUNICIPAL TRUST 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. As noted in the table above, the Fund charges no redemption fee for Institutional Shares.............................................. $3 $10 $17 $39
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the foregoing table and example relates only to Institutional Shares of the Fund. The Fund also offers another class of shares called Cash Series Shares. Institutional Shares and Cash Series Shares are subject to certain of the same expenses; however, Cash Series Shares are subject to a 12b-1 fee of up to 0.50%. See "Other Classes of Shares." MINNESOTA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to Report of Independent Public Accountants on page 36.
YEAR ENDED OCTOBER 31, 1993 1992 1991 1990* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------------------------- Net investment income 0.02 0.03 0.05 0.01 - ----------------------------------------------------------- --------- --------- --------- --------- LESS DISTRIBUTIONS - ----------------------------------------------------------- Dividends to shareholders from net investment income (0.02) (0.03) (0.05) (0.01) - ----------------------------------------------------------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------------------------- --------- --------- --------- --------- TOTAL RETURN** 2.43% 3.19% 4.89% 0.90 (a) - ----------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------------------------- Expenses 0.31% 0.31% 0.30% 0.01 (b) - ----------------------------------------------------------- Net investment income 2.40% 3.10% 4.73% 6.45 (b) - ----------------------------------------------------------- Expense waiver/reimbursement (c) 0.34% 0.33% 0.43% 0.69 (b) - ----------------------------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------------------------- Net assets, end of period (000 omitted) $165,865 $245,168 $124,603 $75,904 - -----------------------------------------------------------
* Reflects operations for the period from September 10, 1990 (date of initial public investment) to October 31, 1990. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) The expense voluntary decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (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 of beneficial interest 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") have established two classes of shares, known as Institutional Shares and Cash Series Shares. This prospectus relates only to Institutional Shares of the Fund. Institutional Shares ("Shares") of the Fund are designed for the investment of moneys held by financial institutions in a fiduciary capacity. A minimum initial investment of $25,000 over a 90-day period is required. The Fund may not be a suitable investment for non-Minnesota taxpayers or retirement plans since it invests primarily in Minnesota municipal securities. The Fund attempts to stabilize the value of a Share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to provide current income exempt from federal regular income tax and the regular personal income taxes imposed by the state of Minnesota 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 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 Minnesota. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in a portfolio of Minnesota municipal securities with remaining maturities of 13 months or less at the time of purchase by the Fund. As a matter of investment policy which cannot be changed without the approval of shareholders, the Fund invests its assets so that (1) at least 80% of its annual interest income is exempt from federal regular income tax and Minnesota regular personal income tax ("exempt interest dividends") and (2) at least 95% of the exempt interest dividends that the Fund pays to its shareholders will derive from interest income from Minnesota municipal securities. The remaining 5% of such exempt interest dividends paid to shareholders will derive either from interest income on Minnesota municipal securities or interest income which is exempt from both federal regular and Minnesota regular personal income taxes. 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 the approval of shareholders. 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 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 both federal regular income tax and Minnesota state income tax imposed upon non-corporate taxpayers. Examples of Minnesota Municipal Securities include, but are not limited to: tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes ("BANs") 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 municipal securities 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 adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in municipal securities from financial institutions such as commercial and investment banks, savings and loan associations and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying municipal securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities and may be considered to be illiquid. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation certificate on any of the above. RATINGS. The Minnesota municipal securities in which the Fund invests must either 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 Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1 and FIN-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 categories. See "Regulatory Compliance." CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been credit-enhanced by a guaranty, letter of credit or insurance. 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. The bankruptcy, receivership or default of the credit enhancer will adversely affect the quality and marketability of the underlying security. 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 other 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. 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 laws. Under criteria established by the Trustees, certain restricted securities are considered to be liquid. To the extent restricted securities are deemed to be illiquid, the Fund will limit their purchase, together with other securities considered to be illiquid, to 10% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Minnesota municipal securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in short-term, non-Minnesota municipal tax-exempt obligations or other taxable, temporary investments. All temporary investments will satisfy the same credit quality standards as the Fund's acceptable investments. See "Ratings" above. Temporary investments include: notes issued by or on behalf of municipal or corporate issuers; marketable obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; other debt securities; commercial paper; certificates of deposit of banks; and repurchase agreements (arrangements in which banks, broker/dealers, and other recognized financial institutions sell the Fund a temporary investment and agree 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 of generating income subject to federal regular income tax or Minnesota state regular personal income 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 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. STANDBY COMMITMENTS Some securities dealers are willing to sell municipal securities to the Fund accompanied by their commitments to repurchase the municipal securities prior to maturity, at the Fund's option, for the amortized cost of the municipal securities at the time of repurchase. These arrangements are not used to protect against changes in the market value of municipal securities. They permit the Fund, however, to remain fully invested and still provide liquidity to satisfy redemptions. The cost of municipal securities accompanied by these "standby" commitments could be greater than the cost of municipal securities without such commitments. Standby commitments are not marketable or otherwise assignable and have value only to the Fund. The default or bankruptcy of a securities dealer giving such a commitment would not affect the quality of the municipal securities purchased. However, without a standby commitment, these securities could be more difficult to sell. The Fund enters into standby commitments only with those dealers whose credit the investment adviser believes to be of high quality. MINNESOTA 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 and maturity of the particular offering; the maturity of the obligations; and the rating of the issue. Further, any adverse economic conditions or developments affecting the State of Minnesota or its municipalities could impact the Fund's portfolio. Minnesota escaped the worst part of the recent national economic downturn largely due to the diversified nature of the state's economy. State-wide unemployment remains below the national level and personal income growth continues to reflect favorable economic conditions. Generally, growth in the state should lag behind the nation over the next several years as the economy rebounds. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Minnesota municipal securities and demand features for such securities, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. Investing in Minnesota municipal securities which meet the Fund's quality standards may not be possible if the State of Minnesota or its municipalities do not maintain their high quality, short-term credit ratings. An expanded discussion of the current economic risks associated with the purchase of Minnesota municipal securities is contained in the Combined Statement of Additional Information. NON-DIVERSIFICATION The Fund is a non-diversified investment portfolio. As such, there is no limit on the percentage of assets which can be invested in any single issuer. An investment in the Fund, therefore, will entail greater risk than would exist in a diversified investment portfolio because the higher percentage of investments among fewer issuers may result in greater fluctuation in the total market value of the Fund's portfolio. Any economic, political, or regulatory developments affecting the value of the securities in the Fund's portfolio will have a greater impact on the total value of the portfolio than would be the case if the portfolio were diversified among more issuers. The Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that at the end of each quarter of the taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer; beyond that, no more than 25% of its total assets are invested in the securities of a single issuer. 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 above investment limitation cannot be changed without shareholder approval. The following limitation, however, can be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in this limitation becomes effective. The Fund will not invest more than 5% of its total assets in industrial development bonds or other municipal securities when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in this prospectus and its Combined 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, as amended. 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 INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF FEDERATED MUNICIPAL TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of Trustees is 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. The Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, 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, for which it receives an annual fee from the Fund. ADVISORY FEES. The Fund's adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. Under the advisory contract, which provides for the voluntary waiver of the advisory fee by the adviser, the adviser may voluntarily waive some or all of the advisory fee. This does not include reimbursement to the Fund of any expenses incurred by shareholders who use the transfer agent's subaccounting facilities. The adviser can terminate this voluntary waiver of expenses at any time at its sole discretion. The adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. 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. Total assets under management or administration by these and other subsidiaries of Federated Investors are approximately $70 billion. Federated Investors, which was founded in 1956 as Federated Investors, Inc., develops and manages mutual funds primarily for the financial industry. Federated Investors' track record of competitive performance and its disciplined, risk-averse investment philosophy serve approximately 3,500 client institutions nationwide. Through these same client institutions, individual shareholders also have access to this same level of investment expertise. 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. ADMINISTRATIVE ARRANGEMENTS. The distributor may select brokers and dealers to provide distribution and administrative services. The distributor may also select administrators (including depository institutions such as commercial banks and savings and loan associations) to provide administrative services. These administrative services include, but are not limited to, distributing prospectuses and other information, providing accounting assistance and communicating or facilitating purchases and redemptions of Shares. Brokers, dealers, and administrators will receive fees from the distributor based upon Shares owned by their clients or customers. The fees are calculated as a percentage of the average aggregate net asset value of shareholder accounts during the period for which the brokers, dealers, and administrators provide services. Any fees paid for these services by the distributor will be reimbursed by the adviser. The Glass-Steagall Act limits the ability of a depository institution (such as a commercial bank or a savings and loan association) to become an underwriter or distributor of securities. In the event the Glass-Steagall Act is deemed to prohibit depository institutions from acting in the capacities described above or should Congress relax current restrictions on depository institutions, the Trustees will consider appropriate changes in the administrative services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state law. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services, Inc. provides these at approximate cost. CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and dividend disbursing agent for the Fund. LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania. 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 adding the interest of the Shares in the value of all securities and other assets of the Fund, subtracting the interest of the Shares in the liabilities of the Fund and those attributable to Shares, and dividing the remainder by the total number of Shares outstanding. The Fund, of course, cannot guarantee that its net asset value will always remain at $1.00 per Share. INVESTING IN INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- SHARE PURCHASES Shares are sold on days on which the New York Stock Exchange and the Federal Reserve wire system are open for business. Shares may be purchased either by wire or mail. The Fund reserves the right to reject any purchase request. To purchase Shares, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken over the telephone. BY WIRE. To purchase Shares by Federal Reserve wire, call 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 same day. Federal funds should be wired as follows: State Street Bank and Trust Company, Boston, Massachusetts; 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 days on which the New York Stock Exchange is closed and on federal holidays restricting wire transfers. BY MAIL. To purchase Shares by mail, send a check made payable to Minnesota Municipal Cash Trust--Institutional Shares to the Trust's transfer agent, Federated Services Company, c/o State Street Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are considered received when payment by check is converted by State Street Bank into federal funds. This is normally the next business day after State Street Bank receives the check. MINIMUM INVESTMENT REQUIRED The minimum initial investment in the Shares of the Fund is $25,000. However, an account may be opened with a smaller amount as long as the $25,000 minimum is reached within 90 days. An institutional investor's minimum investment will be calculated by combining all accounts it maintains with the Fund. Individual accounts established through a bank or broker may be subject to a different minimum investment requirement. WHAT SHARES COST Shares are sold at their net asset value next determined after an order is received. There is no sales charge imposed by the Fund. Investors who purchase Shares through a bank or broker may be charged an additional service fee by that bank or broker. The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m. (Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no Shares are tendered for redemption and no orders to purchase Shares are received; and (iii) the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. SUBACCOUNTING SERVICES Institutions are encouraged to open single master accounts. However, certain institutions may wish to use the transfer agent's subaccounting system to minimize their internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Financial institutions holding Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Shares. This prospectus should, therefore, be read together with any agreement between the customer and the financial institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Monthly confirmations are sent to report transactions such as purchases and redemptions as well as dividends paid during the month. DIVIDENDS Dividends are declared daily and paid monthly. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends on the day after the check is converted, upon instruction of the transfer agent, into federal funds. Dividends are automatically reinvested on payment dates in additional Shares unless cash payments are requested on an application or by contacting the Fund. CAPITAL GAINS Capital gains, if any, could result in an increase in dividends. Capital losses, if any, could result in a decrease in dividends. If, for some extraordinary reason, the Fund realizes net long-term or short-term capital gains, it will distribute them at least once every 12 months. REDEEMING INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares 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 by telephone request or by written request. TELEPHONE REDEMPTION Shareholders may redeem their Shares by telephoning the Fund. Redemption requests received before 12:00 noon (Eastern time) are not entitled to that day's dividend. A daily dividend will be paid on Shares redeemed if the redemption request is received after 12:00 noon (Eastern time). However, the proceeds are not wired until the following business day. If, at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders will be promptly notified. An authorization form permitting the Fund to accept redemption requests by telephone must first be completed. Authorization forms and information on this service are available from Federated Securities Corp. Telephone redemption instructions may be recorded. 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, shareholders may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption, such as Written Requests, should be considered. WRITTEN REQUESTS Shares may also be redeemed by sending a written request to the Fund. Call the Fund for specific instructions before redeeming by letter. The shareholder will be asked to provide in the request his name, the Fund name and class of shares, his account number, and the Share or dollar amount requested. If Share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, 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 signatures on written redemption requests guaranteed by: a trust company or commercial bank whose deposits are insured by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance Corporation ("FDIC"); a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; a savings bank or savings and loan association whose deposits are insured by the Savings Association Insurance Fund ("SAIF"), which is administered by the FDIC; 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. The Fund and its transfer agent have 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 and its transfer agent reserve the right to amend these standards at any time without notice. RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request, provided that the transfer agent has received payment for the Shares from the shareholder. CHECKWRITING. At the shareholder's request, State Street Bank will estabish a checking account for redeeming Shares. For further information, contact Federated Securities Corp. A fee may be charged for this service. With a Fund checking account, Shares may be redeemed simply by writing a check. The redemption will be made at the net asset value on the date that State Street Bank presents the check to the Fund. A check may not be written to close an account. If a shareholder wishes to redeem Shares and have the proceeds available, a check may be written and negotiated through the shareholder's bank. Checks should never be sent to State Street Bank to redeem Shares. Cancelled checks are returned to the shareholder each month. REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR When Shares are purchased by check, the proceeds from the redemption of those Shares are not available, and the Shares may not be exchanged, until the Fund or its agents are reasonably certain that the purchase check has cleared, which could take up to ten calendar days. 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. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only shares of that Fund or class are entitled to vote. As of November 29, 1993, VAR & Co., St. Paul, Minnesota, owned 53.82% of the voting securities of the Institutional Shares of the Fund, and, therefore, may, for certain purposes, be deemed to control the Institutional Shares of the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. As a Massachusetts business trust, 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 for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of all series in the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders of the Fund, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders, for such 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 of the Fund is held personally liable for the Trust's obligations, the Trust is required 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 cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. 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 some municipal bonds may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The alternative minimum tax, currently equal to up to 28% of alternative minimum taxable income for individuals and 20% for corporations, 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. The Tax Reform Act of 1986 treats interest on certain "private activity" bonds issued after August 7, 1986, as a tax preference item for both individuals and corporations. Unlike traditional governmental purpose municipal bonds, which finance roads, schools, libraries, prisons and other public facilities, private activity bonds provide benefits to private parties. The Fund may purchase all types of municipal bonds, including private activity bonds. Thus, should it purchase any such bonds, a portion of the Fund's dividends may be treated as a tax preference item. In addition, in the case of a corporate shareholder, dividends of the Fund which represent interest on municipal bonds may be subject to the 20% corporate alternative minimum tax because the dividends are included in a corporation's "adjusted current earnings." The corporate alternative minimum tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's alternative minimum taxable income as a tax preference item. "Adjusted current earnings" is based upon the concept of a corporation's "earnings and profits." Since "earnings and profits" generally includes the full amount of any Fund dividend, and alternative minimum taxable income does not include the portion of the Fund's dividend attributable to municipal bonds which are not private activity bonds, 75% of the difference will be included in the calculation of the corporation's alternative minimum 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. Information on the tax status of dividends and distributions is provided annually. MINNESOTA TAX CONSIDERATIONS Dividends paid by the Fund to shareholders will be exempt from the Minnesota regular personal income tax to the extent that (i) such dividends qualify as exempt interest dividends under the Internal Revenue Code; and (ii) 95% of such dividends 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 ("Minnesota municipal obligations"). Even if the Fund does derive 95% of exempt interest dividends from interest income on Minnesota municipal obligations, shareholders could potentially be liable for Minnesota regular personal income tax to the extent that the remaining exempt interest dividends paid to them are derived from sources of income not exempt from Minnesota regular personal income tax. Dividends of the Fund are not exempt from the Minnesota income taxes payable by corporations. Minnesota only includes tax exempt interest from private activity bonds as a tax preference item for purposes of its alternative minimum tax. OTHER STATE AND LOCAL TAXES Income from the Fund is not necessarily free from regular state income taxes in states other than Minnesota or from personal property taxes. State laws differ on this issue and 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 the Fund advertises its yield, effective yield, and tax-equivalent yield for Institutional Shares. The yield of Institutional Shares represents the annualized rate of income earned on an investment in Institutional Shares 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 in Institutional Shares 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 of Institutional Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that Institutional Shares would have had to earn to equal its actual yield, assuming a specific tax rate. Advertisements and other sales literature may also refer to total return. Total return represents the change, over a specified period of time, in the value of an investment in Institutional 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, and tax-equivalent yield will be calculated separately for Institutional Shares and Cash Series Shares. Because Cash Series Shares are subject to 12b-1 fees, the yield, the effective yield, and the tax-equivalent yield for Institutional Shares, will exceed the yield, the effective yield, and the tax-equivalent yield for Cash Series Shares for the same period. From time to time, the Fund may advertise the performance of Institutional Shares using certain reporting services and/or compare the performance of Institutional Shares to certain indices. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- Cash Series Shares are sold primarily to retail customers of financial institutions. Cash Series Shares are sold at net asset value. Investments in Cash Series Shares are subject to a minimum initial investment of $10,000. Cash Series Shares are distributed pursuant to a 12b-1 Plan adopted by the Trust whereby the distributor is paid a fee of up to .50 of 1%, of the Cash Series Shares' average daily net assets. Financial institutions and brokers providing sales and/or administrative services may receive different compensation from one class of shares of the Fund than from another class of shares. While the distributor may, in addition to fees paid pursuant to the 12b-1 Plan, pay an administrative fee to a financial institution or broker for administrative services provided to a class, such a fee will not be an expense of the class, but will be reimbursed to the distributor by the investment adviser. The amount of dividends payable to Institutional Shares will exceed that of Cash Series Shares by the difference between class expenses and distribution expenses borne by shares of each respective class. The stated advisory fee is the same for both classes of shares. 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 36.
YEAR ENDED OCTOBER 31, 1993 1992 1991* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------------------------------------------- Net investment income 0.02 0.03 0.04 - ----------------------------------------------------------------------------- --------- --------- --------- LESS DISTRIBUTIONS - ----------------------------------------------------------------------------- Dividends to shareholders from net investment income (0.02) (0.03) (0.04) - ----------------------------------------------------------------------------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ----------------------------------------------------------------------------- --------- --------- --------- TOTAL RETURN** 2.02% 2.78% 3.60 (a) - ----------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------------------------------------------- Expenses 0.71% 0.71% 0.64 (b) - ----------------------------------------------------------------------------- Net investment income 2.01% 2.75% 4.11 (b) - ----------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.44% 0.44% 0.59 (b) - ----------------------------------------------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------------------------------------------- Net assets, end of period (000 omitted) $67,521 $75,044 $69,747 - -----------------------------------------------------------------------------
* Reflects operations for the period from January 7, 1991 (date of initial public investment) to October 31, 1991. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) The voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1993 - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P PRINCIPAL OR FITCH* AMOUNT ISSUE (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--100.2% - ----------------------------------------------------------------------------------- MINNESOTA--99.3% ------------------------------------------------------------------- $ 5,000,000 Anoka City, MN, 2.75% CP Solid Waste Disposal Authority (United Power Associates)/(NRUCFC Guaranty)/(Subject to AMT), Mandatory Tender 12/14/93 A-1 $ 5,000,000 ------------------------------------------------------------------- 3,175,000 Anoka-Hennepin, MN, ISD Pound11, 3.00% GO Bonds, 2/1/94 NR(3) 3,175,000 ------------------------------------------------------------------- 3,750,000 Austin, MN, ISD Pound492, 3.15% (State of Minnesota Guaranty), 9/30/94 NR(2) 3,756,614 ------------------------------------------------------------------- 5,000,000 Bass Brook, MN, PCR, 2.55% CP (Minnesota Power & Light Company)/(Mellon Bank N.A. LOC), 11/9/93 P-1 5,000,000 ------------------------------------------------------------------- 1,300,000 Becker County, MN, 2.90% GO Bonds (Series 1993), 12/6/93 NR(3) 1,300,000 ------------------------------------------------------------------- 4,000,000 Becker, MN, 3.00% GO BANs (Series 1993), 10/1/94 MIG1 4,000,000 ------------------------------------------------------------------- 5,000,000 Becker, MN, PCR, 2.60% CP (Series 1992A)/(Northern States Power Company Guaranty), Mandatory Tender 4/14/94 A-1+ 5,000,000 ------------------------------------------------------------------- 4,000,000 Becker, MN, PCR, 2.70% CP (Series 1993A and 1993B)/ (Northern States Power Company Guaranty), Mandatory Tender 3/22/94 A-1+ 4,000,000 ------------------------------------------------------------------- 9,500,000 Bloomington, MN, 2.84% TANs ISD Pound271, 2/23/94 NR(2) 9,502,581 ------------------------------------------------------------------- 5,000,000 Bloomington, MN, Multi-Family Housing, Weekly VRDNs (Crow/Bloomington Apartments)/(Citibank N.A. LOC) P-1 5,000,000 ------------------------------------------------------------------- 3,850,000 Burnsville Eagan-Savage, ISD Pound191 MN, 2.66% GO TANs (Series 93), 3/30/94 NR(3) 3,850,600 -------------------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P PRINCIPAL OR FITCH* AMOUNT ISSUE (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------------------- $ 8,265,000 Burnsville, MN, Multi-Family Housing Weekly VRDNs (Berkshire of Burnsville)/(Sumitomo Trust & Banking, Corp., Ltd. LOC) A-2 $ 8,265,000 ------------------------------------------------------------------- 1,000,000 Byron, MN, IDB Weekly VRDNs (Schmidt Printing, Inc.)/ (Norwest Bank Minnesota LOC)/(Subject to AMT) A-1+ 1,000,000 ------------------------------------------------------------------- 1,380,000 Chaska, MN, IDA Weekly VRDNs (Aeration Industries)/ (Norwest Bank Minnesota LOC)/(Subject to AMT) A-1+ 1,380,000 ------------------------------------------------------------------- 2,000,000 Coon Rapids, MN, Hospital Authority Weekly VRDNs (Series 1985)/(The Health Central System)/(First Bank N.A. LOC) A-1 2,000,000 ------------------------------------------------------------------- 5,450,000 Crystal, MN, IDA Weekly VRDNs (Crystal Gallery Mall)/ (Citibank, N.A. LOC) P-1 5,450,000 ------------------------------------------------------------------- 6,150,000 Duluth, MN, IDA Weekly VRDNs (Lake Superior Paper)/ (National Australia Bank, Ltd. LOC) VMIG1 6,150,000 ------------------------------------------------------------------- 316,536 Eden Prairie, MN, IDA Weekly VRDNs (Series 1987)/ (Minnesota Supply Co.)/(Norwest Bank Minnesota LOC) P-1 316,536 ------------------------------------------------------------------- 890,000 Eden Prairie, MN, IDR PoundS-93 Weekly VRDNs (Richard W Cohen)/(Norwest Bank Minnesota LOC) P-1 890,000 ------------------------------------------------------------------- 2,000,000 Edina, MN, ISD Pound273, 2.91% GO TANs, 3/30/94 NR(3) 2,002,068 ------------------------------------------------------------------- 1,400,000 Elk River, MN, Weekly VRDNs (Tescom Corp. Project)/ (Norwest Bank Minnesota LOC)/(Subject to AMT) P-1 1,400,000 ------------------------------------------------------------------- 5,000,000 Faribault, MN, IDA Weekly VRDNs (Series 1988)/(Jerome Foods, Inc.)/(Norwest Bank Minnesota LOC) P-1 5,000,000 ------------------------------------------------------------------- 3,275,000 Forest Lake, MN, ISD Pound831, 3.04% TANs, 3/8/94 NR(3) 3,275,424 ------------------------------------------------------------------- 1,175,000 Hennepin County, MN, ISD Pound286, 2.80% TANs (Brooklyn Center), 3/25/94 NR(3) 1,175,000 -------------------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P PRINCIPAL OR FITCH* AMOUNT ISSUE (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------------------- $ 2,500,000 Hubbard County, MN, Solid Waste Disposal Weekly VRDNs (Series 1990)/(Potlatch Corp.)/(Credit Suisse LOC)/(Subject to AMT) A-1+ $ 2,500,000 ------------------------------------------------------------------- 4,220,000 Lakeville, MN, IDS Pound194, 3.00%, 9/30/94 NR 4,220,000 ------------------------------------------------------------------- 4,000,000 Maple Grove, MN, IDA Weekly VRDNs (Series 1991A)/ (Eagle Ridge Apartment)/(Sumitomo Bank, Ltd. LOC) A-1+ 4,000,000 ------------------------------------------------------------------- 3,000,000 Maple Grove, MN, Weekly VRDNs (Series 1991B)/(Eagle Ridge Apartment)/(First Bank N.A. LOC) A-1 3,000,000 ------------------------------------------------------------------- 2,025,000 Maplewood, MN, Multi-Family Housing Weekly VRDNs (Series 1993)/(Silver Ridge)/(Federal Home Loan Bank of Chicago LOC) A-1+ 2,025,000 ------------------------------------------------------------------- 2,700,000 Mendota Heights, MN, Multi-Family Revenue Bonds Weekly VRDNs (Lexington Heights Apartments)/ (Sumitomo Bank, Ltd. LOC) A-1+ 2,700,000 ------------------------------------------------------------------- 745,000 Minneapolis, MN, IDA Weekly VRDNs (JTJ Company)/ (First Bank N.A. LOC) P-1 745,000 ------------------------------------------------------------------- 20,000,000 Minneapolis, MN, Special School District, 3.00% TANs (Series 1993), 1/27/94 MIG1 20,014,825 ------------------------------------------------------------------- 990,000 Minneapolis, MN, Weekly VRDNs (Great River Road)/ (Bayerische Vereinsbank BPA) VMIG1 990,000 ------------------------------------------------------------------- 1,000,000 Minnesota Energy & Economic Development Authority Hospital Equipment Revenue, 7.90% Annual TOBs (Series 1985A)/(AMBAC Insured), 12/1/93 NR(1) 1,003,937 ------------------------------------------------------------------- 1,500,000 Minnesota Higher Education Facilities Authority Weekly VRDNs (Carlton College Guaranty) VMIG1 1,500,000 -------------------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P PRINCIPAL OR FITCH* AMOUNT ISSUE (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------------------- $ 8,000,000 Minnesota State Commissioner of Iron Range Resources & Rehabilitation Weekly VRDNs (Series 1991)/(Louisiana Pacific Corp.)/(Wachovia Bank & Trust Co. LOC) P-1 $ 8,000,000 ------------------------------------------------------------------- 2,700,000 Minnesota State Higher Education Coordinating Board Weekly VRDNs (Student Loan Program)/(Series 1990)/ (First Bank, N.A. LOC)/(Subject to AMT) VMIG1 2,700,000 ------------------------------------------------------------------- 2,500,000 Minnesota State Higher Education Coordinating Board Weekly VRDNs (Student Loan Program)/(Series 1992A)/ (Subject to AMT) VMIG1 2,500,000 ------------------------------------------------------------------- 7,000,000 Minnesota State Higher Education Coordinating Board Weekly VRDNs (Student Loan Program)/(Subject to AMT) P-1 7,000,000 ------------------------------------------------------------------- 5,500,000 Minnesota State Higher Education Facilities Authority, 2.60% Semi-annual TOBs (Carlton College Guaranty), Optional Tender 2/1/94 VMIG1 5,500,000 ------------------------------------------------------------------- 3,900,000 Minnesota State Higher Education Facility Authority Weekly VRDNs (Series 3D)/(College of St. Benedict)/ (Sumitomo Bank Ltd. LOC) VMIG1 3,900,000 ------------------------------------------------------------------- 1,120,000 Minnesota State, Weekly VRDNs P-Floats VMIG1 1,120,000 ------------------------------------------------------------------- 3,000,000 Minnesota State, 4.90% GO Bonds, 8/1/94 NR(2) 3,043,868 ------------------------------------------------------------------- 6,800,000 Minnetonka, MN, Multi-Family Housing Weekly VRDNs (Cliffs at Ridgedale)/(Citibank, N.A. LOC) A-1 6,800,000 ------------------------------------------------------------------- 1,300,000 New Brighton, MN, IDR Weekly VRDNs (Unicare Homes Inc.)/(Banque Paribas LOC) A-1+ 1,300,000 ------------------------------------------------------------------- 4,000,000 New Hope, MN, Weekly VRDNs (Paddock Labs)/ (Norwest Bank Minnesota LOC)/(Subject to AMT) P-1 4,000,000 ------------------------------------------------------------------- 1,000,000 Northern Minnesota Municipal Power Agency, 8.75% Power Supply Revenue Bonds (Escrowed), 1/1/94 NR(1) 1,012,472 -------------------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P PRINCIPAL OR FITCH* AMOUNT ISSUE (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------------------- $ 3,500,000 Perham, MN, IDA Weekly VRDNs (Land O' Lakes, Inc.)/ (Rabobank Nederland LOC)/(Subject to AMT) A-1+ $ 3,500,000 ------------------------------------------------------------------- 2,200,000 Port of Austin, MN, Weekly VRDNs (Mower House Color Co.)/(Norwest Bank Minnesota LOC)/(Subject to AMT) P-1 2,200,000 ------------------------------------------------------------------- 3,000,000 Rochester, MN, Health Care Facility Authority, 2.55% CP (Series C)/(Mayo Clinic Foundation Guaranty), Mandatory Tender 2/17/94 A-1+ 3,000,000 ------------------------------------------------------------------- 1,750,000 Rogers, MN, IDA Weekly VRDNs (Metal Sales Manufacturing Corp.)/(Union Bank of Switzerland LOC)/ (Subject to AMT) P-1 1,750,000 ------------------------------------------------------------------- 7,000,000 Saint Cloud, MN, Hospital Facility Authority Weekly VRDNs (Series 1990A)/(St. Cloud Hospital)/(Kredeitbank N.V. LOC) A-1+ 7,000,000 ------------------------------------------------------------------- 350,000 St. Louis Park, MN, GO Weekly VRDNs (Series 1987C) VMIG1 350,000 ------------------------------------------------------------------- 2,500,000 Saint Paul Port Authority, MN, Tax Increment Weekly VRDNs (Series 1991)/(First Bank N.A. LOC) A-1 2,500,000 ------------------------------------------------------------------- 1,000,000 Saint Paul, MN, 2.75% GO BANs Riverfront Refunding Bonds, 2/1/94 NR(2) 1,000,000 ------------------------------------------------------------------- 640,000 Saint Paul, MN, 2.75% GO BANs 2/1/94 NR(2) 640,000 ------------------------------------------------------------------- 800,000 Saint Paul, MN, Housing & Redevelopment Authority Weekly VRDNs (Concord Green)/(First Bank N.A. LOC) P-1 800,000 ------------------------------------------------------------------- 5,000,000 Saint Paul, MN, Housing & Redevelopment Authority Weekly VRDNs (District Cooling, Inc.)/(Credit Local de France LOC)/(Subject to AMT) A-1+ 5,000,000 ------------------------------------------------------------------- 600,000 Saint Paul, MN, Housing & Redevelopment Authority Weekly VRDNs (United Way)/(First Bank N.A. LOC) A-1 600,000 -------------------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P PRINCIPAL OR FITCH* AMOUNT ISSUE (NOTE 6) VALUE - -------------- ------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------------------------- MINNESOTA--CONTINUED ------------------------------------------------------------------- $ 3,000,000 Saint Paul, MN, Independent School District Pound625, 2.85% TANs, 2/28/94 NR(2) $ 3,000,565 ------------------------------------------------------------------- 5,900,000 South Saint Paul, MN, Housing & Redevelopment Authority Weekly VRDNs (Health East Project)/(Series 1992)/(Sumitomo Trust and Banking Co. Ltd. LOC) VMIG2 5,900,000 ------------------------------------------------------------------- 1,135,000 Staples, MN, ISD, 3.00% GO Bonds (Series 1993), 9/10/94 NR(4) 1,135,000 ------------------------------------------------------------------- 6,500,000 University of Minnesota, 2.65% Semi-Annual TOBs (Series F), Optional Tender 2/1/94 VMIG1 6,500,000 ------------------------------------------------------------------- 1,425,000 Wells, MN, 3.00% Semi-Annual TOBs (Stokely USA, Inc.)/(National Bank of Detroit LOC)/(Subject to AMT), Mandatory Tender 12/1/93 P-1 1,425,000 ------------------------------------------------------------------- 5,925,000 White Bear, MN, Weekly VRDNs (Thermoform Plastics, Inc.)/(Norwest Bank Minnesota LOC)/(Subject to AMT) A-1+ 5,925,000 ------------------------------------------------------------------- 2,000,000 Winsted, MN, IDA Weekly VRDNs (Sterner Lighting Systems)/(Fleet National Bank LOC)/(Subject to AMT) A-1 2,000,000 ------------------------------------------------------------------- --------------- Total 231,689,490 ------------------------------------------------------------------- --------------- PUERTO RICO--0.9% ------------------------------------------------------------------- 2,200,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit Suisse and Sumitomo Bank, Ltd. LOCs) A-1+ 2,200,000 ------------------------------------------------------------------- --------------- TOTAL INVESTMENTS (AT AMORTIZED COST) $ 233,889,490\ ------------------------------------------------------------------- ---------------
\ Also represents cost for federal tax purposes. * See Notes to Portfolio of Investments. Note: The categories of investments are shown as a percentage of net assets ($233,386,545) at October 31, 1993. (See Notes which are an integral part of the Financial Statements) MINNESOTA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following abbreviations are used in this portfolio: AMBAC--American Municipal Bond Assurance Corporation AMT--Alternative Minimum Tax BANs--Bond Anticipation Notes BPA--Bond Purchase Agreement CP--Commercial Paper GO--General Obligation IDA--Industrial Development Authority IDR--Industrial Development Revenue ISD--Independent School District LOC--Letter(s) of Credit LOCs--Letters of Credit NRUCFC--National Rural Utilities Cooperative Finance Corporation PCR--Pollution Control Revenue TANs--Tax Anticipation Notes TOBs--Tender Option Bonds VRDNs--Variable Rate Demand Notes MINNESOTA MUNICIPAL CASH TRUST NOTES TO PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL OBLIGATION RATINGS S&P A Standard & Poor's 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 (+) designation. SP-2 Satisfactory capacity to pay principal and interest. MOODY'S Moody's short-term ratings are designated Moody's Investment Grade (MIG OR VMIG (see below)). The purpose of the MIG of 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. FITCH Fitch's short-term ratings place greater emphasis on the existence of liquidity necessary to meet the issuers' obligations in a timely manner. F-1 Strongest degree of assurance for timely payment. Those issues determined to provide exceptionally strong credit quality are given a plus (+) designation. F-2 Notes reflecting a degree of assurance for timely payment only slightly less in degree than the highest category. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P Standard & Poor's 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-1+, AA/A-1K, and A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) MOODY'S 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. FITCH Fitch usually assigns two ratings to long-term debt issues that include provisions for a variable rate demand feature. The long-term rating addresses the ability of the obligor to pay debt service and the short-term rating addresses the timely payment of the demand feature. Examples of rating designations are as follows: AAA/F-1+, AA/F-1+, and A/F-1. (The definitions for the long-term and short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS S&P A Standard & Poor's 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 designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) designation. A-2 Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated "A-1". MOODY'S P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. The following is an explanation of the Fitch ratings. These ratings are not referenced in the Portfolio of Investments. FITCH F-1 Issues assigned this rating reflect a strong degree of assurance for timely payment. Those issuers determined to possess the strongest degree of assurance for timely payment are denoted with a plus (+) sign designation. F-2 Issuers carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as the "F-1+" and "F-1" categories. LONG-TERM DEBT RATINGS (INVESTMENT GRADE) S&P AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the 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. BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest than debt rated in higher ratings categories. MOODY'S Aaa Bonds that 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 edge." Interest payments are protected by a large margin and principal is secure. While the various protective elements are likely to change, such changes which can be foreseen are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds that 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 that 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 that suggest a susceptibility to impairment some time in the future. Baa Bonds which are rated BAA are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. FITCH AAA Bonds that are rated AAA are of the highest credit quality. The obligor has an exceptionally strong ability to pay debt service. AA Bonds that are rated AA are of very high quality. The obligor has a very strong ability to pay debt service. Debt rated in this category may also have a (+) or (-) sign with a rating to indicate the relative position within the rating category. A Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. NR indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P, Moody's, or Fitch with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated in one of the two highest short-term ratings categories by a nationally recognized statistical ratings organization. NR(1) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by Fitch. NR(2) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch. NR(3) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "A" by Standard & Poor's, Moody's, or Fitch. NR(4) The underlying issuer/obligor/gurantor has other outstanding long-term debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by Fitch. MINNESOTA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1993 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------------------------ Investments, at amortized cost and value (Note 2A) $ 233,889,490 - ------------------------------------------------------------------------------------------------ Cash 244,164 - ------------------------------------------------------------------------------------------------ Interest receivable 1,634,135 - ------------------------------------------------------------------------------------------------ Receivable for investments sold 76,397 - ------------------------------------------------------------------------------------------------ Receivable for Fund shares sold 4,600 - ------------------------------------------------------------------------------------------------ Deferred expenses (Note 2E) 8,055 - ------------------------------------------------------------------------------------------------ --------------- Total assets 235,856,841 - ------------------------------------------------------------------------------------------------ LIABILITIES: - ------------------------------------------------------------------------------------------------ Payable for investments purchased $ 2,000,145 - --------------------------------------------------------------------------------- Dividends payable 332,125 - --------------------------------------------------------------------------------- Payable for Fund shares redeemed 54,189 - --------------------------------------------------------------------------------- Accrued expenses and other liabilities 83,837 - --------------------------------------------------------------------------------- ------------- Total liabilities 2,470,296 - ------------------------------------------------------------------------------------------------ --------------- NET ASSETS for 233,386,545 shares of beneficial interest outstanding $ 233,386,545 - ------------------------------------------------------------------------------------------------ --------------- NET ASSET VALUE, Offering Price, and Redemption Price Per Share: - ------------------------------------------------------------------------------------------------ Institutional Shares ($165,865,146 / 165,865,146 shares of beneficial interest outstanding) $1.00 - ------------------------------------------------------------------------------------------------ --------------- Cash Series Shares ($67,521,399 / 67,521,399 shares of beneficial interest 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, 1993 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------------------------- Interest income (Note 2B) $ 7,290,313 - --------------------------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------------------------- Investment advisory fee (Note 5) $ 1,077,211 - ------------------------------------------------------------------------------------ Administrative personnel and services fees (Note 5) 333,328 - ------------------------------------------------------------------------------------ Custodian, transfer and dividend disbursing agent fees and expenses 169,851 - ------------------------------------------------------------------------------------ Trustees' fees 3,837 - ------------------------------------------------------------------------------------ Auditing fees 15,945 - ------------------------------------------------------------------------------------ Legal fees 13,281 - ------------------------------------------------------------------------------------ Printing and postage 36,284 - ------------------------------------------------------------------------------------ Fund share registration costs 56,233 - ------------------------------------------------------------------------------------ Distribution services fees (Note 5) 361,675 - ------------------------------------------------------------------------------------ Insurance premiums 12,460 - ------------------------------------------------------------------------------------ Miscellaneous 17,129 - ------------------------------------------------------------------------------------ ------------- Total expenses 2,097,234 - ------------------------------------------------------------------------------------ Deduct-- - ------------------------------------------------------------------------------------ Waiver of investment advisory fee (Note 5) $ 915,191 - ----------------------------------------------------------------------- Waiver of distribution services fees (Note 5) 72,335 987,526 - ----------------------------------------------------------------------- ----------- ------------- Net expenses 1,109,708 - --------------------------------------------------------------------------------------------------- ------------- Net investment income $ 6,180,605 - --------------------------------------------------------------------------------------------------- -------------
(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, 1993 1992 INCREASE (DECREASE) IN NET ASSETS: - ----------------------------------------------------------------------------- OPERATIONS-- - ----------------------------------------------------------------------------- Net investment income $ 6,180,605 $ 6,457,573 - ----------------------------------------------------------------------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - ----------------------------------------------------------------------------- Dividends to shareholders from net investment income: - ----------------------------------------------------------------------------- Institutional Shares (4,723,866) (4,448,140) - ----------------------------------------------------------------------------- Cash Series Shares (1,456,739) (2,009,433) - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets from distributions to shareholders (6,180,605) (6,457,573) - ----------------------------------------------------------------------------- ---------------- ---------------- FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - ----------------------------------------------------------------------------- Net proceeds from sale of shares 856,352,639 761,703,208 - ----------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of dividends declared 1,606,041 2,151,596 - ----------------------------------------------------------------------------- Cost of shares redeemed (944,784,209) (637,992,476) - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets from Fund share transactions (86,825,529) 125,862,328 - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets (86,825,529) 125,862,328 - ----------------------------------------------------------------------------- NET ASSETS: - ----------------------------------------------------------------------------- Beginning of period 320,212,074 194,349,746 - ----------------------------------------------------------------------------- ---------------- ---------------- End of period $ 233,386,545 $ 320,212,074 - ----------------------------------------------------------------------------- ---------------- ---------------- (See Notes which are an integral part of the Financial Statements)
MINNESOTA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1993 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company with several 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. Effective December 31, 1990, the Fund provides two classes of shares ("Institutional Shares" and "Cash Series Shares"). Cash Series Shares are identical in all respects to Institutional Shares except that Cash Series Shares are sold pursuant to a distribution plan ("Plan") adopted in accordance with Investment Company Act Rule 12b-1. Under the Plan, the Fund paid Federated Securities Corp. ("the distributor") a fee at an annual rate up to .50 of 1% of the average daily net asset value of Cash Series Shares to finance any activity which principally intended to result in the sale of Cash Series 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. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that the best method currently available for valuing portfolio securities is amortized cost. The Fund's use of the amortized cost method to value its portfolio securities is conditioned on its compliance with Rule 2a-7 under the Investment Company Act of 1940. Since the Fund may invest 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 general tax-exempt mutual fund. In order to reduce the risk associated with such factors, at October 31, 1993, 68.7% 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 aggregate percentages by financial institution ranged from 0.4% to 10.6% of total investments. B. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest earned net of premium, and original issue discount as required by the Internal Revenue Code (the "Code"). C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to investment companies and to distribute to shareholders each year all of its net income. Accordingly, no provision for federal tax is necessary. Dividends paid by the Fund representing net interest received on tax-exempt municipal securities are not includable by shareholders as gross income for federal income tax purposes because the Fund intends to meet certain requirements of the Code applicable to regulated investment companies which will enable the Fund to pay exempt- interest dividends. The portion of such interest, if any, earned on private activity bonds issued after August 7, 1986 may be considered a tax preference item to shareholders for the purpose of computing the alternative minimum tax. D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objectives and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain 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. E. 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 the shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. F. EXPENSES--Expenses of the Fund (other than distribution services fees) and waivers and reimbursements, if any, are allocated to each class of shares based on its relative daily average net assets for the period. Expenses incurred by the Trust which do not specifically relate to an individual fund are allocated among all funds based on a fund's relative net asset value size or as deemed appropriate by the administrator. G. OTHER--Investment transactions are accounted for on the date of the transaction. (3) DIVIDENDS The Fund computes its net income daily and, immediately prior to the calculation of its net asset value at the close of business, declares and records dividends to shareholders of record at the time of the previous computation of the Fund's net asset value. Payment of dividends is made monthly in cash, or in additional shares at the net asset value on the payable date. (4) 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, 1993, capital paid-in aggregated $233,386,545. Transactions in Fund shares were as follows:
YEAR ENDED OCTOBER 31, INSTITUTIONAL SERVICE SHARES 1993 1992 - -------------------------------------------------------------------------------- --------------- --------------- Shares outstanding, beginning of period 245,167,786 124,602,806 - -------------------------------------------------------------------------------- Shares sold 610,443,315 531,157,380 - -------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 190,482 188,828 - -------------------------------------------------------------------------------- Shares redeemed (689,936,437) (410,781,228) - -------------------------------------------------------------------------------- --------------- --------------- Shares outstanding, end of period 165,865,146 245,167,786 - -------------------------------------------------------------------------------- --------------- ---------------
YEAR ENDED OCTOBER 31, CASH SERIES SHARES 1993 1992 - -------------------------------------------------------------------------------- --------------- --------------- Shares outstanding, beginning of period 75,044,288 69,746,940 - -------------------------------------------------------------------------------- Shares sold 245,909,324 230,545,828 - -------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 1,415,559 1,962,768 - -------------------------------------------------------------------------------- Shares redeemed (254,847,772) (227,211,248) - -------------------------------------------------------------------------------- --------------- --------------- Shares outstanding, end of period 67,521,399 75,044,288 - -------------------------------------------------------------------------------- --------------- ---------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Federated Management, the Fund's investment adviser ("Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser has voluntarily agreed to waive a portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time in its sole discretion. During the fiscal year ended October 31, 1993 the Adviser earned $1,077,211 as its advisory fee, of which $915,191 was voluntarily waived. Organizational expenses ($40,733) were borne initially by the Adviser. The Fund has agreed to pay the Adviser, at an annual rate .005 of 1% of average daily net assets until the expenses borne initially by the Adviser are reimbursed, or the expiration of five years from August 31, 1990, the date the Trust's portfolio became effective, whichever occurs earlier. During the fiscal year ended October 31, 1993 the Fund paid the Adviser $8,055 pursuant to this agreement. During the fiscal year ended October 31, 1993, pursuant to Rule 17a-7 of the Investment Company Act of 1940, the Fund engaged in purchase and sale transactions with other Funds advised by the Adviser amounting to $378,800,000 and $486,546,962, respectively. These purchases and sales were conducted on an arms-length basis insofar as they were transacted for cash consideration only, at independent current market prices and without brokerage commission, fee or other remuneration. The Trust has adopted a Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Trust will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the assets of the Fund, for fees it paid which relate to the distribution and administration of the Fund's Cash Series Shares. The Plan provides that the Fund may incur distribution expenses up to .50 of 1% of the average daily net assets of the Cash Series Shares, annually, to pay commissions, maintenance fees and to compensate the distributor. During the fiscal year ended October 31, 1993, FSC earned $361,675 in distribution services fees of which $72,335 was voluntarily waived. Administrative personnel and services were provided at approximate cost by Federated Administrative Services, Inc. Certain Officers and Trustees of the Trust are Officers and Directors of the above corporations. (6) CURRENT CREDIT RATINGS Current credit ratings and related notes are unaudited. 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 investments, as of October 31, 1993, the related statement of operations for the year then ended, the statement of changes in net assets, and the financial highlights (see pages 2 and 17 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 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 the securities owned as of October 31, 1993, 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 Minnesota Municipal Cash Trust, an investment portfolio of Federated Municipal Trust, as of October 31, 1993, 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 & CO. Pittsburgh, Pennsylvania December 13, 1993 ADDRESSES - -------------------------------------------------------------------------------- Minnesota Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8602 Trust Company Boston, Massachusetts 02266-8602 - --------------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, D.C. 20037 - --------------------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen & Co. 2100 One PPG Place Pittsburgh, Pennsylvania 15222 - ---------------------------------------------------------------------------------------------------------------------
MINNESOTA MUNICIPAL CASH TRUST INSTITUTIONAL SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company December 31, 1993 [LOGO] FEDERATED SECURITIES CORP. --------------------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 0082715A-IS (12/93) MINNESOTA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH SERIES SHARES INSTITUTIONAL SHARES COMBINED STATEMENT OF ADDITIONAL INFORMATION This Combined Statement of Additional Information should be read with the respective prospectus for Cash Series Shares and Institutional Shares of Minnesota Municipal Cash Trust (the "Fund") dated December 31, 1993. This Statement is not a prospectus itself. To receive a copy of either prospectus, write or call Federated Municipal Trust. FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 Statement dated December 31, 1993 [LOGO] FEDERATED SECURITIES CORP. --------------------------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS TABLE OF CONTENTS - -------------------------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND 1 - --------------------------------------------------------------- INVESTMENT OBJECTIVE AND POLICIES 1 - --------------------------------------------------------------- Acceptable Investments 1 When-Issued and Delayed Delivery Transactions 1 Temporary Investments 2 Reverse Repurchase Agreements 2 Investment Limitations 2 Minnesota Investment Risks 4 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 - --------------------------------------------------------------- Officers and Trustees 5 The Funds 7 Fund Ownership 7 Trustee Liability 7 INVESTMENT ADVISORY SERVICES 8 - --------------------------------------------------------------- Adviser to the Fund 8 Advisory Fees 8 ADMINISTRATIVE SERVICES 8 - --------------------------------------------------------------- BROKERAGE TRANSACTIONS 8 - --------------------------------------------------------------- PURCHASING SHARES 9 - --------------------------------------------------------------- Distribution Plan (Cash Series Shares Only) 9 Conversion to Federal Funds 9 DETERMINING NET ASSET VALUE 9 - --------------------------------------------------------------- Use of the Amortized Cost Method 9 REDEEMING SHARES 10 - --------------------------------------------------------------- Redemption in Kind 11 TAX STATUS 11 - --------------------------------------------------------------- The Fund's Tax Status 11 YIELD 11 - --------------------------------------------------------------- EFFECTIVE YIELD 11 - --------------------------------------------------------------- TAX-EQUIVALENT YIELD 12 - --------------------------------------------------------------- Tax-Equivalency Table 12 PERFORMANCE COMPARISONS 12 - --------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND - -------------------------------------------------------------------------------- The Fund is a portfolio in Federated Municipal Trust (the "Trust"), which was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. Shares of the Fund are offered in two classes, known as Cash Series Shares and Institutional Shares (individually and collectively referred to as "Shares"). This Combined Statement of Additional Information relates to the above-mentioned Shares of the Fund. INVESTMENT OBJECTIVE AND POLICIES - -------------------------------------------------------------------------------- The Fund's investment objective is to provide 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. The investment objective cannot be changed without approval of shareholders. ACCEPTABLE INVESTMENTS The Fund invests primarily in debt obligations issued by or on behalf of Minnesota and 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 both federal regular income tax and Minnesota state income tax imposed upon non-corporate taxpayers. When determining whether a Minnesota municipal security presents minimal credit risks, the investment adviser considers the creditworthiness of the issuer of the security, the issuer of a demand feature if the Fund has the unconditional right to demand payment for the security, or the guarantor of payment by either of those issuers. If a security loses its rating or the security's rating is reduced below the required minimum after the Fund purchased it, the Fund is not required to sell the security. The investment adviser considers this event, however, in its determination of whether the Fund should continue to hold the security in its portfolio. If ratings made by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") change because of changes in those organizations or in their rating systems, the Fund will try to use comparable ratings as standards in accordance with the investment policies described in the Fund's prospectuses. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests which represent undivided proportional interests in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure the payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. In particular, lease obligations may be subject to periodic appropriation. If the entity does not appropriate funds for future lease payments, the entity cannot be compelled to make such payments. 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. Under the criteria currently established by the Board of Trustees ("Trustees"), the Fund's investment adviser must consider the following factors in determining the liquidity of municipal lease securities: (1) the frequency of trades and quotes for the security; (2) the volatility of quotations and trade prices for the security; (3) the number of dealers willing to purchase or sell the security and the number of potential purchasers; (4) dealer undertakings to make a market in the security; (5) the nature of the security and the nature of the marketplace trades; (6) the rating of the security and the financial condition and prospects of the issuer of the security; (7) such other factors as may be relevant to the Fund's ability to dispose of the security; (8) whether the lease can be terminated by the lessee; (9) the potential recovery, if any, from a sale of the leased property upon termination of the lease; (10) the lessee's general credit strength; (11) the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations; and (12) any credit enhancement or legal recourse provided upon an event of nonappropriation or other termination of the lease. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The Fund engages in when-issued and delayed delivery transactions only for the purpose of acquiring portfolio securities consistent with the Fund's investment objective and policies, not for investment leverage. These transactions are made to secure what is considered to be an advantageous price and yield for the Fund. 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. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. The Fund may engage in these transactions to an extent that would cause the segregation of an amount up to 20% of the total value of its assets. TEMPORARY INVESTMENTS The Fund may also invest in high quality temporary investments during times of unusual market conditions for defensive purposes and to maintain liquidity. REPURCHASE AGREEMENTS Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities or other securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price within one year from the date of acquisition. 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 investment adviser to be creditworthy pursuant to guidelines established by the Trustees. From time to time, such as when suitable Minnesota municipal securities are not available, the Fund may maintain a portion of its assets in cash. Any portion of the Fund's assets maintained in cash will reduce the amount of assets in Minnesota municipal securities and thereby reduce the Fund's yield. REVERSE REPURCHASE AGREEMENTS The Fund may 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 to another person, such as a financial institution, broker, or dealer, 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 the ability to enter into reverse repurchase agreements does not ensure that the Fund will be able to avoid selling portfolio instruments at a disadvantageous time. When effecting reverse repurchase agreements, liquid assets of the Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. 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 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 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. 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 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 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. 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. 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 (including instruments issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment), 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 Fund does not consider the issuance of separate classes of shares to involve the issuance of "senior securities" within the meaning of the investment limitation set forth above. 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 IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in industrial development bonds or other municipal securities where the principal and interest are the responsibility of companies (or guarantors, where applicable) with 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 the Fund's investment adviser, owning individually more than 1/2 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. INVESTING IN MINERALS The Fund will not purchase or sell oil, gas, or other mineral exploration or development programs, or leases. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of its net assets in securities which are illiquid, including repurchase agreements providing for settlement more than seven days after notice, certain restricted securities not determined by the Trustees to be liquid, and non-negotiable fixed time deposits with maturities over seven days. 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 does not expect to borrow money or pledge securities in excess of 5% of the value of its net assets during the coming fiscal year. MINNESOTA INVESTMENT RISKS Minnesota (the "State") 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 decade. 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. Employment growth has slowed due to the current economic downturn; however, unemployment rates remain below the national level despite problems in the mainframe computer and mining industries. Personal income has grown more rapidly than that of the region and the nation as a whole, with personal income per capita remaining slightly above the national average. Minnesota's financial operations have been stable in recent years, following a period of volatility in the early 1980's. Through frequent reviews of revenue forecasts and timely legislative action, the State has maintained balanced operations. Almost all of Minnesota's debt is general obligation, with general purpose bonds serviced from the General Fund (with additional pledges of cigarette tax, sales taxes from health and sports clubs, and lottery net proceeds) and highway bonds serviced from the Highway User Tax Fund. Debt level is moderate, amortization is rapid, and debt service is a minor burden (less than 3% of General Fund Revenues). Although Minnesota's debt management policies have been conservative, concerns have developed with the State's recent agreement to proceed with a $750 million financing in conjunction with Northwest Airlines and Metropolitan Airports Commission (MAC) aimed at assisting the financially troubled airline. Although the State's maximum general obligation exposure of $175 million is well within its debt capacity, credit concerns lie with the financial viability of Northwest Airlines. The State's issuance of the bonds had been delayed by a lawsuit challenging the State's ability to issue bonds for a private entity. In November, the Minnesota Supreme Court cleared the way for the State to issue the bonds by upholding a lower court's dismissal of the suit. To date, there have been no bonds for Northwest Airlines' facilities and an issuance schedule has not been developed as yet. The State views the bond issuances as facilitating economic development through the expansion of Northwest's operations and the addition of about 2,000 new jobs. 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. FEDERATED MUNICIPAL TRUST MANAGEMENT - -------------------------------------------------------------------------------- OFFICERS AND TRUSTEES Officers and Trustees are listed with their addresses, principal occupations, and present positions, including any affiliation with Federated Management, Federated Investors, Federated Securities Corp., Federated Services Company, Federated Administrative Services, Inc., and the Funds (as defined below).
POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS John F. Donahue\* Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated Investors Tower Trustee Federated Advisers, Federated Management, and Federated Research; Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds; formerly, Director, The Standard Fire Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice President of the Trust. John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President, Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate Department Village Development Corporation; General Partner or Trustee in private John R. Wood and real estate ventures in Southwest Florida; Director, Trustee, or Associates, Inc., Realtors Managing General Partner of the Funds; formerly, President, Naples 3255 Tamiami Trail North Property Management, Inc. Naples, FL William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; One PNC Plaza-- Director, Trustee, or Managing General Partner of the Funds; formerly, 23rd Floor Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Pittsburgh, PA Director, Ryan Homes, Inc. James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, 571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Concord, MA Blue Cross of Massachusetts, Inc. Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore 3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Pittsburgh, PA Funds. Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park 5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; 225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly, Boston, MA President, State Street Bank and Trust Company and State Street Boston Corporation and Trustee, Lahey Clinic Foundation, Inc. Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, 5916 Penn Mall Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Pittsburgh, PA Managing General Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A. Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie 1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer Learning Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho University of Pittsburgh Slovak Management Center; Director, Trustee, or Managing General Pittsburgh, PA Partner of the Funds; President Emeritus, University of Pittsburgh; formerly, Chairman, National Advisory Council for Environmental Policy and Technology. Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing 4905 Bayard Street General Partner of the Funds. Pittsburgh, PA Glen R. Johnson* President and Trustee, Federated Investors; President and/or Trustee of some of the Federated Investors Tower Trustee Funds; staff member, Federated Securities Corp. and Federated Pittsburgh, PA Administrative Services, Inc. J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Federated Investors Tower Advisers, Federated Management, and Federated Research; Trustee, Pittsburgh, PA Federated Services Company; President and Director, Federated Administrative Services, Inc.; President or Vice President of the Funds; Director, Trustee, or Managing General Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Trust. Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Federated Investors Tower Director, Federated Securities Corp.; President or Vice President of Pittsburgh, PA the Funds; Director or Trustee of some of the Funds. Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated Investors; Vice Federated Investors Tower and Treasurer President and Treasurer, Federated Advisers, Federated Management, and Pittsburgh, PA Federated Research; Trustee, Federated Services Company; Executive Vice President, Treasurer, and Director, Federated Securities Corp.; Chairman, Treasurer, and Director, Federated Administrative Services, Inc.; Trustee or Director of some of the Funds; Vice President and Treasurer of the Funds. John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated Federated Investors Tower and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers, Pittsburgh, PA Federated Management, and Federated Research; Trustee, Federated Services Company; Executive Vice President, Secretary, and Director, Federated Administrative Services, Inc.; Director and Executive Vice President, Federated Securities Corp.; Vice President and Secretary of the Funds. John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice Federated Investors Tower and Trustee President, Federated Securities Corp.; President and Trustee, Federated Pittsburgh, PA Advisers, Federated Management, and Federated Resarch; Vice President of the Funds; Directors, Trustee, or Managing General Partner of some of the Funds; formerly, Vice President, The Standard Fire Insurance Company and President of its Federated Research Division.
*This Trustee is deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940, as amended. \Members of the Trust's Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. THE FUNDS "The Funds" and "Funds" mean the following investment companies: A.T. Ohio Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust; Automated Government Money Trust; The Boulevard Funds; California Municipal Cash Trust; Cash Trust Series; Cash Trust Series II; Cash Fund Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT Series, Inc.; Federated ARMs Funds; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds; The Passageway Funds; The Planners Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; and Trust for U.S. Treasury Obligations. FUND OWNERSHIP Officers and Trustees own less than 1% of the Fund's outstanding Shares. As of November 29, 1993, no shareholder of record owned 5% or more of the outstanding Cash Series Shares of the Fund. As of November 29, 1993, the following shareholders of record owned 5% or more of the outstanding Institutional Shares of the Fund: Norwest Bank Minneapolis, Minneapolis, Minnesota, owned approximately 11,458,678 Shares (7.46%); Resource Bank & Trust Co., Minneapolis, Minnesota, owned approximately 23,469,508 Shares (15.27%); and VAR & Co., St. Paul, Minnesota, owned approximately 82,695,203 shares (53.82%). TRUSTEE LIABILITY The Trust's Declaration of Trust provides that the Trustees will not be liable for errors of judgement 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. 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, his wife, and his son, J. Christopher Donahue. John F. Donahue is Chairman and Trustee, Federated Management; Chairman and Trustee, Federated Investors; and Chairman and Trustee of the Trust. John A. Staley, IV, is President and Trustee, Federated Management; Vice President and Trustee, Federated Investors; Executive Vice President, Federated Securities Corp.; and Vice President of the Trust. J. Christopher Donahue is Trustee, Federated Management; President and Trustee, Federated Investors; President and Director, Federated Administrative Services, Inc.; and Vice President of the Trust. John W. McGonigle is Vice President, Secretary, and Trustee, Federated Management; Trustee, Vice President, Secretary, and General Counsel, Federated Investors; Director, Executive Vice President, and Secretary, Federated Administrative Services, Inc.; Director and Executive Vice President, Federated Securities Corp.; and Vice President and Secretary of the Trust. 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. During the fiscal years ended October 31, 1993, 1992, and 1991, the Fund's adviser earned $1,077,211, $865,213, and $637,974, respectively, of which $915,191, $734,973, and $0, respectively, were voluntarily waived, respectively, because of undertakings to limit the Fund's expenses. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this expense limitation, the investment advisory fee paid will be reduced by the amount of the excess, subject to an annual adjustment. If the expense limitation is exceeded, the amount to be reimbursed by the adviser will be limited, in any single fiscal year, by the amount of the investment advisory fee. These arrangements are not part of the advisory contract and have been established only to comply with applicable state authorities. They may be amended or rescinded in the future. ADMINISTRATIVE SERVICES - -------------------------------------------------------------------------------- Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides administrative personnel and services to the Fund at approximate cost. For the fiscal years ended October 31, 1993, 1992, and 1991, the Fund incurred costs for administrative services of $333,328, $258,623, and $257,677, respectively. John A. Staley, IV, an officer of the Trust, and Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, each holds approximately 15% and 20%, respectively, of the outstanding common stock and serve as directors of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services, Inc. For the fiscal years ended October 31, 1993, 1992, and 1991, Federated Administrative Services, Inc. paid approximately $165,931, $189,741, and $187,677, respectively, for services provided by Commercial Data Services, Inc. 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 investment 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 review 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. 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. Research services provided by brokers may be used by the adviser or by affiliates of Federated Investors in advising Federated funds 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. PURCHASING SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value without a sales charge on days the New York Stock Exchange and the Federal Reserve wire system are open for business. The procedure for purchasing Shares is explained in the respective prospectus under "Investing in Cash Series Shares" and "Investing in Institutional Shares." DISTRIBUTION PLAN (CASH SERIES SHARES ONLY) With respect to the Cash Series Shares class of the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. The Plan provides for payment of fees to Federated Securities Corp. to finance any activity which is principally intended to result in the sale of the Fund's Shares subject to the Plan. Such activities may include the advertising and marketing of Shares; preparing, printing and distributing prospectuses and sales literature to prospective shareholders, brokers or administrators; and implementing and operating the Plan. Pursuant to the Plan, the distributor may pay fees to brokers for distribution and administrative services and to administrators for administrative services as to Shares. The administrative services are provided by a representative who has knowledge of the shareholder's particular circumstances and goals, and include, but are not limited to: communicating account openings; communicating account closings; entering purchase transactions; entering redemption transactions; providing or arranging to provide accounting support for all transactions, wiring funds and receiving funds for Share purchases and redemptions, confirming and reconciling all transactions; reviewing the activity in Fund accounts; providing training and supervision of broker personnel; posting and reinvesting dividends to Fund accounts or arranging for this service to be performed by the Fund's transfer agent; and maintaining and distributing current copies of prospectuses and shareholder reports to the beneficial owners of Shares and prospective shareholders. The Trustees expect that the adoption of the Plan will result in the sale of a sufficient number of Shares so as to allow the Fund to achieve economic viability. It is also anticipated that an increase in the size of the Fund will facilitate more efficient portfolio management and assist the Fund in seeking to achieve its investment objective. For the fiscal years ended October 31, 1993, 1992, and 1991, brokers and administrators (financial institutions) earned fees in the amount of $361,675, $365,184, and $205,313, respectively, of which $72,335, $73,037, and $65,064, respectively, were voluntarily waived, respectively, pursuant to the distribution plan. CONVERSION TO FEDERAL FUNDS It is the Fund's policy to be as fully invested as possible so that maximum interest may be earned. To this end, all payments from shareholders must be in federal funds or be converted into federal funds. State Street Bank, and Trust Company acts as the shareholder's agent in depositing checks and converting them to federal funds. DETERMINING NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the value of a Share at $1.00. The days on which net asset value is calculated by the Fund are described in the respective prospectus. USE OF THE AMORTIZED COST METHOD 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. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7, as amended (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. Under the Rule, the Fund is permitted to purchase instruments which are subject to demand features or standby commitments. As defined by the Rule, a demand feature entitles the Fund to receive the principal amount of the instrument from the issuer or a third party (1) on no more than 30 days' notice or (2) at specified intervals not exceeding one year on no more than 30 days' notice. A standby commitment entitles the Fund to achieve same-day settlement and to receive an exercise price equal to the amortized cost of the underlying instrument plus accrued interest at the time of exercise. Although demand features and standby commitments are techniques and are defined as "puts" under the Rule, the Fund does not consider them to be "puts" as that term is used in the Fund's investment limitations. Demand features and standby commitments are features which enhance an instrument's liquidity, and the investment limitation which proscribes puts is designed to prohibit the purchase and sale of put and call options and is not designed to prohibit the Fund from using techniques which enhance the liquidity of portfolio instruments. MONITORING PROCEDURES The Trustees' 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% 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. INVESTMENT RESTRICTIONS The Rule requires that the Fund limit its investments to instruments that, in the opinion of the Trustees, present minimal credit risk and have received the requisite rating from one or more nationally recognized statistical rating organizations. If the instruments are not rated, the Trustees must determine that they are of comparable quality. The Rule also requires the Fund to maintain a dollar-weighted average portfolio maturity (not more than 90 days) appropriate to the objective of maintaining a stable net asset value of $1.00 per share. In addition, no instrument with a remaining maturity of more than 397 days can be purchased by the Fund. For a discussion of the treatment of variable rate municipal securities with demand payment features, refer to "Variable Rate Demand Notes" in the prospectus. Should the disposition of a portfolio security result in a dollar-weighted average portfolio maturity of more than 90 days, the Fund will invest its available cash to reduce the average maturity to 90 days or less as soon as possible. The Fund may attempt to increase yield by trading portfolio securities to take advantage of short-term market variations. This policy may, from time to time, result in high portfolio turnover. Under the amortized cost method of valuation, 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 indicated daily yield on Shares of the Fund computed the same way may tend to be lower than a similar computation made by using a method of calculation based upon market prices and estimates. REDEEMING SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares at the next computed net asset value after the Fund receives the redemption request. Redemption procedures are explained in the respective prospectus under "Redeeming Cash Series Shares" and "Redeeming Institutional Shares." Although State Street Bank does not charge for telephone redemptions, it reserves the right to charge a fee for the cost of wire-transferred redemptions of less than $5,000. REDEMPTION IN KIND Although the Trust intends to redeem Shares in cash, it reserves the right under certain circumstances to pay the redemption price in whole or in part by a distribution of securities from the respective Fund's portfolio. To the extent available, such securities will be readily marketable. Redemption in kind will be made in conformity with applicable Securities and Exchange Commission rules, taking such securities at the same value employed in determining net asset value and selecting the securities in a manner the Trustees determine to be fair and equitable. The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act of 1940 under which the Trust is obligated to redeem Shares for any one shareholder in cash only up to the lesser of $250,000 or 1% of the net asset value of the respective class during any 90-day period. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders receiving their securities and selling them before their maturity could receive less than the redemption value of their securities and could incur certain transaction costs. TAX STATUS - -------------------------------------------------------------------------------- THE FUND'S TAX STATUS The Fund will pay no federal income tax because it expects to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. To qualify for this treatment, 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. YIELD - -------------------------------------------------------------------------------- The Fund's yield for Cash Series Shares for the seven-day period ended October 31, 1993 was 1.98%. The yield for Institutional Shares was 2.38% for the same period. The Fund calculates its yield daily, for both classes of shares, based upon the seven day period 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). To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in either class of shares, the performance will be reduced for those shareholders paying those fees. EFFECTIVE YIELD - -------------------------------------------------------------------------------- The Fund's effective yield for Cash Series Shares for the seven-day period ended October 31, 1993 was 2.00%. The effective yield for Institutional Shares was 2.41% for the same period. The Fund's effective yield for both classes of Shares is computed by compounding monthly 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. TAX-EQUIVALENT YIELD - -------------------------------------------------------------------------------- The Fund's tax-equivalent yield for Cash Series Shares for the seven-day period ended October 31, 1993 was 3.12%. The tax-equivalent yield for Institutional Shares was 3.75% for the same period. The tax-equivalent yield for both classes of Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that either class of Shares would have had to earn to equal its actual yield, assuming a 28% federal tax rate% and the 8.5% regular personal income tax rate imposed by Minnesota and assuming that income earned by the Fund is 100% tax-exempt on a regular federal, state, and local basis. TAX-EQUIVALENCY TABLE Both classes of Shares may also use a tax-equivalency table 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 from the regular personal income tax imposed by Minnesota*. 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 1993 STATE OF MINNESOTA - ---------------------------------------------------------------------------------------------------------------------------- COMBINED FEDERAL AND STATE INCOME TAX BRACKET: 23.00% 36.50% 39.50% 44.50% 48.10% - ---------------------------------------------------------------------------------------------------------------------------- JOINT $1- $36,901- $89,151- $140,001- Over RETURN: 36,900 89,150 140,000 250,000 $250,000 SINGLE $1- $22,101- $53,501- $115,001- Over RETURN: 22,100 53,500 115,000 250,000 $250,000 - ---------------------------------------------------------------------------------------------------------------------------- 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 above chart is for illustrative purposes only. It is not an indicator of past or future performance of either class of Shares. *Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local regular or alternative minimum taxes. PERFORMANCE COMPARISONS - -------------------------------------------------------------------------------- The performance for both classes of Shares depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates on money market instruments; changes in the Fund's or either class of Share's expenses; and the relative amount of Fund cash flow. From time to time, the Fund may advertise the performance of both classes of Shares compared to similar funds or portfolios using certain indices, reporting services, and financial publications. These may include the following: LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by making comparative calculations using total return. Total return assumes the reinvestment of all income dividends and capital gains distributions, if any. From time to time, the Fund will quote its Lipper ranking in the "money market fund" category in advertising and sales literature. Investors may use such an index in addition to the prospectus of either class of Shares to obtain a more complete view of the performance of that class before investing. Of course, when comparing performance of either class of Shares to any index, factors such as composition of the index and prevailing market conditions should be considered in assessing the significance of such comparisons. When comparing funds using reporting services, or total return and yield, investors should take into consideration any relevant differences in funds such as permitted portfolio composition and methods used to value portfolio securities and compute offering price. Advertisements and other sales literature for both classes of Shares may refer to total return. Total return is the historic change in the value of an investment in either class of Shares based on the monthly reinvestment of dividends over a specified period of time. 0082715B (12/93) 1 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 non-diversified portfolio of securities which is one of a series of investment portfolios in Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The investment objective of the Fund is to provide current income exempt from federal regular income tax and the New Jersey state income tax imposed upon non-corporate taxpayers consistent with stability of principal. 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, which are exempt from the federal regular and New Jersey state income tax imposed upon non-corporate taxpayers. Institutional Shares of the Fund are sold at net asset value, without a sales load. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. 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. THE INSTITUTIONAL 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 BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. This prospectus contains the information you should read and know before you invest in Institutional Shares. Keep this prospectus for future reference. The Fund has also filed a Combined Statement of Additional Information for Institutional Shares and Institutional Service Shares dated December 31, 1993, with the Securities and Exchange Commission. The information contained in the Combined Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Combined Statement of Additional Information free of charge by calling 1-800-235-4669. To obtain other information or to make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1993 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 Acceptable Investments 3 Variable Rate Demand Notes 4 Participation Interests 4 Municipal Leases 4 Ratings 4 Credit Enhancement 5 Demand Features 5 Restricted and Illiquid Securities 5 When-Issued and Delayed Delivery Transactions 5 Temporary Investments 5 New Jersey Municipal Securities 6 Standby Commitments 6 New Jersey Investment Risks 6 Non-Diversification 7 Investment Limitations 7 Regulatory Compliance 8 FEDERATED MUNICIPAL TRUST INFORMATION 8 - ------------------------------------------------------ Management of Federated Municipal Trust 8 Board of Trustees 8 Investment Adviser 8 Advisory Fees 8 Adviser's Background 8 Distribution of Institutional Shares 9 Administration of the Fund 9 Administrative Services 9 Custodian 9 Transfer Agent and Dividend Disbursing Agent 9 Legal Counsel 9 Independent Public Accountants 9 NET ASSET VALUE 9 - ------------------------------------------------------ INVESTING IN INSTITUTIONAL SHARES 10 - ------------------------------------------------------ Share Purchases 10 By Wire 10 By Mail 10 Minimum Investment Required 10 What Shares Cost 10 Subaccounting Services 11 Certificates and Confirmations 11 Dividends 11 Capital Gains 11 REDEEMING INSTITUTIONAL SHARES 11 - ------------------------------------------------------ Telephone Redemption 11 Written Requests 12 Signatures 12 Receiving Payment 12 Redemption Before Purchase Instruments Clear 12 Accounts with Low Balances 12 SHAREHOLDER INFORMATION 13 - ------------------------------------------------------ Voting Rights 13 Massachusetts Partnership Law 13 TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 New Jersey Tax Considerations 14 Other State and Local Taxes 15 PERFORMANCE INFORMATION 15 - ------------------------------------------------------ OTHER CLASSES OF SHARES 15 - ------------------------------------------------------ Financial Highlights-- Institutional Service Shares 17 FINANCIAL STATEMENTS 18 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 33 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................................................................... None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)................................................................... None Deferred Sales Load (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 INSTITUTIONAL SHARES OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)....................................................................... 0.04% 12b-1 Fee............................................................................................... None Other Expenses.......................................................................................... 0.51% Total Institutional Shares Operating Expenses (2)............................................. 0.55%
- --------- (1) The management fee has been reduced to reflect the voluntary waiver of a portion of the managment fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The Total Institutional Shares Operating Expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1994. The Total Institutional Shares Operating Expenses were 0.46% for the fiscal year ended October 31, 1993, and were 0.91% absent the voluntary waiver of the managment fee and the reimbursement of certain other operating expenses. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL SHARES" AND "FEDERATED MUNICIPAL TRUST 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. As noted in the table above, the Fund charges no redemption fee for Institutional Shares.......................................... $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. The information set forth in the foregoing table and example relates only to Institutional Shares of the Fund. The Fund also offers another class of shares called Institutional Service Shares. Institutional Service Shares and Institutional Shares are subject to certain of the same expenses; however, Institutional Service Shares are subject to a 12b-1 fee of 0.10%. See "Other Classes of Shares." 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 33.
YEAR ENDED OCTOBER 31, 1993 1992 1991* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ---------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ---------------------------------------------------------------------------------- Net investment income 0.02 0.03 0.04 - ---------------------------------------------------------------------------------- --------- --------- --------- LESS DISTRIBUTIONS - ---------------------------------------------------------------------------------- Dividends to shareholders from net investment income (0.02) (0.03) (0.04) - ---------------------------------------------------------------------------------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ---------------------------------------------------------------------------------- --------- --------- --------- TOTAL RETURN** 2.22% 2.96% 3.87%(a) - ---------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------------------------------------------------------- Expenses 0.46% 0.45% 0.27%(b) - ---------------------------------------------------------------------------------- Net investment income 2.19% 2.86% 4.19%(b) - ---------------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.45% 0.51% 0.67%(b) - ---------------------------------------------------------------------------------- SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $66,346 $57,657 $39,423 - ----------------------------------------------------------------------------------
* Reflects operations for the period from December 13, 1990 (date of initial public investment) to October 31, 1991. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (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 of beneficial interest 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") have established two classes of shares, known as Institutional Shares and Institutional Service Shares. This prospectus relates only to Institutional Shares of the Fund. Institutional Shares ("Shares") of the Fund are designed for the investment of moneys held by financial institutions in a fiduciary capacity. A minimum initial investment of $25,000 over a 90-day period is required. The Fund may not be a suitable investment for non-New Jersey taxpayers or retirement plans since it invests primarily in New Jersey municipal securities. The Fund attempts to stabilize the value of a Share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to provide current income exempt from federal regular income tax and the New Jersey state income tax imposed upon non-corporate taxpayers 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 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 New Jersey. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in a portfolio of New Jersey municipal securities with remaining maturities of 13 months or less at the time of purchase by the Fund. As a matter of investment policy, which cannot be changed without approval of shareholders, the Fund invests its assets so that at least 80% of its annual interest income is exempt from federal regular income tax and New Jersey state income tax imposed upon non-corporate taxpayers. 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 the approval of shareholders. 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 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 both federal regular income tax and New Jersey state income tax imposed upon non-corporate taxpayers. Examples of New Jersey municipal securities include, but are not limited to: tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes ("BANs") 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 municipal securities 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 adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in municipal securities from financial institutions such as commercial and investment banks, savings and loan associations and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying municipal securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities and may be considered to be illiquid. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation certificate on any of the above. RATINGS. The New Jersey municipal securities in which the Fund invests must either 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 Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1 and FIN-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 categories. See "Regulatory Compliance." CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been credit enhanced by a guaranty, letter of credit or insurance. 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. The bankruptcy, receivership or default of the credit enhancer will adversely affect the quality and marketability of the underlying security. 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. 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 laws. Under criteria established by the Trustees, certain restricted securities are considered liquid. To the extent restricted securities are deemed to be illiquid, the Fund will limit their purchase, together with other securities considered to be illiquid, to 10% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase New Jersey municipal securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in short-term non-New Jersey municipal tax-exempt obligations or other taxable temporary investments. All temporary investments will satisfy the same credit quality standards as the Fund's acceptable investments. See "Ratings" above. Temporary investments include: notes issued by or on behalf of municipal or corporate issuers; marketable obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; other debt securities; commercial paper; certificates of deposit of banks; and repurchase agreements (arrangements in which banks, broker/dealers, and other recognized financial institutions sell the Fund a temporary investment and agree 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 of generating income subject to federal regular income tax or New Jersey state income tax imposed upon non-corporate taxpayers. 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 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. STANDBY COMMITMENTS Some securities dealers are willing to sell municipal securities to the Fund accompanied by their commitments to repurchase the municipal securities prior to maturity, at the Fund's option, for the amortized cost of the municipal securities at the time of repurchase. These arrangements are not used to protect against changes in the market value of municipal securities. They permit the Fund, however, to remain fully invested and still provide liquidity to satisfy redemptions. The cost of municipal securities accompanied by these "standby" commitments could be greater than the cost of municipal securities without such commitments. Standby commitments are not marketable or otherwise assignable and have value only to the Fund. The default or bankruptcy of a securities dealer giving such a commitment would not affect the quality of the municipal securities purchased. However, without a standby commitment, these securities could be more difficult to sell. The Fund enters into standby commitments only with those dealers whose credit the investment adviser believes to be of high quality. NEW JERSEY 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 and maturity of the particular offering; the maturity of the obligations; and the rating of the issue. Further, any adverse economic conditions or developments affecting the State of New Jersey or its municipalities could impact the Fund's portfolio. 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 demand features for such securities, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. Investing in New Jersey municipal securities which meet the Fund's quality standards may not be possible if the State of New Jersey or its municipalities do not maintain their high quality, short-term credit ratings. In addition, certain New Jersey constitutional amendments, legislative measures, executive orders, administrative regulations, and voter initiatives could result in adverse consequences affecting New Jersey municipal securities. An expanded discussion of the current economic risks associated with the purchase of New Jersey municipal securities is contained in the Combined Statement of Additional Information. NON-DIVERSIFICATION The Fund is a non-diversified investment portfolio. As such, there is no limit on the percentage of assets which can be invested in any single issuer. An investment in the Fund, therefore, will entail greater risk than would exist in a diversified investment portfolio because the higher percentage of investments among fewer issuers may result in greater fluctuation in the total market value of the Fund's portfolio. Any economic, political, or regulatory developments affecting the value of the securities in the Fund's portfolio will have a greater impact on the total value of the portfolio than would be the case if the portfolio were diversified among more issuers. The Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that at the end of each quarter of the taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer; beyond that, no more than 25% of its total assets are invested in the securities of a single issuer. 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 above investment limitation cannot be changed without shareholder approval. The following investment limitation, however, can be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in this limitation becomes effective. The Fund will not invest more than 5% of its total assets in industrial development bonds or other municipal securities when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in this prospectus and its Combined 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, as amended. 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 INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF FEDERATED MUNICIPAL TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of Trustees is 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. The Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, 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, for which it receives an annual fee from the Fund. ADVISORY FEES. The Fund's adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. Under the advisory contract, which provides for the voluntary waiver of the advisory fee by the adviser, the adviser may voluntarily waive some or all of the advisory fee. This does not include reimbursement to the Fund of any expenses incurred by shareholders who use the transfer agent's subaccounting facilities. The adviser can terminate this voluntary waiver of expenses at any time at its sole discretion. The adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. 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. Total assets under management or administration by these and other subsidiaries of Federated Investors are approximately $70 billion. Federated Investors, which was founded in 1956 as Federated Investors, Inc., develops and manages mutual funds primarily for the financial industry. Federated Investors' track record of competitive performance and its disciplined, risk-averse investment philosophy serve approximately 3,500 client institutions nationwide. Through these same client institutions, individual shareholders also have access to this same level of investment expertise. DISTRIBUTION OF INSTITUTIONAL SHARES Federated Securities Corp. is the principal distributor for Institutional Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services, Inc., provides these at approximate cost. CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and dividend disbursing agent for the Fund. LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania. 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 adding the interest of the Shares in the value of all securities and other assets of the Fund, subtracting the interest of the Shares in liabilities of the Fund and those attributable to Shares, and dividing the remainder by the total number of Shares outstanding. The Fund, of course, cannot guarantee that its net asset value will always remain at $1.00 per Share. INVESTING IN INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- SHARE PURCHASES Shares are sold on days on which the New York Stock Exchange and the Federal Reserve wire system are open for business. Shares may be purchased either by wire or by mail. The Fund reserves the right to reject any purchase request. To purchase Shares, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken over the telephone. BY WIRE. To purchase Shares by Federal Reserve wire, call 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 same day. Federal funds should be wired as follows: State Street Bank and Trust Company, Boston, Massachusetts; 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 days on which the New York Stock Exchange is closed and on federal holidays restricting wire transfers. BY MAIL. To purchase Shares by mail, send a check made payable to New Jersey Municipal Cash Trust--Institutional Shares to the Trust's transfer agent, Federated Services Company, c/o State Street Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are considered received when payment by check is converted by State Street Bank into federal funds. This is normally the next business day after State Street Bank receives the check. MINIMUM INVESTMENT REQUIRED The minimum initial investment in Shares is $25,000. However, an account may be opened with a smaller amount as long as the $25,000 minimum is reached within 90 days. An institutional investor's minimum investment will be calculated by combining all accounts it maintains with the Fund. Individual accounts established through a bank or broker may be subject to a different minimum investment requirement. WHAT SHARES COST Shares are sold at their net asset value next determined after an order is received. There is no sales charge imposed by the Fund. Investors who purchase Shares through a bank or broker may be charged an additional service fee by that bank or broker. The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m. (Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no Shares are tendered for redemption and no orders to purchase Shares are received; and (iii) the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. SUBACCOUNTING SERVICES Institutions are encouraged to open single master accounts. However, certain institutions may wish to use the transfer agent's subaccounting system to minimize their internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Financial institutions holding Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Shares. This prospectus should, therefore, be read together with any agreement between the customer and the financial institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Monthly confirmations are sent to report transactions such as purchases and redemptions as well as dividends paid during the month. DIVIDENDS Dividends are declared daily and paid monthly. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends on the day after the check is converted, upon instruction of the transfer agent, into federal funds. Dividends are automatically reinvested on payment dates in additional Shares unless cash payments are requested on an application or by contacting the Fund. CAPITAL GAINS Capital gains, if any, could result in an increase in dividends. Capital losses, if any, could result in a decrease in dividends. If, for some extraordinary reason, the Fund realizes net long-term or short-term capital gains, it will distribute them at least once every 12 months. REDEEMING INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares 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 by telephone request or by written request. TELEPHONE REDEMPTION Shareholders may redeem their Shares by telephoning the Fund. Redemption requests received before 12:00 noon (Eastern time) are not entitled to that day's dividend. A daily dividend will be paid on Shares redeemed if the redemption request is received after 12:00 noon (Eastern time). However, the proceeds are not wired until the following business day. If, at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders will be promptly notified. An authorization form permitting the Fund to accept redemption requests by telephone must first be completed. Authorization forms and information on this service are available from Federated Securities Corp. Telephone redemption instructions may be recorded. 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, shareholders may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption, such as Written Requests, should be considered. WRITTEN REQUESTS Shares may also be redeemed by sending a written request to the Fund. Call the Fund for specific instructions before redeeming by letter. The shareholder will be asked to provide in the request his name, the Fund name and class of shares, his account number, and the Share or dollar amount requested. If Share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, 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 signatures on written redemption requests guaranteed by: a trust company or commercial bank whose deposits are insured by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance Corporation ("FDIC"); a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; a savings bank or savings and loan association whose deposits are insured by the Savings Association Insurance Fund ("SAIF"), which is administered by the FDIC; 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. The Fund and its transfer agent have 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 and its transfer agent reserve the right to amend these standards at any time without notice. RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR When Shares are purchased by check, the proceeds from the redemption of those Shares are not available, and the Shares may not be exchanged, until the Fund or its agents are reasonably certain that the purchase check has cleared, which could take up to ten calendar days. 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. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only shares of that Fund or class are entitled to vote. As a Massachusetts business trust, 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 for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of all series of the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders of the Fund, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such 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 of the Fund is held personally liable for the Trust's obligations, the Trust is required 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 cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. 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 some municipal bonds may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The alternative minimum tax, equal to up to 28% of alternative minimum taxable income for individuals and 20% for corporations 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. The Tax Reform Act of 1986 treats interest on certain "private activity" bonds issued after August 7, 1986, as a tax preference item for both individuals and corporations. Unlike traditional governmental purpose municipal bonds, which finance roads, schools, libraries, prisons and other public facilities, private activity bonds provide benefits to private parties. The Fund may purchase all types of municipal bonds, including private activity bonds. Thus, should it purchase any such bonds, a portion of the Fund's dividends may be treated as a tax preference item. In addition, in the case of a corporate shareholder, dividends of the Fund which represent interest on municipal bonds may be subject to the 20% corporate alternative minimum tax because the dividends are included in a corporation's "adjusted current earnings." The corporate alternative minimum tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's alternative minimum taxable income as a tax preference item. "Adjusted current earnings" is based upon the concept of a corporation's "earnings and profits." Since "earnings and profits" generally includes the full amount of any Fund dividend, and alternative minimum taxable income does not include the portion of the Fund's dividend attributable to municipal bonds which are not private activity bonds, 75% of the difference will be included in the calculation of the corporation's alternative minimum 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. Information on the tax status of dividends and distributions is provided annually. NEW JERSEY TAX CONSIDERATIONS Under existing New Jersey law, distributions made by the Fund will not be subject to New Jersey income tax to the extent that such distributions qualify as exempt interest dividends under the Internal Revenue Code, and are attributable to interest or gain derived by the Fund from (i) 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) 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 not be exempt from New Jersey income tax. 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 STATE AND LOCAL TAXES Income from the Fund is not necessarily free from regular state income taxes in states other than New Jersey or from personal property taxes. State laws differ on this issue and 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 the Fund advertises its yield, effective yield, and tax-equivalent yield for Institutional Shares. The yield of Institutional Shares represents the annualized rate of income earned on an investment in Institutional Shares 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 in Institutional Shares 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 of Institutional Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the Institutional Shares would have had to earn to equal their actual yield, assuming a specific tax rate. Advertisements and other sales literature may also refer to total return. Total return represents the change, over a specified period of time, in the value of an investment in Institutional 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, and tax-equivalent yield will be calculated separately for Institutional Shares and Institutional Service Shares. Because Institutional Service Shares are subject to 12b-1 fees, the yield, the effective yield, and the tax-equivalent yield for Institutional Shares will exceed the yield, the effective yield, and the tax-equivalent yield for Institutional Service Shares for the same period. From time to time, the Fund may advertise the performance of Institutional Shares using certain reporting services and/or compare the performance of Institutional Shares to certain indices. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- Institutional Service Shares are sold to accounts for which financial institutions act in an agency capacity. Institutional Service Shares are sold at net asset value. Investments in Institutional Service Shares are also subject to a minimum initial investment of $25,000. Institutional Service Shares are distributed pursuant to a 12b-1 Plan adopted by the Trust whereby the distributor is paid a fee of .10 of 1% of the Institutional Service Shares' average daily net assets. Institutional Shares are distributed without a 12b-1 Plan. Financial institutions and brokers providing sales and/or administrative services may receive different compensation from one class of shares of the Fund than from another class of shares depending upon which class of shares of the Fund is sold. While the distributor may, in addition to fees paid pursuant to the 12b-1 Plan, pay an administrative fee to a financial institution or broker for administrative services provided to the Institutional Service Shares class, such a fee will not be an expense of the class but will be reimbursed to the distributor by the investment adviser. Administrative fees are not paid in conjunction with Institutional Shares. The difference between class expenses and distribution expenses borne by shares of each respective class will cause the amount of dividends payable to a particular class of shares to exceed the amount of dividends payable to another class of shares whose distribution expenses are greater. Thus, because Institutional Shares are not subject to a 12b-1 fee, the Institutional Shares' dividends will exceed the dividends paid by the Institutional Service Shares. The stated advisory fee is the same for both classes of shares. 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 33.
YEAR ENDED OCTOBER 31, 1993 1992 1991* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ---------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ---------------------------------------------------------------------------------- Net investment income 0.02 0.03 0.04 - ---------------------------------------------------------------------------------- --------- --------- --------- LESS DISTRIBUTIONS - ---------------------------------------------------------------------------------- Dividends to shareholders from net investment income (0.02) (0.03) (0.04) - ---------------------------------------------------------------------------------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ---------------------------------------------------------------------------------- --------- --------- --------- TOTAL RETURN** 2.12% 2.86% 3.82%(a) - ---------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------------------------------------------------------- Expenses 0.56% 0.55% 0.35%(b) - ---------------------------------------------------------------------------------- Net investment income 2.08% 2.69% 4.11%(b) - ---------------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.45% 0.51% 0.69%(b) - ---------------------------------------------------------------------------------- SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $21,005 $26,844 $17,709 - ----------------------------------------------------------------------------------
* Reflects operations for the period from December 13, 1990 (date of initial public investment) to October 31, 1991. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1993 - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ------------- --------------------------------------------------------------------- ----------- -------------- SHORT-TERM MUNICIPAL SECURITIES--100.8% - ------------------------------------------------------------------------------------ NEW JERSEY--100.8% --------------------------------------------------------------------- $ 864,600 Allendale, NJ, 2.93% BANs, 1/13/94 NR(3) $ 864,734 --------------------------------------------------------------------- 2,000,000 Atlantic County, NJ, Improvement Authority Weekly VRDNs (Marine Midland Bank N.A. LOC) VMIG2 2,000,000 --------------------------------------------------------------------- 1,000,000 Camden County, NJ, 2.75% BANs, 2/23/94 MIG1 1,000,915 --------------------------------------------------------------------- 1,500,000 Camden County, NJ, 3.25% BANs (Series 1993C), 2/23/94 MIG1 1,502,275 --------------------------------------------------------------------- 3,500,000 Evesham Township, NJ, 2.70% BANs, 3/9/94 NR(3) 3,501,024 --------------------------------------------------------------------- 828,043 Fairfield Township, NJ, 2.90% BANs, 12/17/93 NR(2) 828,193 --------------------------------------------------------------------- 3,000,000 Hudson County, NJ, 3.325% TANs, 2/17/94 NR(4) 3,004,574 --------------------------------------------------------------------- 4,900,000 Hudson County, NJ, Improvement Authority Solid Waste Recovery Weekly VRDNs (Sumitomo Bank, Ltd. LOC)/ (Subject to AMT) A-1+ 4,900,000 --------------------------------------------------------------------- 1,813,245 Lavallette Borough, NJ, 3.25% BANs, 5/6/94 NR 1,815,472 --------------------------------------------------------------------- 2,000,000 Lindewold Borough, NJ, 2.95% TANs, 2/28/94 NR(4) 2,000,311 --------------------------------------------------------------------- 900,000 Mercer County, NJ, Improvement Authority Weekly VRDNs (Credit Suisse LOC) A-1+ 900,000 --------------------------------------------------------------------- 593,750 Middle Township, NJ, 2.97% BANs, 6/15/94 NR(3) 594,524 --------------------------------------------------------------------- 1,500,000 Middlesex County, NJ, Pollution Control Finance Authority Weekly VRDNs (FMC Corporation)/(Wachovia Bank & Trust Co. N.A. LOC) P-1 1,500,000 --------------------------------------------------------------------- 1,500,000 Montvale, NJ, 3.20% TANs, 1/19/94 NR(3) 1,501,104 --------------------------------------------------------------------- 2,000,000 Morristown, NJ, 3.125% BANs, 10/13/94 NR(3) 2,006,901 --------------------------------------------------------------------- 1,400,000 New Jersey EDA Weekly VRDNs (Edison Associates)/(Ford Motor Credit BPA)/(Dai-Ichi Kangyo Bank, Ltd., LOC) P-1 1,400,000 ---------------------------------------------------------------------
NEW JERSEY MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ------------- --------------------------------------------------------------------- ----------- -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------------ NEW JERSEY--CONTINUED --------------------------------------------------------------------- $ 2,500,000 New Jersey EDA Weekly VRDNs (Franciscan Oaks)/(Bank of Scotland LOC) A-1+ $ 2,500,000 --------------------------------------------------------------------- 5,763,000 New Jersey EDA Weekly VRDNs (Meridian Healthcare)/ (First National Bank of Maryland LOC)/(Subject to AMT) P-1 5,763,000 --------------------------------------------------------------------- 4,473,000 New Jersey EDA Weekly VRDNs (Mulins Machines)/ (Sovran Bank N.A. LOC) P-1 4,473,000 --------------------------------------------------------------------- 1,695,000 New Jersey EDA Weekly VRDNs (Nash Group)/(Chemical Bank LOC)/(Subject to AMT) A-1 1,695,000 --------------------------------------------------------------------- 350,000 New Jersey EDA Weekly VRDNs (Series 1987G)/(W.Y. Urban Renewal)/(National Westminster Bank PLC LOC)/ (Subject to AMT) VMIG1 350,000 --------------------------------------------------------------------- 2,550,000 New Jersey EDA Weekly VRDNs (Series 1988F)/(Lamington Corners Assoc.)/(First Fidelity Bank LOC)/ (Subject to AMT) VMIG1 2,550,000 --------------------------------------------------------------------- 1,800,000 New Jersey EDA Weekly VRDNs (Series 1988B)/(Hyland Industrial Associates)/(First Fidelity Bank LOC) VMIG1 1,800,000 --------------------------------------------------------------------- 1,430,000 New Jersey EDA Weekly VRDNs (Series 1992Q)/(Physical Acoustics Inc.)/(Banque Nationale de Paris LOC)/ (Subject to AMT) VMIG1 1,430,000 --------------------------------------------------------------------- 1,425,000 New Jersey EDA Weekly VRDNs (Series 1992Z)/(West-Ward Pharmaceuticals)/(Banque Nationale de Paris LOC)/ (Subject to AMT) VMIG1 1,425,000 --------------------------------------------------------------------- 1,150,000 New Jersey EDA Weekly VRDNs (Series 1992D-1)/(Danlin Corp.)/(Banque Nationale de Paris LOC)/(Subject to AMT) VMIG1 1,150,000 --------------------------------------------------------------------- 2,645,000 New Jersey EDA Weekly VRDNs (Series 1992I-1)/(Geshem Realty)/(Banque Nationale de Paris LOC)/(Subject to AMT) VMIG1 2,645,000 ---------------------------------------------------------------------
NEW JERSEY MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ------------- --------------------------------------------------------------------- ----------- -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------------ NEW JERSEY--CONTINUED --------------------------------------------------------------------- $ 900,000 New Jersey EDA Weekly VRDNs (Stewart Graphics Urban Renewal Associates)/(First Fidelity Bank LOC)/ (Subject to AMT) VMIG1 $ 900,000 --------------------------------------------------------------------- 4,050,000 New Jersey EDA Weekly VRDNs (YM-MWHA of Bergen County)/(Core States Capital Corp. LOC) VMIG1 4,050,000 --------------------------------------------------------------------- 1,250,000 New Jersey EDA, 2.875% BANs (Series 1993A)/(Middlesex Water Co.), 12/1/93 NR(3) 1,250,000 --------------------------------------------------------------------- 1,400,000 New Jersey Health Care Facilities Financing Authority 2.90% SB (Series D)/(Chilton Memorial Hospital), 7/1/94 NR(3) 1,400,000 --------------------------------------------------------------------- 1,000,000 New Jersey Turnpike Authority Weekly VRDNs (Series 1991D)/(FGIC Insured) A-1+ 1,000,000 --------------------------------------------------------------------- 760,000 Palisades Park, NJ, 2.75% BANs, 5/24/94 NR(3) 760,515 --------------------------------------------------------------------- 2,500,000 Pemberton Township, NJ, 3.15% TANs, 2/28/94 NR(4) 2,501,575 --------------------------------------------------------------------- 2,000,000 Port Authority of New York and New Jersey Special Project Bonds Weekly VRDNs (Series 3)/(KIAC Partners)/(Deutsche Bank AG LOC)/(Subject to AMT) A-1+ 2,000,000 --------------------------------------------------------------------- 9,000,000 Port Authority of New York and New Jersey Weekly VRDNs (Series 1991-4)/(Subject to AMT) P-1 9,000,000 --------------------------------------------------------------------- 738,600 Runnemede, NJ, 2.84% BANs, 3/25/94 NR(4) 738,853 --------------------------------------------------------------------- 1,045,000 Sparta Township, NJ, 3.14% BANs, 11/5/93 NR(3) 1,045,012 --------------------------------------------------------------------- 1,025,000 Wall Township, NJ, 3.07% BANs, 1/13/94 NR(3) 1,025,338 --------------------------------------------------------------------- 1,665,800 West Milford Township, NJ, 3.28% BANs, 1/28/94 NR(3) 1,666,501 --------------------------------------------------------------------- 1,409,450 Winslow Township, NJ, 2.78% BANs, 6/17/94 NR(3) 1,410,562 --------------------------------------------------------------------- 2,000,000 Woodbury, NJ, 2.99% BANs, 4/15/94 NR 2,002,140 --------------------------------------------------------------------- 1,209,000 Woodbury, NJ, 3.75% BANs, 3/4/94 NR 1,212,957 ---------------------------------------------------------------------
NEW JERSEY MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ------------- --------------------------------------------------------------------- ----------- -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------------ NEW JERSEY--CONTINUED --------------------------------------------------------------------- $ 1,000,000 Woodcliffe Lake, NJ, 2.83% BANs, 6/10/94 NR(3) $ 1,000,764 --------------------------------------------------------------------- -------------- TOTAL INVESTMENTS (AT AMORTIZED COST) $ 88,065,244\ --------------------------------------------------------------------- --------------
* See Notes to Portfolio of Investments. \ Also represents cost for federal tax purposes. The following abbreviations are used in this portfolio: AMT--Alternative Minimum Tax BANs--Bond Anticipation Notes BPA--Bond Purchase Agreement EDA--Economic Development Authority FGIC--Financial Guaranty Insurance Group LOC--Letter of Credit SB--Serial Bond TANs--Tax Anticipation Notes VRDNs--Variable Rate Demand Notes Note: The categories of investments are shown as a percentage of net assets ($87,351,092) at October 31, 1993. (See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST NOTES TO PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL OBLIGATION RATINGS S&P A Standard & Poor's 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 (+) designation. SP-2 Satisfactory capacity to pay principal and interest. MOODY'S 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. FITCH Fitch's short-term ratings place greater emphasis on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. F-1 Strongest degree of assurance for timely payment. Those issues determined to provide exceptionally strong credit quality are given a plus (+) designation. F-2 Notes reflecting a degree of assurance for timely payment only slightly less in degree than the highest category. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P Standard & Poor's 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-1+, AA/A-1+, and A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) MOODY'S 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. FITCH Fitch usually assigns two ratings to long-term debt issues that include provisions for a variable rate demand feature. The long-term rating addresses the ability of the obligor to pay debt service and the short-term rating addresses the timely payment of the demand feature. Examples of rating designation are as follows: AAA/F-1+, AA/F-1+, and A/F-1. (The definitions for the long-term and short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS S&P A Standard & Poor's 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 designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) designation. A-2 Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated "A-1." MOODY'S P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. The following is an explanation of the Fitch ratings. These ratings are not referenced in the Portfolio of Investments. FITCH F-1 Issues assigned this rating reflect a strong degree of assurance for timely payment. Those issuers determined to possess the strongest degree of assurance for timely payment are denoted with a plus (+) sign designation. F-2 Issuers carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as the "F-1+" and "F-1" categories. LONG-TERM DEBT RATINGS (INVESTMENT GRADE) S&P AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the 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. BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest than debt rated in higher ratings categories. MOODY'S AAA Bonds that 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 edge." Interest payments are protected by a large margin and principal is secure. While the various protective elements are likely to change, such changes which can be foreseen are most unlikely to impair the fundamentally strong position of such issues. AA Bonds that 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 that 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 that suggest a susceptibility to impairment some time in the future. BAA Bonds which are rated BAA are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. FITCH AAA Bonds that are rated AAA are of the highest credit quality. The obligor has an exceptionally strong ability to pay debt service. AA Bonds that are rated AA are of very high quality. The obligor has a very strong ability to pay debt service. Debt rated in this category may also have a (+) or (-) sign with a rating to indicate the relative position within the rating category. A Bonds are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. NR indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P, Moody's, or Fitch with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated in one of the two highest short-term ratings categories by a nationally recognized statistical ratings organization. NR(1) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by Fitch. NR(2) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch. NR(3) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "A" by Standard & Poor's, Moody's, or Fitch. NR(4) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by Fitch. NEW JERSEY MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1993 - -------------------------------------------------------------------------------- ASSETS: - -------------------------------------------------------------------------------------------------- Investments, at amortized cost and value (Note 2A) $ 88,065,244 - -------------------------------------------------------------------------------------------------- Cash 207,279 - -------------------------------------------------------------------------------------------------- Interest receivable 616,717 - -------------------------------------------------------------------------------------------------- Deferred expenses (Note 2E) 21,922 - -------------------------------------------------------------------------------------------------- -------------- Total assets 88,911,162 - -------------------------------------------------------------------------------------------------- LIABILITIES: - ----------------------------------------------------------------------------------- Payable for investments purchased $ 1,402,143 - ----------------------------------------------------------------------------------- Dividends payable 128,480 - ----------------------------------------------------------------------------------- Payable for Fund shares redeemed 1,778 - ----------------------------------------------------------------------------------- Accrued expenses and other liabilities 27,669 - ----------------------------------------------------------------------------------- ------------- Total liabilities 1,560,070 - -------------------------------------------------------------------------------------------------- -------------- NET ASSETS for 87,351,092 shares of beneficial interest outstanding $ 87,351,092 - -------------------------------------------------------------------------------------------------- -------------- NET ASSET VALUE, Offering Price, and Redemption Price Per Share: - -------------------------------------------------------------------------------------------------- Institutional Shares ($66,345,642 / 66,345,642 shares of beneficial interest outstanding) $1.00 - -------------------------------------------------------------------------------------------------- -------------- Institutional Service Shares ($21,005,450 / 21,005,450 shares of beneficial interest 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, 1993 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------------------------- Interest income (Note 2B) $ 2,670,057 - --------------------------------------------------------------------------------------------------- EXPENSES: - -------------------------------------------------------------------------------------- Investment advisory fee (Note 5) $ 404,029 - -------------------------------------------------------------------------------------- Administrative personnel and services fees (Note 5) 292,432 - -------------------------------------------------------------------------------------- Custodian, transfer and dividend disbursing agent fees and expenses 111,903 - -------------------------------------------------------------------------------------- Trustees' fees 2,746 - -------------------------------------------------------------------------------------- Auditing fees 17,815 - -------------------------------------------------------------------------------------- Legal fees 12,207 - -------------------------------------------------------------------------------------- Printing and postage 20,163 - -------------------------------------------------------------------------------------- Fund share registration costs 39,181 - -------------------------------------------------------------------------------------- Distribution services fees (Note 5) 56,220 - -------------------------------------------------------------------------------------- Insurance premiums 6,607 - -------------------------------------------------------------------------------------- Taxes 2,213 - -------------------------------------------------------------------------------------- Miscellaneous 7,106 - -------------------------------------------------------------------------------------- ----------- Total expenses 972,622 - -------------------------------------------------------------------------------------- Deduct-- - ------------------------------------------------------------------------- Waiver of investment advisory fee (Note 5) $ 404,029 - ------------------------------------------------------------------------- Reimbursement of other operating expenses (Note 5) 51,345 - ------------------------------------------------------------------------- Waiver of distribution services fees (Note 5) 4,206 459,580 - ------------------------------------------------------------------------- ----------- ----------- Net expenses 513,042 - --------------------------------------------------------------------------------------------------- ------------- Net investment income $ 2,157,015 - --------------------------------------------------------------------------------------------------- -------------
(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, 1993 1992 INCREASE (DECREASE) IN NET ASSETS: - ----------------------------------------------------------------------------- OPERATIONS-- - ----------------------------------------------------------------------------- Net investment income $ 2,157,015 $ 2,422,424 - ----------------------------------------------------------------------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - ----------------------------------------------------------------------------- Dividends to shareholders from net investment income: - ----------------------------------------------------------------------------- Institutional Shares (1,458,805) (1,595,419) - ----------------------------------------------------------------------------- Institutional Service Shares (602,534) (706,680) - ----------------------------------------------------------------------------- Cash Series Shares (95,676) (120,325) - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets from distributions to shareholders (2,157,015) (2,422,424) - ----------------------------------------------------------------------------- ---------------- ---------------- FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - ----------------------------------------------------------------------------- Proceeds from sale of shares 344,229,882 257,860,604 - ----------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of dividends declared 213,366 200,781 - ----------------------------------------------------------------------------- Cost of shares redeemed (346,170,580) (232,804,903) - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets from Fund share transactions (1,727,332) 25,256,482 - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets (1,727,332) 25,256,482 - ----------------------------------------------------------------------------- NET ASSETS: - ----------------------------------------------------------------------------- Beginning of period 89,078,424 63,821,942 - ----------------------------------------------------------------------------- ---------------- ---------------- End of period $ 87,351,092 $ 89,078,424 - ----------------------------------------------------------------------------- ---------------- ----------------
(See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1993 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company with several 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. Effective October 6, 1993, the Fund provided two classes of shares ("Institutional Service Shares" and "Institutional Shares"). Institutional Service Shares are identical in all respects to Institutional Shares except that Institutional Service Shares are sold pursuant to a distribution plan ("Plan") adopted in accordance with Investment Company Act Rule 12b-1. Prior to October 6, 1993, the Fund offered a third class of shares ("Cash Series Shares"). Cash Series Shares were identical in all respects to Institutional Shares except that Cash Series Shares, like Institutional Service Shares, were sold pursuant to a distribution plan ("Plan") adopted in accordance with Investment Company Act Rule 12b-1. (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. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that the best method currently available for valuing portfolio securities is amortized cost. The Fund's use of the amortized cost method to value its portfolio securities is conditioned on its compliance with Rule 2a-7 under the Investment Company Act of 1940. Since the Fund may invest 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 general tax-exempt mutual fund. In order to reduce the risk associated with such factors, at October 31, 1993, 50.5% 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 aggregate percentages by financial institution ranged from 0.4% to 7.6% of total investments. B. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest earned net of premium, and original issue discount as required by the Internal Revenue Code (the "Code"). C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal Revenue Code applicable to investment companies and to distribute to shareholders each year all of its net income. Accordingly, no provision for federal tax is necessary. Dividends paid by the Fund representing net interest received on tax-exempt municipal securities are not includable by shareholders as gross income for federal income tax purposes because the Fund intends to meet certain requirements of the Code applicable to regulated investment companies which will enable the Fund to pay exempt-interest dividends. The portion of such interest, if any, earned on private activity bonds issued after August 7, 1986 may be considered a tax preference item to shareholders for the purpose of computing the alternative minimum tax. D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objective and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain 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. E. 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 the shares, have been deferred and are being amortized using the straight-line method through December, 1995. F. EXPENSES--Expenses of the Fund (other than distribution services fees) and waivers and reimbursements, if any, are allocated to each class of shares based on its relative daily average net assets for the period. Expenses incurred by the Trust which do not specifically relate to an individual fund are allocated among all funds based on a fund's relative net asset value size or as deemed appropriate by the administrator. G. OTHER--Investment transactions are accounted for on the date of the transaction. (3) DIVIDENDS The Fund computes its net income daily and, immediately prior to the calculation of its net asset value at the close of business, declares and records dividends to shareholders of record at the time of the previous computation of the Fund's net asset value. Payment of dividends is made monthly in cash, or in additional shares at the net asset value on the payable date. (4) 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, 1993, capital paid-in aggregated $87,351,092. Transactions in Fund shares were as follows:
YEAR ENDED OCTOBER 31, INSTITUTIONAL SHARES 1993 1992 Shares outstanding, beginning of period 57,657,084 39,423,429 - -------------------------------------------------------------------------------- Shares sold 184,549,947 136,820,582 - -------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 2,221 3,244 - -------------------------------------------------------------------------------- Shares redeemed (175,863,610) (118,590,171) - -------------------------------------------------------------------------------- --------------- --------------- Shares outstanding, end of period 66,345,642 57,657,084 - -------------------------------------------------------------------------------- --------------- --------------- INSTITUTIONAL SERVICE SHARES Shares outstanding, beginning of period 26,843,665 17,709,241 - -------------------------------------------------------------------------------- Shares sold 141,401,508 114,462,133 - -------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 134,265 105,233 - -------------------------------------------------------------------------------- Shares redeemed (147,373,988) (105,432,942) - -------------------------------------------------------------------------------- --------------- --------------- Shares outstanding, end of period 21,005,450 26,843,665 - -------------------------------------------------------------------------------- --------------- --------------- CASH SERIES SHARES Shares outstanding, beginning of period 4,577,675 6,689,272 - -------------------------------------------------------------------------------- Shares sold 18,278,427 6,577,889 - -------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 76,880 92,304 - -------------------------------------------------------------------------------- Shares redeemed (22,932,982) (8,781,790) - -------------------------------------------------------------------------------- --------------- --------------- Shares outstanding, end of period -- 4,577,675 - -------------------------------------------------------------------------------- --------------- ---------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Federated Management, the Fund's investment adviser ("Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. Adviser has voluntarily agreed to waive all or a portion of its fee. The Adviser can terminate this voluntary waiver of expenses at any time at its sole discretion. For the fiscal year ended October 31, 1993, the Adviser earned $404,029, all of which was voluntarily waived. In addition, Adviser voluntarily reimbursed $51,345 of the Fund's normal operating expenses. Organizational expenses ($61,531) and start-up administrative services expenses ($16,639) were borne initially by the Adviser. The Fund has agreed to pay the Adviser, at an annual rate .005 of 1% of average daily net assets, until the expenses borne by the Adviser are reimbursed, or the expiration of five years after December 10, 1990, the date the Trust's portfolio became effective, whichever occurs earlier. During the fiscal year ended October 31, 1993, the Fund paid Adviser $5,065 and $8,128, respectively, pursuant to this agreement. During the fiscal year ended October 31, 1993, the Fund engaged in purchase and sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7 of the Investment Company Act of 1940 amounting to $139,875,000 and $151,274,752, respectively. These purchases and sales were conducted on an arms-length basis insofar as they were transacted for cash consideration only, at independent current market prices and without brokerage commission, fee or other remuneration. The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Trust will compensate Federated Securities Corp., ("FSC"), the principal distributor, from the assets of the Fund, for fees it paid which relate to the distribution and administration of the Fund's Institutional Service Shares and Cash Series Shares. The Plan provides that the Fund may incur distribution expenses up to .10 of 1% of the average daily net assets of the Institutional Service Shares and .50 of 1% of the average daily net assets of the Cash Series Shares, annually, to pay commissions, maintenance fees and to compensate the distributor. During the fiscal year ended October 31, 1993, FSC earned $29,018 in distribution services fees for Institutional Service Shares and $27,202 for Cash Series Shares of which $4,206 was voluntarily waived. Administrative personnel and services were provided at approximate cost by Federated Administrative Services, Inc. Certain Officers and Trustees of the Trust are Officers and Directors of the above corporations. (6) CURRENT CREDIT RATINGS Current credit ratings and related notes are unaudited. 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 investments, as of October 31, 1993, the related statement of operations for the year then ended, and the statement of changes in net assets, and financial highlights (see pages 2 and 17) 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 the securities owned as of October 31, 1993, 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 Jersey Municipal Cash Trust, an investment portfolio of Federated Municipal Trust, as of October 31, 1993, the results of its operations for the year then ended, and the changes in its net assets and financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN & CO. Pittsburgh, Pennsylvania December 13, 1993 ADDRESSES - -------------------------------------------------------------------------------- New Jersey Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8602 Trust Company Boston, Massachusetts 02266-8602 - --------------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company Federated Investors Tower Pittsburgh, - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, D.C. 20037 - --------------------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen & Co. 2100 One PPG Place Pittsburgh, Pennsylvania 15222 - ---------------------------------------------------------------------------------------------------------------------
NEW JERSEY MUNICIPAL CASH TRUST INSTITUTIONAL SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company December 31, 1993 [LOGO] FEDERATED SECURITIES CORP. -------------------------- DISTRIBUTOR A SUBSIDIARY OF FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 0100802A-IS (12/93) 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 non-diversified portfolio of securities which is one of a series of investment portfolios in Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The investment objective of the Fund is to provide current income exempt from federal regular income tax and the New Jersey state income tax imposed upon non-corporate taxpayers consistent with stability of principal. 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, which are exempt from the federal regular and New Jersey state income tax imposed upon non-corporate taxpayers. Institutional Service Shares are sold at net asset value, without a sales load. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. 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. THE INSTITUTIONAL SERVICE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT ISSUED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. This prospectus contains the information you should read and know before you invest in Institutional Service Shares. Keep this prospectus for future reference. The Fund has also filed a Combined Statement of Additional Information for Institutional Service Shares and Institutional Shares dated December 31, 1993, with the Securities and Exchange Commission. The information contained in the Combined Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Combined Statement of Additional Information free of charge by calling 1-800-235-4669. To obtain other information or to make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1993 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 Acceptable Investments 3 Variable Rate Demand Notes 4 Participation Interests 4 Municipal Leases 4 Ratings 4 Credit Enhancement 5 Demand Features 5 Restricted and Illiquid Securities 5 When-Issued and Delayed Delivery Transactions 5 Temporary Investments 5 New Jersey Municipal Securities 6 Standby Commitments 6 New Jersey Investment Risks 6 Non-Diversification 7 Investment Limitations 7 Regulatory Compliance 8 FEDERATED MUNICIPAL TRUST INFORMATION 8 - ------------------------------------------------------ Management of Federated Municipal Trust 8 Board of Trustees 8 Investment Adviser 8 Advisory Fees 8 Adviser's Background 8 Distribution of Institutional Service Shares 9 Distribution Plan 9 Administrative Arrangements 10 Administration of the Fund 10 Administrative Services 10 Custodian 10 Transfer Agent and Dividend Disbursing Agent 10 Legal Counsel 10 Independent Public Accountants 10 NET ASSET VALUE 10 - ------------------------------------------------------ INVESTING IN INSTITUTIONAL SERVICE SHARES 11 - ------------------------------------------------------ Share Purchases 11 By Wire 11 By Mail 11 Minimum Investment Required 11 What Shares Cost 11 Subaccounting Services 12 Certificates and Confirmations 12 Dividends 12 Capital Gains 12 REDEEMING INSTITUTIONAL SERVICE SHARES 12 - ------------------------------------------------------ Telephone Redemption 12 Written Requests 13 Signatures 13 Receiving Payment 13 Checkwriting 13 Redemption Before Purchase Instruments Clear 14 Accounts with Low Balances 14 SHAREHOLDER INFORMATION 14 - ------------------------------------------------------ Voting Rights 14 Massachusetts Partnership Law 14 TAX INFORMATION 15 - ------------------------------------------------------ Federal Income Tax 15 New Jersey Tax Considerations 16 Other State and Local Taxes 16 PERFORMANCE INFORMATION 16 - ------------------------------------------------------ OTHER CLASSES OF SHARES 17 - ------------------------------------------------------ Financial Highlights-- Institutional Shares 18 FINANCIAL STATEMENTS 19 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 34 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price).................................................................. None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).................................................................. None Deferred Sales Load (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 INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)...................................................................... 0.04% 12b-1 Fee.............................................................................................. 0.10% Other Expenses......................................................................................... 0.51% Total Institutional Service Shares Operating Expenses (2).................................... 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 Total Institutional Service Shares Operating Expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1994. The Total Institutional Service Shares Operating Expenses were 0.56% for the fiscal year ended October 31, 1993, and were 1.01% absent the voluntary waiver of the management fee and the reimbursement of certain other operating expenses. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL SERVICE SHARES" AND "FEDERATED MUNICIPAL TRUST 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. As noted in the table above, the Fund charges no redemption fee for Institutional Service Shares.................................. $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. The information set forth in the foregoing table and example relates only to Institutional Service Shares of the Fund. The Fund also offers another class of shares called Institutional Shares. Institutional Service Shares and Institutional Shares are subject to certain of the same expenses; however, Institutional Shares are not subject to a 12b-1 fee. See "Other Classes of Shares." 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 34.
YEAR ENDED OCTOBER 31, 1993 1992 1991* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ---------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ---------------------------------------------------------------------------------- Net investment income 0.02 0.03 0.04 - ---------------------------------------------------------------------------------- --------- --------- --------- LESS DISTRIBUTIONS - ---------------------------------------------------------------------------------- Dividends to shareholders from net investment income (0.02) (0.03) (0.04) - ---------------------------------------------------------------------------------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ---------------------------------------------------------------------------------- --------- --------- --------- TOTAL RETURN** 2.12% 2.86% 3.82%(a) - ---------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------------------------------------------------------- Expenses 0.56% 0.55% 0.35%(b) - ---------------------------------------------------------------------------------- Net investment income 2.08% 2.69% 4.11%(b) - ---------------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.45% 0.51% 0.69%(b) - ---------------------------------------------------------------------------------- SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $21,005 $26,844 $17,709 - ----------------------------------------------------------------------------------
* Reflects operations for the period from December 13, 1990 (date of initial public investment) to October 31, 1991. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (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 of beneficial interest 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") have established two classes of shares, known as Institutional Service Shares and Institutional Shares. This prospectus relates only to the Institutional Service Shares of the Fund. Institutional Service Shares ("Shares") of the Fund are designed for the investment of moneys held by financial institutions in an agency capacity. A minimum initial investment of $25,000 over a 90-day period is required. The Fund may not be a suitable investment for non-New Jersey taxpayers or retirement plans since it invests primarily in New Jersey municipal securities. The Fund attempts to stabilize the value of a Share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to provide current income exempt from federal regular income tax and the New Jersey state income tax imposed upon non-corporate taxpayers 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 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 New Jersey. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in a portfolio of New Jersey municipal securities with remaining maturities of 13 months or less at the time of purchase by the Fund. As a matter of investment policy, which cannot be changed without approval of shareholders, the Fund invests its assets so that at least 80% of its annual interest income is exempt from federal regular income tax and New Jersey state income tax imposed upon non-corporate taxpayers. 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 the approval of shareholders. 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 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 both federal regular income tax and New Jersey state income tax imposed upon non-corporate taxpayers. Examples of New Jersey municipal securities include, but are not limited to: tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes ("BANs") 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 municipal securities 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 adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in municipal securities from financial institutions such as commercial and investment banks, savings and loan associations and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying municipal securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities and may be considered to be illiquid. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation certificate on any of the above. RATINGS. The New Jersey municipal securities in which the Fund invests must either 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 Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1 and FIN-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 categories. See "Regulatory Compliance." CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been credit enhanced by a guaranty, letter of credit or insurance. 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. The bankruptcy, receivership or default of the credit enhancer will adversely affect the quality and marketability of the underlying security. 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. 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 laws. Under criteria established by the Trustees, certain restricted securities are considered liquid. To the extent restricted securities are deemed to be illiquid, the Fund will limit their purchase, together with other securities considered to be illiquid, to 10% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase New Jersey municipal securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in short-term non-New Jersey municipal tax-exempt obligations or other taxable temporary investments. All temporary investments will satisfy the same credit quality standards as the Fund's acceptable investments. See "Ratings" above. Temporary investments include: notes issued by or on behalf of municipal or corporate issuers; marketable obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; other debt securities; commercial paper; certificates of deposit of banks; and repurchase agreements (arrangements in which banks, broker/dealers, and other recognized financial institutions sell the Fund a temporary investment and agree 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 of generating income subject to federal regular income tax or New Jersey state income tax imposed upon non-corporate taxpayers. 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 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. STANDBY COMMITMENTS Some securities dealers are willing to sell municipal securities to the Fund accompanied by their commitments to repurchase the municipal securities prior to maturity, at the Fund's option, for the amortized cost of the municipal securities at the time of repurchase. These arrangements are not used to protect against changes in the market value of municipal securities. They permit the Fund, however, to remain fully invested and still provide liquidity to satisfy redemptions. The cost of municipal securities accompanied by these "standby" commitments could be greater than the cost of municipal securities without such commitments. Standby commitments are not marketable or otherwise assignable and have value only to the Fund. The default or bankruptcy of a securities dealer giving such a commitment would not affect the quality of the municipal securities purchased. However, without a standby commitment, these securities could be more difficult to sell. The Fund enters into standby commitments only with those dealers whose credit the investment adviser believes to be of high quality. NEW JERSEY 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 and maturity of the particular offering; the maturity of the obligations; and the rating of the issue. Further, any adverse economic conditions or developments affecting the State of New Jersey or its municipalities could impact the Fund's portfolio. 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 demand features for such securities, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. Investing in New Jersey municipal securities which meet the Fund's quality standards may not be possible if the State of New Jersey or its municipalities do not maintain their high quality, short-term credit ratings. In addition, certain New Jersey constitutional amendments, legislative measures, executive orders, administrative regulations, and voter initiatives could result in adverse consequences affecting New Jersey municipal securities. An expanded discussion of the current economic risks associated with the purchase of New Jersey municipal securities is contained in the Combined Statement of Additional Information. NON-DIVERSIFICATION The Fund is a non-diversified investment portfolio. As such, there is no limit on the percentage of assets which can be invested in any single issuer. An investment in the Fund, therefore, will entail greater risk than would exist in a diversified investment portfolio because the higher percentage of investments among fewer issuers may result in greater fluctuation in the total market value of the Fund's portfolio. Any economic, political, or regulatory developments affecting the value of the securities in the Fund's portfolio will have a greater impact on the total value of the portfolio than would be the case if the portfolio were diversified among more issuers. The Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that at the end of each quarter of the taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer; beyond that, no more than 25% of its total assets are invested in the securities of a single issuer. 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 above investment limitation cannot be changed without shareholder approval. The following investment limitation, however, can be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in this limitation becomes effective. The Fund will not invest more than 5% of its total assets in industrial development bonds or other municipal securities when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in this prospectus and its Combined 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, as amended. 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 INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF FEDERATED MUNICIPAL TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of Trustees is 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. The Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, 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, for which it receives an annual fee from the Fund. ADVISORY FEES. The Fund's adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. Under the advisory contract, which provides for the voluntary waiver of the advisory fee by the adviser, the adviser may voluntarily waive some or all of the advisory fee. This does not include reimbursement to the Fund of any expenses incurred by shareholders who use the transfer agent's subaccounting facilities. The adviser can terminate this voluntary waiver of expenses at any time at its sole discretion. The adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. 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. Total assets under management or administration by these and other subsidiaries of Federated Investors are approximately $70 billion. Federated Investors, which was founded in 1956 as Federated Investors, Inc., develops and manages mutual funds primarily for the financial industry. Federated Investors' track record of competitive performance and its disciplined, risk-averse investment philosophy serve approximately 3,500 client institutions nationwide. Through these same client institutions, individual shareholders also have access to this same level of investment expertise. 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. Pursuant to the provisions of a distribution plan adopted in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund will pay to the distributor an amount computed at an annual rate of 0.10% of the average daily net asset value of the Shares to finance any activity which is principally intended to result in the sale of the Shares subject to the Plan. The distributor may from time to time and for such periods as it deems appropriate, voluntarily reduce its compensation under the Plan to the extent the expenses attributable to the Shares exceed such lower expense limitation as the distributor may, by notice to the Trust, voluntarily declare to be effective. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers ("brokers") to provide sales and/or administrative services as agents for their clients or customers who beneficially own Shares. Administrative services may include, but are not limited to, the following functions: 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 regarding the Shares; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as the Fund reasonably requests for Shares. Financial institutions will receive fees from the distributor 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 distributor. The Fund's Plan is a compensation type plan. As such, the Fund makes no payments to the distributor in connection with the sale of Shares 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. 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 Board of Trustees will consider appropriate changes in the services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state law. ADMINISTRATIVE ARRANGEMENTS. In addition to the fees paid by the distributor to financial institutions under the Plan as described above, the distributor may also pay financial institutions a fee with respect to the average net asset value of Shares held by their customers for providing administrative services. The rate of such fee will be determined by the average net asset value of the shares held by their customers in the Cash Series class of the Trust and in Cash Trust Series, another registered investment company distributed by Federated Securities Corp. This fee is in addition to amounts paid under the Plan and, if paid, will be reimbursed by the adviser and not the Fund. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services, Inc., provides these at approximate cost. CUSTODIAN. _State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. _Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and dividend disbursing agent for the Fund. LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania. 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 adding the interest of the Shares in the value of all securities and other assets of the Fund, subtracting the interest of the Shares in the liabilities of the Fund and those attributable to Shares, and dividing the remainder by the total number of Shares outstanding. The Fund, of course, cannot guarantee that its net asset value will always remain at $1.00 per Share. INVESTING IN INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- SHARE PURCHASES Shares are sold on days on which the New York Stock Exchange and the Federal Reserve wire system are open for business. Shares may be purchased either by wire or by mail. The Fund reserves the right to reject any purchase request. To purchase Shares, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken over the telephone. BY WIRE. To purchase Shares by Federal Reserve wire, call 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 same day. Federal funds should be wired as follows: State Street Bank and Trust Company, Boston, Massachusetts; 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 days on which the New York Stock Exchange is closed and on federal holidays restricting wire transfers. BY MAIL. To purchase Shares by mail, send a check made payable to New Jersey Municipal Cash Trust-Institutional Service Shares to the Trust's transfer agent, Federated Services Company, c/o State Street Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are considered received when payment by check is converted by State Street Bank into federal funds. This is normally the next business day after State Street Bank receives the check. MINIMUM INVESTMENT REQUIRED The minimum initial investment in Shares is $25,000. However, an account may be opened with a smaller amount as long as the $25,000 minimum is reached within 90 days. An institutional investor's minimum investment will be calculated by combining all accounts it maintains with the Fund. Individual accounts established through a bank or broker may be subject to a different minimum investment requirement. WHAT SHARES COST Shares are sold at their net asset value next determined after an order is received. There is no sales charge imposed by the Fund. Investors who purchase Shares through a bank or broker may be charged an additional service fee by that bank or broker. The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m. (Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no Shares are tendered for redemption and no orders to purchase Shares are received; and (iii) the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. SUBACCOUNTING SERVICES Institutions are encouraged to open single master accounts. However, certain institutions may wish to use the transfer agent's subaccounting system to minimize their internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Financial institutions holding Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Shares. This prospectus should, therefore, be read together with any agreement between the customer and the financial institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Monthly confirmations are sent to report transactions such as purchases and redemptions as well as dividends paid during the month. DIVIDENDS Dividends are declared daily and paid monthly. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends on the day after the check is converted, upon instruction of the transfer agent, into federal funds. Dividends are automatically reinvested on payment dates in additional Shares unless cash payments are requested on an application or by contacting the Fund. CAPITAL GAINS Capital gains, if any, could result in an increase in dividends. Capital losses, if any, could result in a decrease in dividends. If, for some extraordinary reason, the Fund realizes net long-term or short-term capital gains, it will distribute them at least once every 12 months. REDEEMING INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares 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 by telephone request or by written request. TELEPHONE REDEMPTION Shareholders may redeem their Shares by telephoning the Fund. Redemption requests received before 12:00 noon (Eastern time) are not entitled to that day's dividend. A daily dividend will be paid on Shares redeemed if the redemption request is received after 12:00 noon (Eastern time). However, the proceeds are not wired until the following business day. If, at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders will be promptly notified. An authorization form permitting the Fund to accept redemption requests by telephone must first be completed. Authorization forms and information on this service are available from Federated Securities Corp. Telephone redemption instructions may be recorded. 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, shareholders may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption, such as Written Requests, should be considered. WRITTEN REQUESTS Shares may also be redeemed by sending a written request to the Fund. Call the Fund for specific instructions before redeeming by letter. The shareholder will be asked to provide in the request his name, the Fund name and class of shares, his account number, and the Share or dollar amount requested. If Share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, 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 signatures on written redemption requests guaranteed by: a trust company or commercial bank whose deposits are insured by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance Corporation ("FDIC"); a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; a savings bank or savings and loan association whose deposits are insured by the Savings Association Insurance Fund ("SAIF"), which is administered by the FDIC; 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. The Fund and its transfer agent have 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 and its transfer agent reserve the right to amend these standards at any time without notice. RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. CHECKWRITING. _At the shareholder's request, State Street Bank will establish a checking account for redeeming Shares. For further information, contact Federated Securities Corp. A fee may be charged for this service. With a Fund checking account, Shares may be redeemed simply by writing a check. The redemption will be made at the net asset value on the date that State Street Bank presents the check to the Fund. A check may not be written to close an account. If a shareholder wishes to redeem Shares and have the proceeds available, a check may be written and negotiated through the shareholder's bank. Checks should never be sent to State Street Bank to redeem Shares. Cancelled checks are returned to the shareholder each month. REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR When Shares are purchased by check, the proceeds from the redemption of those Shares are not available, and the Shares may not be exchanged, until the Fund or its agents are reasonably certain that the purchase check has cleared, which could take up to ten calendar days. 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. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only shares of that Fund or class are entitled to vote. As of November 29, 1993, Fiduciary Trust Company International, New York, New York, owned 36.87% of the voting securities of the Institutional Service Shares of the Fund, and, therefore, may, for certain purposes, be deemed to control the Institutional Service Shares of the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. As a Massachusetts business trust, 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 for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of all series of the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders of the Fund, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such 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 of the Fund is held personally liable for the Trust's obligations, the Trust is required 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 cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. 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 some municipal bonds may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The alternative minimum tax, equal to up to 28% of alternative minimum taxable income for individuals and 20% for corporations, 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. The Tax Reform Act of 1986 treats interest on certain "private activity" bonds issued after August 7, 1986, as a tax preference item for both individuals and corporations. Unlike traditional governmental purpose municipal bonds, which finance roads, schools, libraries, prisons and other public facilities, private activity bonds provide benefits to private parties. The Fund may purchase all types of municipal bonds, including private activity bonds. Thus, should it purchase any such bonds, a portion of the Fund's dividends may be treated as a tax preference item. In addition, in the case of a corporate shareholder, dividends of the Fund which represent interest on municipal bonds may be subject to the 20% corporate alternative minimum tax because the dividends are included in a corporation's "adjusted current earnings." The corporate alternative minimum tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's alternative minimum taxable income as a tax preference item. "Adjusted current earnings" is based upon the concept of a corporation's "earnings and profits." Since "earnings and profits" generally includes the full amount of any Fund dividend, and alternative minimum taxable income does not include the portion of the Fund's dividend attributable to municipal bonds which are not private activity bonds, 75% of the difference will be included in the calculation of the corporation's alternative minimum 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. Information on the tax status of dividends and distributions is provided annually. NEW JERSEY TAX CONSIDERATIONS Under existing New Jersey law, distributions made by the Fund will not be subject to New Jersey income tax to the extent that such distributions qualify as exempt interest dividends under the Internal Revenue Code, and are attributable to interest or gain derived by the Fund from (i) 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) 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 not be exempt from New Jersey income tax. 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 STATE AND LOCAL TAXES Income from the Fund is not necessarily free from regular state income taxes in states other than New Jersey or from personal property taxes. State laws differ on this issue and 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 the Fund advertises its yield, effective yield, and tax-equivalent yield for Institutional Service Shares. The yield of Institutional Service Shares represents the annualized rate of income earned on an investment in Institutional Service Shares 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 in Institutional Service Shares 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 of Institutional Service Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the Institutional Service Shares would have had to earn to equal their actual yield, assuming a specific tax rate. Advertisements and other sales literature may also refer to total return. Total return represents the change, over a specified period of time, in the value of an investment in Institutional Service 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, and tax-equivalent yield will be calculated separately for Institutional Service Shares and Institutional Shares. Because Institutional Service Shares are subject to 12b-1 fees, the yield, the effective yield, and the tax-equivalent yield for Institutional Shares will exceed the yield, the effective yield, and the tax-equivalent yield for Institutional Service Shares for the same period. From time to time, the Fund may advertise the performance of Institutional Service Shares using certain reporting services and/or compare the performance of Institutional Service Shares to certain indices. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- Institutional Shares are sold to accounts for which financial institutions act in a fiduciary capacity. Institutional Shares are sold at net asset value. Investments in Institutional Shares are also subject to a minimum initial investment of $25,000. Institutional Shares are distributed without a 12b-1 Plan. Financial institutions and brokers providing sales and/or administrative services may receive different compensation from one class of shares of the Fund than from another class of shares depending upon which class of shares of the Fund is sold. While the distributor may, in addition to fees paid pursuant to the 12b-1 Plan, pay an administrative fee to a financial institution or broker for administrative services provided to the Institutional Service Shares class, such a fee will not be an expense of the class but will be reimbursed to the distributor by the investment adviser. Administrative fees are not paid in conjunction with Institutional Shares. The difference between class expenses and distribution expenses borne by shares of each respective class will cause the amount of dividends payable to a particular class of shares to exceed the amount of dividends payable to another class of shares whose distribution expenses are greater. Thus, because Institutional Shares are not subject to a 12b-1 fee, the Institutional Shares' dividends will exceed the dividends paid by the Institutional Service Shares. The stated advisory fee is the same for all classes of shares. 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 34.
YEAR ENDED OCTOBER 31, 1993 1992 1991* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ---------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ---------------------------------------------------------------------------------- Net investment income 0.02 0.03 0.04 - ---------------------------------------------------------------------------------- --------- --------- --------- LESS DISTRIBUTIONS - ---------------------------------------------------------------------------------- Dividends to shareholders from net investment income (0.02) (0.03) (0.04) - ---------------------------------------------------------------------------------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 - ---------------------------------------------------------------------------------- --------- --------- --------- TOTAL RETURN** 2.22% 2.96% 3.87%(a) - ---------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------------------------------------------------------- Expenses 0.46% 0.45% 0.27%(b) - ---------------------------------------------------------------------------------- Net investment income 2.19% 2.86% 4.19%(b) - ---------------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.45% 0.51% 0.67%(b) - ---------------------------------------------------------------------------------- SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $66,346 $57,657 $39,423 - ----------------------------------------------------------------------------------
* Reflects operations for the period from December 13, 1990 (date of initial public investment) to October 31, 1991. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1993 - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ------------- --------------------------------------------------------------------- ----------- -------------- SHORT-TERM MUNICIPAL SECURITIES--100.8% - ------------------------------------------------------------------------------------ NEW JERSEY--100.8% --------------------------------------------------------------------- $ 864,600 Allendale, NJ, 2.93% BANs, 1/13/94 NR(3) $ 864,734 --------------------------------------------------------------------- 2,000,000 Atlantic County, NJ, Improvement Authority Weekly VRDNs (Marine Midland Bank N.A. LOC) VMIG2 2,000,000 --------------------------------------------------------------------- 1,000,000 Camden County, NJ, 2.75% BANs, 2/23/94 MIG1 1,000,915 --------------------------------------------------------------------- 1,500,000 Camden County, NJ, 3.25% BANs (Series 1993C), 2/23/94 MIG1 1,502,275 --------------------------------------------------------------------- 3,500,000 Evesham Township, NJ, 2.70% BANs, 3/9/94 NR(3) 3,501,024 --------------------------------------------------------------------- 828,043 Fairfield Township, NJ, 2.90% BANs, 12/17/93 NR(2) 828,193 --------------------------------------------------------------------- 3,000,000 Hudson County, NJ, 3.325% TANs, 2/17/94 NR(4) 3,004,574 --------------------------------------------------------------------- 4,900,000 Hudson County, NJ, Improvement Authority Solid Waste Recovery Weekly VRDNs (Sumitomo Bank, Ltd. LOC)/ (Subject to AMT) A-1+ 4,900,000 --------------------------------------------------------------------- 1,813,245 Lavallette Borough, NJ, 3.25% BANs, 5/6/94 NR 1,815,472 --------------------------------------------------------------------- 2,000,000 Lindewold Borough, NJ, 2.95% TANs, 2/28/94 NR(4) 2,000,311 --------------------------------------------------------------------- 900,000 Mercer County, NJ, Improvement Authority Weekly VRDNs (Credit Suisse LOC) A-1+ 900,000 --------------------------------------------------------------------- 593,750 Middle Township, NJ, 2.97% BANs, 6/15/94 NR(3) 594,524 --------------------------------------------------------------------- 1,500,000 Middlesex County, NJ, Pollution Control Finance Authority Weekly VRDNs (FMC Corporation)/(Wachovia Bank & Trust Co. N.A. LOC) P-1 1,500,000 --------------------------------------------------------------------- 1,500,000 Montvale, NJ, 3.20% TANs, 1/19/94 NR(3) 1,501,104 --------------------------------------------------------------------- 2,000,000 Morristown, NJ, 3.125% BANs, 10/13/94 NR(3) 2,006,901 --------------------------------------------------------------------- 1,400,000 New Jersey EDA Weekly VRDNs (Edison Associates)/(Ford Motor Credit BPA)/(Dai-Ichi Kangyo Bank, Ltd., LOC) P-1 1,400,000 ---------------------------------------------------------------------
NEW JERSEY MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ------------- --------------------------------------------------------------------- ----------- -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------------ NEW JERSEY--CONTINUED --------------------------------------------------------------------- $ 2,500,000 New Jersey EDA Weekly VRDNs (Franciscan Oaks)/(Bank of Scotland LOC) A-1+ $ 2,500,000 --------------------------------------------------------------------- 5,763,000 New Jersey EDA Weekly VRDNs (Meridian Healthcare)/ (First National Bank of Maryland LOC)/(Subject to AMT) P-1 5,763,000 --------------------------------------------------------------------- 4,473,000 New Jersey EDA Weekly VRDNs (Mulins Machines)/ (Sovran Bank N.A. LOC) P-1 4,473,000 --------------------------------------------------------------------- 1,695,000 New Jersey EDA Weekly VRDNs (Nash Group)/(Chemical Bank LOC)/(Subject to AMT) A-1 1,695,000 --------------------------------------------------------------------- 350,000 New Jersey EDA Weekly VRDNs (Series 1987G)/(W.Y. Urban Renewal)/(National Westminster Bank PLC LOC)/ (Subject to AMT) VMIG1 350,000 --------------------------------------------------------------------- 2,550,000 New Jersey EDA Weekly VRDNs (Series 1988F)/(Lamington Corners Assoc.)/(First Fidelity Bank LOC)/ (Subject to AMT) VMIG1 2,550,000 --------------------------------------------------------------------- 1,800,000 New Jersey EDA Weekly VRDNs (Series 1988B)/(Hyland Industrial Associates)/(First Fidelity Bank LOC) VMIG1 1,800,000 --------------------------------------------------------------------- 1,430,000 New Jersey EDA Weekly VRDNs (Series 1992Q)/(Physical Acoustics Inc.)/(Banque Nationale de Paris LOC)/ (Subject to AMT) VMIG1 1,430,000 --------------------------------------------------------------------- 1,425,000 New Jersey EDA Weekly VRDNs (Series 1992Z)/(West-Ward Pharmaceuticals)/(Banque Nationale de Paris LOC)/ (Subject to AMT) VMIG1 1,425,000 --------------------------------------------------------------------- 1,150,000 New Jersey EDA Weekly VRDNs (Series 1992D-1)/(Danlin Corp.)/(Banque Nationale de Paris LOC)/(Subject to AMT) VMIG1 1,150,000 --------------------------------------------------------------------- 2,645,000 New Jersey EDA Weekly VRDNs (Series 1992I-1)/(Geshem Realty)/(Banque Nationale de Paris LOC)/(Subject to AMT) VMIG1 2,645,000 ---------------------------------------------------------------------
NEW JERSEY MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ------------- --------------------------------------------------------------------- ----------- -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------------ NEW JERSEY--CONTINUED --------------------------------------------------------------------- $ 900,000 New Jersey EDA Weekly VRDNs (Stewart Graphics Urban Renewal Associates)/(First Fidelity Bank LOC)/ (Subject to AMT) VMIG1 $ 900,000 --------------------------------------------------------------------- 4,050,000 New Jersey EDA Weekly VRDNs (YM-MWHA of Bergen County)/(Core States Capital Corp. LOC) VMIG1 4,050,000 --------------------------------------------------------------------- 1,250,000 New Jersey EDA, 2.875% BANs (Series 1993A)/(Middlesex Water Co.), 12/1/93 NR(3) 1,250,000 --------------------------------------------------------------------- 1,400,000 New Jersey Health Care Facilities Financing Authority, 2.90% SB (Series D)/(Chilton Memorial Hospital), 7/1/94 NR(3) 1,400,000 --------------------------------------------------------------------- 1,000,000 New Jersey Turnpike Authority Weekly VRDNs (Series 1991D)/(FGIC Insured) A-1+ 1,000,000 --------------------------------------------------------------------- 760,000 Palisades Park, NJ, 2.75% BANs, 5/24/94 NR(3) 760,515 --------------------------------------------------------------------- 2,500,000 Pemberton Township, NJ, 3.15% TANs, 2/28/94 NR(4) 2,501,575 --------------------------------------------------------------------- 2,000,000 Port Authority of New York and New Jersey Special Project Bonds Weekly VRDNs (Series 3)/(KIAC Partners)/(Deutsche Bank AG LOC)/(Subject to AMT) A-1+ 2,000,000 --------------------------------------------------------------------- 9,000,000 Port Authority of New York and New Jersey Weekly VRDNs (Series 1991-4)/(Subject to AMT) P-1 9,000,000 --------------------------------------------------------------------- 738,600 Runnemede, NJ, 2.84% BANs, 3/25/94 NR(4) 738,853 --------------------------------------------------------------------- 1,045,000 Sparta Township, NJ, 3.14% BANs, 11/5/93 NR(3) 1,045,012 --------------------------------------------------------------------- 1,025,000 Wall Township, NJ, 3.07% BANs, 1/13/94 NR(3) 1,025,338 --------------------------------------------------------------------- 1,665,800 West Milford Township, NJ, 3.28% BANs, 1/28/94 NR(3) 1,666,501 --------------------------------------------------------------------- 1,409,450 Winslow Township, NJ, 2.78% BANs, 6/17/94 NR(3) 1,410,562 --------------------------------------------------------------------- 2,000,000 Woodbury, NJ, 2.99% BANs, 4/15/94 NR 2,002,140 --------------------------------------------------------------------- 1,209,000 Woodbury, NJ, 3.75% BANs, 3/4/94 NR 1,212,957 ---------------------------------------------------------------------
NEW JERSEY MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ------------- --------------------------------------------------------------------- ----------- -------------- SHORT-TERM MUNICIPAL SECURITIES--CONTINUED - ------------------------------------------------------------------------------------ NEW JERSEY--CONTINUED --------------------------------------------------------------------- $ 1,000,000 Woodcliffe Lake, NJ, 2.83% BANs, 6/10/94 NR(3) $ 1,000,764 --------------------------------------------------------------------- -------------- TOTAL INVESTMENTS (AT AMORTIZED COST) $ 88,065,244\ --------------------------------------------------------------------- --------------
* See Notes to Portfolio of Investments. \ Also represents cost for federal tax purposes. The following abbreviations are used in this portfolio: AMT--Alternative Minimum Tax BANs--Bond Anticipation Notes BPA--Bond Purchase Agreement EDA--Economic Development Authority FGIC--Financial Guaranty Insurance Group LOC--Letter of Credit SB--Serial Bond TANs--Tax Anticipation Notes VRDNs--Variable Rate Demand Notes Note: The categories of investments are shown as a percentage of net assets ($87,351,092) at October 31, 1993. (See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST NOTES TO PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL OBLIGATION RATINGS S&P A Standard & Poor's 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 (+) designation. SP-2 Satisfactory capacity to pay principal and interest. MOODY'S 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. FITCH Fitch's short-term ratings place greater emphasis on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. F-1_ Strongest degree of assurance for timely payment. Those issues determined to provide exceptionally strong credit quality are given a plus (+) designation. F-2_ Notes reflecting a degree of assurance for timely payment only slightly less in degree than the highest category. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P Standard & Poor's 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-1+, AA/A-1+, and A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) MOODY'S 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. FITCH Fitch usually assigns two ratings to long-term debt issues that include provisions for a variable rate demand feature. The long-term rating addresses the ability of the obligor to pay debt service and the short-term rating addresses the timely payment of the demand feature. Examples of rating designation are as follows: AAA/F-1+, AA/F-1+, and A/F-1. (The definitions for the long-term and short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS S&P A Standard & Poor's 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 designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) designation. A-2 Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated "A-1." MOODY'S P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. The following is an explanation of the Fitch ratings. These ratings are not referenced in the Portfolio of Investments. FITCH F-1 Issues assigned this rating reflect a strong degree of assurance for timely payment. Those issuers determined to possess the strongest degree of assurance for timely payment are denoted with a plus (+) sign designation. F-2 Issuers carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as the "F-1+" and "F-1" categories. LONG-TERM DEBT RATINGS (INVESTMENT GRADE) S&P AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A Debt rated "A" has a strong capacity to pay interest and principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest than debt rated in higher ratings categories. MOODY'S Aaa Bonds that 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 edge." Interest payments are protected by a large margin and principal is secure. While the various protective elements are likely to change, such changes which can be foreseen are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds that 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 that 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 that suggest a susceptibility to impairment some time in the future. Baa Bonds which are rated BAA are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. FITCH AAA Bonds that are rated AAA are of the highest credit quality. The obligor has an exceptionally strong ability to pay debt service. AA Bonds that are rated AA are of very high quality. The obligor has a very strong ability to pay debt service. Debt rated in this category may also have a (+) or (-) sign with a rating to indicate the relative position within the rating category. A Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. NR indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P, Moody's, or Fitch with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated in one of the two highest short-term ratings categories by a nationally recognized statistical rating organization. NR(1) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by Fitch. NR(2) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch. NR(3) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "A" by Standard & Poor's, Moody's, or Fitch. NR(4) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by Fitch. NEW JERSEY MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1993 - -------------------------------------------------------------------------------- ASSETS: - -------------------------------------------------------------------------------------------------- Investments, at amortized cost and value (Note 2A) $ 88,065,244 - -------------------------------------------------------------------------------------------------- Cash 207,279 - -------------------------------------------------------------------------------------------------- Interest receivable 616,717 - -------------------------------------------------------------------------------------------------- Deferred expenses (Note 2E) 21,922 - -------------------------------------------------------------------------------------------------- -------------- Total assets 88,911,162 - -------------------------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------------------------------------- Payable for investments purchased $ 1,402,143 - ----------------------------------------------------------------------------------- Dividends payable 128,480 - ----------------------------------------------------------------------------------- Payable for Fund shares redeemed 1,778 - ----------------------------------------------------------------------------------- Accrued expenses and other liabilities 27,669 - ----------------------------------------------------------------------------------- ------------- Total liabilities 1,560,070 - -------------------------------------------------------------------------------------------------- -------------- NET ASSETS for 87,351,092 shares of beneficial interest outstanding $ 87,351,092 - -------------------------------------------------------------------------------------------------- -------------- NET ASSET VALUE, Offering Price, and Redemption Price Per Share: - -------------------------------------------------------------------------------------------------- Institutional Shares ($66,345,642 / 66,345,642 shares of beneficial interest outstanding) $1.00 - -------------------------------------------------------------------------------------------------- -------------- Institutional Service Shares ($21,005,450 / 21,005,450 shares of beneficial interest 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, 1993 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------------------------- Interest income (Note 2B) $ 2,670,057 - --------------------------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------------------------- Investment advisory fee (Note 5) $ 404,029 - -------------------------------------------------------------------------------------- Administrative personnel and services fees (Note 5) 292,432 - -------------------------------------------------------------------------------------- Custodian, transfer and dividend disbursing agent fees and expenses 111,903 - -------------------------------------------------------------------------------------- Trustees' fees 2,746 - -------------------------------------------------------------------------------------- Auditing fees 17,815 - -------------------------------------------------------------------------------------- Legal fees 12,207 - -------------------------------------------------------------------------------------- Printing and postage 20,163 - -------------------------------------------------------------------------------------- Fund share registration costs 39,181 - -------------------------------------------------------------------------------------- Distribution services fees (Note 5) 56,220 - -------------------------------------------------------------------------------------- Insurance premiums 6,607 - -------------------------------------------------------------------------------------- Taxes 2,213 - -------------------------------------------------------------------------------------- Miscellaneous 7,106 - -------------------------------------------------------------------------------------- ----------- Total expenses 972,622 - -------------------------------------------------------------------------------------- Deduct-- - -------------------------------------------------------------------------------------- Waiver of investment advisory fee (Note 5) $ 404,029 - ------------------------------------------------------------------------- Reimbursement of other operating expenses (Note 5) 51,345 - ------------------------------------------------------------------------- Waiver of distribution services fees (Note 5) 4,206 459,580 - ------------------------------------------------------------------------- ----------- ----------- Net expenses 513,042 - --------------------------------------------------------------------------------------------------- ------------- Net investment income $ 2,157,015 - --------------------------------------------------------------------------------------------------- -------------
(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, 1993 1992 INCREASE (DECREASE) IN NET ASSETS: - ----------------------------------------------------------------------------- OPERATIONS-- - ----------------------------------------------------------------------------- Net investment income $ 2,157,015 $ 2,422,424 - ----------------------------------------------------------------------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - ----------------------------------------------------------------------------- Dividends to shareholders from net investment income: - ----------------------------------------------------------------------------- Institutional Shares (1,458,805) (1,595,419) - ----------------------------------------------------------------------------- Institutional Service Shares (602,534) (706,680) - ----------------------------------------------------------------------------- Cash Series Shares (95,676) (120,325) - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets from distributions to shareholders (2,157,015) (2,422,424) - ----------------------------------------------------------------------------- ---------------- ---------------- FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - ----------------------------------------------------------------------------- Proceeds from sale of shares 344,229,882 257,860,604 - ----------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of dividends declared 213,366 200,781 - ----------------------------------------------------------------------------- Cost of shares redeemed (346,170,580) (232,804,903) - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets from Fund share transactions (1,727,332) 25,256,482 - ----------------------------------------------------------------------------- ---------------- ---------------- Change in net assets (1,727,332) 25,256,482 - ----------------------------------------------------------------------------- NET ASSETS: - ----------------------------------------------------------------------------- Beginning of period 89,078,424 63,821,942 - ----------------------------------------------------------------------------- ---------------- ---------------- End of period $ 87,351,092 $ 89,078,424 - ----------------------------------------------------------------------------- ---------------- ----------------
(See Notes which are an integral part of the Financial Statements) NEW JERSEY MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1993 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company with several 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. Effective October 6, 1993, the Fund provided two classes of shares ("Institutional Service Shares" and "Institutional Shares"). Institutional Service Shares are identical in all respects to Institutional Shares except that Institutional Service Shares are sold pursuant to a distribution plan ("Plan") adopted in accordance with Investment Company Act Rule 12b-1. Prior to October 6, 1993, the Fund offered a third class of shares ("Cash Series Shares"). Cash Series Shares were identical in all respects to Institutional Shares except that Cash Series Shares, like Institutional Service Shares, were sold pursuant to a distribution plan ("Plan") adopted in accordance with Investment Company Act Rule 12b-1. (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. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that the best method currently available for valuing portfolio securities is amortized cost. The Fund's use of the amortized cost method to value its portfolio securities is conditioned on its compliance with Rule 2a-7 under the Investment Company Act of 1940. Since the Fund may invest 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 general tax-exempt mutual fund. In order to reduce the risk associated with such factors, at October 31, 1993, 50.5% 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 aggregate percentages by financial institution ranged from 0.4% to 7.6% of total investments. B. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest earned net of premium, and original issue discount as required by the Internal Revenue Code (the "Code"). C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal Revenue Code applicable to investment companies and to distribute to shareholders each year all of its net income. Accordingly, no provision for federal tax is necessary. Dividends paid by the Fund not representing net interest received on tax-exempt municipal securities are includable by shareholders as gross income for federal income tax purposes because the Fund intends to meet certain requirements of the Code applicable to regulated investment companies which will enable the Fund to pay exempt-interest dividends. The portion of such interest, if any, earned on private activity bonds issued after August 7, 1986 may be considered a tax preference item to shareholders for the purpose of computing the alternative minimum tax. D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objective and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain 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. E. 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 the shares, have been deferred and are being amortized using the straight-line method through December, 1995. F. EXPENSES--Expenses of the Fund (other than distribution services fees) and waivers and reimbursements, if any, are allocated to each class of shares based on its relative daily average net assets for the period. Expenses incurred by the Trust which do not specifically relate to an individual fund are allocated among all funds based on a fund's relative net asset value size or as deemed appropriate by the administrator. G. OTHER--Investment transactions are accounted for on the date of the transaction. (3) DIVIDENDS The Fund computes its net income daily and, immediately prior to the calculation of its net asset value at the close of business, declares and records dividends to shareholders of record at the time of the previous computation of the Fund's net asset value. Payment of dividends is made monthly in cash, or in additional shares at the net asset value on the payable date. (4) 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, 1993, capital paid-in aggregated $87,351,092. Transactions in Fund shares were as follows:
YEAR ENDED OCTOBER 31, INSTITUTIONAL SHARES 1993 1992 Shares outstanding, beginning of period 57,657,084 39,423,429 - -------------------------------------------------------------------------------- Shares sold 184,549,947 136,820,582 - -------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 2,221 3,244 - -------------------------------------------------------------------------------- Shares redeemed (175,863,610) (118,590,171) - -------------------------------------------------------------------------------- --------------- --------------- Shares outstanding, end of period 66,345,642 57,657,084 - -------------------------------------------------------------------------------- --------------- --------------- INSTITUTIONAL SERVICE SHARES Shares outstanding, beginning of period 26,843,665 17,709,241 - -------------------------------------------------------------------------------- Shares sold 141,401,508 114,462,133 - -------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 134,265 105,233 - -------------------------------------------------------------------------------- Shares redeemed (147,373,988) (105,432,942) - -------------------------------------------------------------------------------- --------------- --------------- Shares outstanding, end of period 21,005,450 26,843,665 - -------------------------------------------------------------------------------- --------------- --------------- CASH SERIES SHARES Shares outstanding, beginning of period 4,577,675 6,689,272 - -------------------------------------------------------------------------------- Shares sold 18,278,427 6,577,889 - -------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 76,880 92,304 - -------------------------------------------------------------------------------- Shares redeemed (22,932,982) (8,781,790) - -------------------------------------------------------------------------------- --------------- --------------- Shares outstanding, end of period -- 4,577,675 - -------------------------------------------------------------------------------- --------------- ---------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Federated Management, the Fund's investment adviser ("Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. Adviser has voluntarily agreed to waive all or a portion of its fee. The Adviser can terminate this voluntary waiver of expenses at any time at its sole discretion. For the fiscal year ended October 31, 1993, the Adviser earned $404,029, all of which was voluntarily waived. In addition, Adviser voluntarily reimbursed $51,345 of the Fund's normal operating expenses. Organizational expenses ($61,531) and start-up administrative services expenses ($16,639) were borne initially by the Adviser. The Fund has agreed to pay the Adviser, at an annual rate .005 of 1% of average daily net assets, until the expenses borne by the Adviser are reimbursed, or the expiration of five years after December 10, 1990, the date the Trust's portfolio became effective, whichever occurs earlier. During the fiscal year ended October 31, 1993, the Fund paid Adviser $5,065 and $8,128, respectively, pursuant to this agreement. During the fiscal year ended October 31, 1993, the Fund engaged in purchase and sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7 of the Investment Company Act of 1940 amounting to $139,875,000 and $151,274,752, respectively. These purchases and sales were conducted on an arms-length basis insofar as they were transacted for cash consideration only, at independent current market prices and without brokerage commission, fee or other remuneration. The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Trust will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the assets of the Fund, for fees it paid which relate to the distribution and administration of the Fund's Institutional Service Shares and Cash Series Shares. The Plan provides that the Fund may incur distribution expenses up to .10 of 1% of the average daily net assets of the Institutional Service Shares and .50 of 1% of the average daily net assets of the Cash Series Shares, annually, to pay commissions, maintenance fees and to compensate the distributor. During the fiscal year ended October 31, 1993, FSC earned $29,018 in distribution services fees for Institutional Service Shares and $27,202 for Cash Series Shares of which $4,206 was voluntarily waived. Administrative personnel and services were provided at approximate cost by Federated Administrative Services, Inc. Certain Officers and Trustees of the Trust are Officers and Directors of the above corporations. (6) CURRENT CREDIT RATINGS Current credit ratings and related notes are unaudited. 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 investments, as of October 31, 1993, the related statement of operations for the year then ended, and the statement of changes in net assets, and financial highlights (see pages 2 and 18) 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 the securities owned as of October 31, 1993, 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 Jersey Municipal Cash Trust, an investment portfolio of Federated Municipal Trust, as of October 31, 1993, the results of its operations for the year then ended, and the changes in its net assets and financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN & CO. Pittsburgh, Pennsylvania December 13, 1993 ADDRESSES - -------------------------------------------------------------------------------- New Jersey Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8602 Trust Company Boston, Massachusetts 02266-8602 - --------------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, D.C. 20037 - --------------------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen & Co. 2100 One PPG Place Pittsburgh, Pennsylvania 15222 - ---------------------------------------------------------------------------------------------------------------------
NEW JERSEY MUNICIPAL CASH TRUST INSTITUTIONAL SERVICE SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company December 31, 1993 [LOGO] FEDERATED SECURITIES COPR. -------------------------- DISTRIBUTOR A SUBSIDIARY OF FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 0100802A-IS (12/93) NEW JERSEY MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES INSTITUTIONAL SERVICE SHARES COMBINED STATEMENT OF ADDITIONAL INFORMATION This Combined Statement of Additional Information should be read with the respective prospectus for Institutional Shares and Institutional Service Shares of New Jersey Municipal Cash Trust (the "Fund") dated December 31, 1993. This Statement is not a prospectus itself. To receive a copy of either prospectus, write or call Federated Municipal Trust. FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 Statement dated December 31, 1993 [LOGO] FEDERATED SECURITIES CORP. -------------------------- Distributor A subsidiary of FEDERATED INVESTORS TABLE OF CONTENTS - -------------------------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND 1 - --------------------------------------------------------------- INVESTMENT OBJECTIVE AND POLICIES 1 - --------------------------------------------------------------- Acceptable Investments 1 When-Issued and Delayed Delivery Transactions 1 Temporary Investments 2 Reverse Repurchase Agreements 2 Investment Limitations 2 New Jersey Investment Risks 4 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 - --------------------------------------------------------------- Officers and Trustees 5 The Funds 7 Fund Ownership 8 Trustee Liability 8 INVESTMENT ADVISORY SERVICES 8 - --------------------------------------------------------------- Adviser to the Fund 8 Advisory Fees 8 ADMINISTRATIVE SERVICES 9 - --------------------------------------------------------------- BROKERAGE TRANSACTIONS 9 - --------------------------------------------------------------- PURCHASING SHARES 9 - --------------------------------------------------------------- Distribution Plan (Institutional Service Shares Only) 9 Conversion to Federal Funds 10 DETERMINING NET ASSET VALUE 10 - --------------------------------------------------------------- Use of the Amortized Cost Method 10 REDEEMING SHARES 11 - --------------------------------------------------------------- Redemption in Kind 11 TAX STATUS 11 - --------------------------------------------------------------- The Fund's Tax Status 11 YIELD 11 - --------------------------------------------------------------- EFFECTIVE YIELD 12 - --------------------------------------------------------------- TAX-EQUIVALENT YIELD 12 - --------------------------------------------------------------- Tax-Equivalency Table 12 PERFORMANCE COMPARISONS 14 - --------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND - -------------------------------------------------------------------------------- The Fund is a portfolio in Federated Municipal Trust (the "Trust"), which was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. Shares of the Fund are offered in two classes, known as Institutional Shares and Institutional Service Shares (individually and collectively referred to as "Shares"). This Combined Statement of Additional Information relates to the above-mentioned Shares of the Fund. INVESTMENT OBJECTIVE AND POLICIES - -------------------------------------------------------------------------------- The Fund's investment objective is to provide current income exempt from federal regular income tax and the New Jersey state income tax imposed upon non-corporate taxpayers consistent with stability of principal. The investment objective cannot be changed without approval of shareholders. ACCEPTABLE INVESTMENTS The Fund invests primarily in debt obligations issued by or on behalf of New Jersey and 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 both federal regular income tax and New Jersey state income tax imposed upon non-corporate taxpayers. When determining whether a New Jersey municipal security presents minimal credit risks, the investment adviser considers the creditworthiness of the issuer of the security, the issuer of a demand feature if the Fund has the unconditional right to demand payment for the security, or the guarantor of payment by either of those issuers. If a security loses its rating or the security's rating is reduced below the required minimum after the Fund purchased it, the Fund is not required to sell the security. The investment adviser considers this event, however, in its determination of whether the Fund should continue to hold the security in its portfolio. If ratings made by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") change because of changes in those organizations or in their rating systems, the Fund will try to use comparable ratings as standards in accordance with the investment policies described in the Fund's prospectuses. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests which represent undivided proportional interests in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure the payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. In particular, lease obligations may be subject to periodic appropriation. If the entity does not appropriate funds for future lease payments, the entity cannot be compelled to make such payments. 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. Under the criteria currently established by the Board of Trustees ("Trustees"), the Fund's investment adviser must consider the following factors in determining the liquidity of municipal lease securities: (1) the frequency of trades and quotes for the security; (2) the volatility of quotations and trade prices for the security; (3) the number of dealers willing to purchase or sell the security and the number of potential purchasers; (4) dealer undertakings to make a market in the security; (5) the nature of the security and the nature of the marketplace trades; (6) the rating of the security and the financial condition and prospects of the issuer of the security; (7) such other factors as may be relevant to the Fund's ability to dispose of the security; (8) whether the lease can be terminated by the lessee; (9) the potential recovery, if any, from a sale of the leased property upon termination of the lease; (10) the lessee's general credit strength; (11) the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations; and (12) any credit enhancement or legal recourse provided upon an event of nonappropriation or other termination of the lease. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The Fund engages in when-issued and delayed delivery transactions only for the purpose of acquiring portfolio securities consistent with the Fund's investment objective and policies, not for investment leverage. These transactions are made to secure what is considered to be an advantageous price and yield for the Fund. 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. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. The Fund may engage in these transactions to an extent that would cause the segregation of an amount up to 20% of the total value of its assets. TEMPORARY INVESTMENTS The Fund may also invest in high quality temporary investments during times of unusual market conditions for defensive purposes and to maintain liquidity. REPURCHASE AGREEMENTS Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities or other securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price within one year from the date of acquisition. 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 investment adviser to be creditworthy pursuant to guidelines established by the Trustees. From time to time, such as when suitable New Jersey municipal securities are not available, the Fund may maintain a portion of its assets in cash. Any portion of the Fund's assets maintained in cash will reduce the amount of assets in New Jersey municipal securities and thereby reduce the Fund's yield. REVERSE REPURCHASE AGREEMENTS The Fund may enter into reverse repurchase agreements. This transaction is similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument to another person, such as a financial institution, broker, or dealer, 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 the ability to enter into reverse repurchase agreements does not ensure that the Fund will be able to avoid selling portfolio instruments at a disadvantageous time. When effecting reverse repurchase agreements, liquid assets of the Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. During the period any reverse repurchase agreements are outstanding, but only to the extent necessary to assure completion of the reverse repurchase agreements, the Fund will restrict the purchase of portfolio instruments to money market instruments maturing on or before the expiration date on the reverse repurchase agreement. 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 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 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 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 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, including the District of Columbia, 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 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 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. 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 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. 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. 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. 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 (including instruments issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment), 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 Fund does not consider the issuance of separate classes of shares to involve the issuance of "senior securities" within the meaning of the investment limitation set forth above. 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 IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in industrial development bonds or other municipal securities where the principal and interest are the responsibility of companies (or guarantors, where applicable) with 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 the Fund's investment adviser, owning individually more than 1/2 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. DEALING IN PUTS AND CALLS The Fund will not purchase or sell 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 MINERALS The Fund will not purchase or sell oil, gas, or other mineral exploration or development programs, or leases. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in securities which are illiquid, including repurchase agreements providing for settlement in more than seven days after notice, certain restricted securities not determined by the Trustees to be liquid, and non-negotiable fixed time deposits with maturities over seven days. 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 does not expect to borrow money or pledge securities in excess of 5% of the value of its net assets during the coming fiscal year. 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 State has experienced severe financial strain as a result of the recent recession. The State's revenues fell and expenditures rose while the economy contracted. These events lead to the shrinkage of New Jersey's once sizable budget surpluses and lead to operating deficits from 1989 through 1992. The State used non-recurring measures to balance its budgets during this lean time, and in 1993 ended with an $855 million surplus. To maintain this type of surplus, the State is relying on an improving economic forecast that may be unlikely under present circumstances. Therefore, financial improvement remains uncertain. The New Jersey economy is well diversified. With its location between New York City and Philadelphia and a vast transportation network, the State is home to many corporate headquarters, as well as manufacturing facilities. The State also has a large tourism industry with Atlantic City and the Atlantic coast providing much of the draw. However, unemployment in New Jersey over the past two years has exceeded the national average as New Jersey and the Northeast lead the country into the recent recession. In addition, population growth has been modest. The overall condition of the State is further demonstrated by its debt ratings. Until recently, Moody's rated New Jersey AAA; however, the State was downgraded to AA1 in 1992. Standard & Poor's first rated the State AAA in 1961; that has changed as of 1991 when it was downgraded to AA+. 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 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. FEDERATED MUNICIPAL TRUST MANAGEMENT - -------------------------------------------------------------------------------- OFFICERS AND TRUSTEES Officers and Trustees are listed with their addresses, principal occupations, and present positions, including any affiliation with Federated Management, Federated Investors, Federated Securities Corp., Federated Services Company, Federated Administrative Services, Inc., and the Funds (as defined below). POSITIONS WITH NAME AND ADDRESS THE TRUST PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS John F. Donahue\* Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated Investors Tower Trustee Federated Advisers, Federated Management, and Federated Research; Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds; formerly, Director, The Standard Fire Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice President of the Trust. John T. Conroy, Jr. Trustee President, Investment Properties Corporation, Senior Wood/IPC Vice-President, John R. Wood and Associates, Inc., Realtors; Commercial Department President, Northgate Village Development Corporation; General John R. Wood and Partner or Trustee in private real estate ventures in Southwest Associates, Inc., Realtors Florida; Director, Trustee, or Managing General Partner of the 3255 Tamiami Trail North Funds; formerly, President, Naples Property Management, Inc. Naples, FL William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, One PNC Plaza-23rd Floor Inc.; Director, Trustee, or Managing General Partner of the Funds; Pittsburgh, PA formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; 571 Hayward Mill Road Director, Trustee, or Managing General Partner of the Funds; Concord, MA formerly, Director, Blue Cross of Massachusetts, Inc. Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and 3471 Fifth Avenue Montefiore Hospitals; Clinical Professor of Medicine and Trustee, Suite 1111 University of Pittsburgh; Director, Trustee, or Managing General Pittsburgh, PA Partner of the Funds. Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park 5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson* President and Trustee, Federated Investors; President and/or Trustee of some of Federated Investors Tower Trustee the Funds; staff member, Federated Securities Corp. and Federated Pittsburgh, PA Administrative Services, Inc. Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; 225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; Boston, MA formerly, President, State Street Bank and Trust Company and State Street Boston Corporation and Trustee, Lahey Clinic Foundation, Inc. Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, 5916 Penn Mall Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, Pittsburgh, PA or Managing General Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A. Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, 1202 Cathedral of Carnegie Endowment for International Peace, RAND Corporation, Learning Online Computer Library Center, Inc., and U.S. Space Foundation; University of Pittsburgh Chairman, Czecho Slovak Management Center; Director, Trustee, or Pittsburgh, PA Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; formerly, Chairman, National Advisory Council for Environmental Policy and Technology. Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or 4905 Bayard Street Managing General Partner of the Funds. Pittsburgh, PA J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Federated Investors Tower Advisers, Federated Management, and Federated Research; Trustee, Pittsburgh, PA Federated Services Company; President and Director, Federated Administrative Services, Inc.; President or Vice President of the Funds; Director, Trustee, or Managing General Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Trust. Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Federated Investors Tower Chairman and Director, Federated Securities Corp.; President or Pittsburgh, PA Vice President of the Funds; Director or Trustee of some of the Funds. Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated Investors; Vice Federated Investors Tower and Treasurer President and Treasurer, Federated Advisers, Federated Management, Pittsburgh, PA and Federated Research; Trustee, Federated Services Company; Executive Vice President, Treasurer, and Director, Federated Securities Corp.; Chairman, Treasurer, and Director, Federated Administrative Services, Inc.; Trustee or Director of some of the Funds; Vice President and Treasurer of the Funds. John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated Federated Investors Tower and Secretary Investors; Vice President, Secretary, and Trustee, Federated Pittsburgh, PA Advisers, Federated Management, and Federated Research; Trustee, Federated Services Company; Executive Vice President, Secretary, and Director, Federated Administrative Services, Inc.; Executive Vice President and Director, Federated Securities Corp.; Vice President and Secretary of the Funds. John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Pittsburgh, PA Federated Advisers, Federated Management, and Federated Research; Vice President of the Funds; Director, Trustee, or Managing General Partner of some of the Funds; formerly, Vice President, The Standard Fire Insurance Company and President of its Federated Research Division.
*This Trustee is deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940, as amended. \Member of the Trust's Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. THE FUNDS "The Funds" and "Funds" mean the following investment companies: A.T. Ohio Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust; Automated Government Money Trust; The Boulevard Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust, Inc.--1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds; The Passageway Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; and Trust for U.S. Treasury Obligations. FUND OWNERSHIP Officers and Trustees own less than 1% of the Fund's outstanding Shares. As of November 29, 1993, the following shareholders of record owned 5% or more of the outstanding Institutional Shares of the Fund: Board & Co., Glen Rock, New Jersey, owned approximately 10,232,257 Shares (15.57%); Com II, Jersey City, New Jersey, owned approximately 11,285,507 Shares (17.17%); Corestates Bank, N.A., Philadelphia, Pennsylvania, owned approximately 9,993,675 Shares (15.21%); Fiduciary Trust Company International, New York, New York, owned approximately 5,920,000 Shares (9.01%); Central Jersey Bank & Trust Company, Freehold, New Jersey, owned approximately 7,291,700 Shares (11.10%); and Tellson & Co., Gladstone, New Jersey, owned approximately 11,877,539 Shares (18.08%). As of November 29, 1993, the following shareholders of record owned 5% or more of the outstanding Institutional Service Shares of the Fund: Fiduciary Trust Company International, New York, New York, owned approximately 9,210,500 Shares (36.87%); BNK Restoration Co., Inc., Clifton, New Jersey, owned approximately 1,263,528 Shares (5.06%); Radnor Alloys Inc., Harrison, New Jersey, owned approximately 2,604,950 Shares (10.43%); and Perillo Tours, Woodcliff Lake, New Jersey, owned approximately 4,321,270 Shares (17.30%). 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. 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, his wife, and his son, J. Christopher Donahue. John F. Donahue is Chairman and Trustee, Federated Management; Chairman and Trustee, Federated Investors; and Chairman and Trustee of the Trust. John A. Staley, IV, is President and Trustee, Federated Management; Vice President and Trustee, Federated Investors; Executive Vice President, Federated Securities Corp.; and Vice President of the Trust. J. Christopher Donahue is Trustee, Federated Management; President and Trustee, Federated Investors; President and Director, Federated Administrative Services, Inc.; and Vice President of the Trust. John W. McGonigle is Vice President, Secretary, and Trustee, Federated Management; Trustee, Vice President, Secretary and General Counsel, Federated Investors; Executive Vice President, Secretary and Director, Federated Administrative Services, Inc.; Executive Vice President and Director, Federated Securities Corp.; and Vice President and Secretary of the Trust. 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. During the fiscal years ended October 31, 1993, 1992, and 1991, the Fund's adviser earned $404,029, $347,416, and $210,959, respectively, all of which was voluntarily waived because of undertakings to limit the Fund's expenses. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this expense limitation, the investment advisory fee paid will be reduced by the amount of the excess, subject to an annual adjustment. If the expense limitation is exceeded, the amount to be reimbursed by the adviser will be limited, in any single fiscal year, by the amount of the investment advisory fee. These arrangements are not part of the advisory contract and have been established only to comply with applicable state authorities. They may be amended or rescinded in the future. ADMINISTRATIVE SERVICES - -------------------------------------------------------------------------------- Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides administrative personnel and services to the Fund at approximate cost. For the fiscal years ended October 31, 1993, 1992, and 1991, the Fund incurred costs for administrative services of $292,432, $244,864, and $181,824, respectively. John A. Staley, IV, an officer of the Trust, and Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, each hold approximately 15% and 20%, respectively, of the outstanding common stock and serve as directors of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services, Inc. For the fiscal years ended October 31, 1993, 1992, and 1991, Federated Administrative Services, Inc., paid approximately $165,431, $189,741, and $187,677, respectively, for services provided by Commercial Data Services, Inc. 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 investment 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 review 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. 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. Research services provided by brokers may be used by the adviser or by affiliates of Federated Investors in advising Federated funds 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. PURCHASING SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value without a sales charge on days the New York Stock Exchange and the Federal Reserve wire system are open for business. The procedure for purchasing Shares is explained in the respective prospectus under "Investing in Institutional Shares" and "Investing in Institutional Service Shares." DISTRIBUTION PLAN (INSTITUTIONAL SERVICE SHARES ONLY) With respect to Institutional Service Shares of the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940. The Plan provides for payment of fees to Federated Securities Corp. to finance any activity which is principally intended to result in the sale of the Fund's Shares subject to the Plan. Such activities may include the advertising and marketing of Shares; preparing, printing, and distributing prospectuses and sales literature to prospective shareholders, brokers, or administrators; and implementing and operating the Plan. Pursuant to the Plan, the distributor may pay fees to brokers for distribution and administrative services and to administrators for administrative services as to Shares. The administrative services are provided by a representative who has knowledge of the shareholder's particular circumstances and goals, and include, but are not limited to: communicating account openings; communicating account closings; entering purchase transactions; entering redemption transactions; providing or arranging to provide accounting support for all transactions; wiring funds and receiving funds for Share purchases and redemptions; confirming and reconciling all transactions; reviewing the activity in Fund accounts; providing training and supervision of broker personnel; posting and reinvesting dividends to Fund accounts or arranging for this service to be performed by the Fund's transfer agent; and maintaining and distributing current copies of prospectuses and shareholder reports to the beneficial owners of Shares and prospective shareholders. The Trustees expect that the adoption of the Plan will result in the sale of a sufficient number of Shares so as to allow the Fund to achieve economic viability. It is also anticipated that an increase in the size of the Fund will facilitate more efficient portfolio management and assist the Fund in seeking to achieve its investment objective. For the fiscal years ended October 31, 1993, 1992, and 1991, brokers and administrators (financial institutions) earned fees in the amount of $56,220, $50,252 and $33,307, respectively, of which $4,206, $4,791, and $12,397, respectively, were voluntarily waived pursuant to the distribution plan. CONVERSION TO FEDERAL FUNDS It is the Fund's policy to be as fully invested as possible so that maximum interest may be earned. To this end, all payments from shareholders must be in federal funds or be converted into federal funds. State Street Bank and Trust Company acts as the shareholder's agent in depositing checks and converting them to federal funds. DETERMINING NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the value of a Share at $1.00. The days on which net asset value is calculated by the Fund are described in the respective prospectus. USE OF THE AMORTIZED COST METHOD 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. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7, as amended (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. Under the Rule, the Fund is permitted to purchase instruments which are subject to demand features or standby commitments. As defined by the Rule, a demand feature entitles the Fund to receive the principal amount of the instrument from the issuer or a third party (1) on no more than 30 days' notice or (2) at specified intervals not exceeding one year on no more than 30 days' notice. A standby commitment entitles the Fund to achieve same-day settlement and to receive an exercise price equal to the amortized cost of the underlying instrument plus accrued interest at the time of exercise. Although demand features and standby commitments are techniques and are defined as "puts" under the Rule, the Fund does not consider them to be "puts" as that term is used in the Fund's investment limitations. Demand features and standby commitments are features which enhance an instrument's liquidity, and the investment limitation which proscribes puts is designed to prohibit the purchase and sale of put and call options and is not designed to prohibit the Fund from using techniques which enhance the liquidity of portfolio instruments. MONITORING PROCEDURES The Trustees' 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% 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. INVESTMENT RESTRICTIONS The Rule requires that the Fund limit its investments to instruments that, in the opinion of the Trustees, present minimal credit risk and have received the requisite rating from one or more nationally recognized statistical rating organizations. If the instruments are not rated, the Trustees must determine that they are of comparable quality. The Rule also requires the Fund to maintain a dollar-weighted average portfolio maturity (not more than 90 days) appropriate to the objective of maintaining a stable net asset value of $1.00 per share. In addition, no instrument with a remaining maturity of more than 397 days can be purchased by the Fund. For a discussion of the treatment of variable rate municipal securities with demand features, refer to "Variable Rate Demand Notes" in the prospectus. Should the disposition of a portfolio security result in a dollar-weighted average portfolio maturity of more than 90 days, the Fund will invest its available cash to reduce the average maturity to 90 days or less as soon as possible. The Fund may attempt to increase yield by trading portfolio securities to take advantage of short-term market variations. This policy may, from time to time, result in high portfolio turnover. Under the amortized cost method of valuation, 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 indicated daily yield on Shares of the Fund computed the same way may tend to be lower than a similar computation made by using a method of calculation based upon market prices and estimates. REDEEMING SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares at the next computed net asset value after the Fund receives the redemption request. Redemption procedures are explained in the respective prospectus under "Redeeming Institutional Shares" and "Redeeming Institutional Service Shares." Although State Street Bank does not charge for telephone redemptions, it reserves the right to charge a fee for the cost of wire-transferred redemptions of less than $5,000. REDEMPTION IN KIND Although the Trust intends to redeem Shares in cash, it reserves the right under certain circumstances to pay the redemption price in whole or in part by a distribution of securities from the respective Fund's portfolio. To the extent available, such securities will be readily marketable. Redemption in kind will be made in conformity with applicable Securities and Exchange Commission rules, taking such securities at the same value employed in determining net asset value and selecting the securities in a manner the Trustees determine to be fair and equitable. The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act of 1940 under which the Trust is obligated to redeem Shares for any one shareholder in cash only up to the lesser of $250,000 or 1% of the net asset value of the respective class during any 90-day period. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders receiving their securities and selling them before their maturity could receive less than the redemption value of their securities and could incur certain transaction costs. TAX STATUS - -------------------------------------------------------------------------------- THE FUND'S TAX STATUS The Fund will pay no federal income tax because it expects to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. To qualify for this treatment, 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. YIELD - -------------------------------------------------------------------------------- The Fund's yield for Institutional Shares for the seven-day period ended October 31, 1993, was 2.10%. The yield for Institutional Service Shares was 2.00% for the same period. The Fund calculates its yield daily, for all classes of shares, 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 (on funds that pay dividends daily) 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). To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in any class of shares, the performance will be reduced for those shareholders paying those fees. EFFECTIVE YIELD - -------------------------------------------------------------------------------- The Fund's effective yield for Institutional Shares for the seven-day period ended October 31, 1993, was 2.12%. The effective yield for Institutional Service Shares was 2.02% for the same period. The Fund's effective yield for all classes of Shares is computed 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. TAX-EQUIVALENT YIELD - -------------------------------------------------------------------------------- The Fund's tax-equivalent yield for Institutional Shares for the seven-day period ended October 31, 1993, was 3.21%. The tax-equivalent yield for Institutional Service Shares was 3.05% for the same period. The tax-equivalent yield for both classes of Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that either class of Shares would have had to earn to equal its actual yield, assuming a 28% federal tax rate and the 6.5% regular personal income tax rate imposed by New Jersey and assuming that income earned by the Fund is 100% tax-exempt on a regular federal, state, and local basis. TAX-EQUIVALENCY TABLE Both classes of Shares may also use a tax-equivalency table 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 from the regular personal income tax imposed by New Jersey*. 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 1993 STATE OF NEW JERSEY SINGLE RETURN - ------------------------------------------------------------------------------- TAX BRACKET: FEDERAL: 15.00% 28.00% 31.00% 36.00% 39.60% COMBINED FEDERAL AND STATE: 17.50% 34.50% 38.00% 43.00% 46.60% - ------------------------------------------------------------------------------- SINGLE $1- $22,101- $53,501- $115,001- OVER RETURN: 22,100 53,500 115,000 250,000 $ 250,000 - ------------------------------------------------------------------------------- TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT - ------------------------------------------------------------------------------- 1.50% 1.82% 2.29% 2.42% 2.63% 2.81% 2.00 2.42 3.05 3.23 3.51 3.75 2.50 3.03 3.82 4.03 4.39 4.68 3.00 3.64 4.58 4.84 5.26 5.62 3.50 4.24 5.34 5.65 6.14 6.55 4.00 4.85 6.11 6.45 7.02 7.49 4.50 5.45 6.87 7.26 7.89 8.43 5.00 6.06 7.63 8.06 8.77 9.36 5.50 6.67 8.40 8.87 9.65 10.30 6.00 7.27 9.16 9.68 10.53 11.24
TAXABLE YIELD EQUIVALENT FOR 1993 STATE OF NEW JERSEY MARRIED FILING JOINT - ------------------------------------------------------------------------------- TAX BRACKET: FEDERAL: 15.00% 28.00% 31.00% 36.00% 39.60% COMBINED FEDERAL AND STATE: 17.50% 34.50% 37.50% 43.00% 46.60% - ------------------------------------------------------------------------------- JOINT $1- $36,901- $89,151- $140,001- OVER RETURN: 36,900 89,150 140,000 250,000 $ 250,000 - ------------------------------------------------------------------------------- TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT - ------------------------------------------------------------------------------- 1.50% 1.82% 2.29% 2.40% 2.63% 2.81% 2.00 2.42 3.05 3.20 3.51 3.75 2.50 3.03 3.82 4.00 4.39 4.68 3.00 3.64 4.58 4.80 5.26 5.62 3.50 4.24 5.34 5.60 6.14 6.55 4.00 4.85 6.11 6.40 7.02 7.49 4.50 5.45 6.87 7.20 7.89 8.43 5.00 6.06 7.63 8.00 8.77 9.36 5.50 6.67 8.40 8.80 9.65 10.30 6.00 7.27 9.16 9.60 10.53 11.24
Note: For each chart, the maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Futhermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The above charts are for illustrative purposes only. They are not an indicator of past or future performance of either class of Shares. *Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local regular or alternative minimum taxes. PERFORMANCE COMPARISONS - -------------------------------------------------------------------------------- The performance of both classes of Shares depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates on money market instruments; changes in the Fund's or either class of share's expenses; and the relative amount of Fund cash flow. From time to time, the Fund may advertise the performance of both classes of Shares compared to similar funds or portfolios using certain indices, reporting services, and financial publications. These may include the following: LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by making comparative calculations using total return. Total return assumes the reinvestment of all income dividends and capital gains distributions, if any. From time to time, the Fund will quote its Lipper ranking in the "money market funds" category in advertising and sales literature. Investors may use such an index in addition to the prospectus of either class of Shares to obtain a more complete view of the performance of that class before investing. Of course, when comparing performance of either of the classes of Shares to any index, factors such as composition of the index and prevailing market conditions should be considered in assessing the significance of such comparisons. When comparing funds using reporting services, or total return and yield, investors should take into consideration any relevant differences in funds such as permitted portfolio composition and methods used to value portfolio securities and compute offering price. Advertisements and other sales literature for both classes of Shares may refer to total return. Total return is the historic change in the value of an investment in either class of Shares based on the monthly reinvestment of dividends over a specified period of time. 0100802B (12/93) 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 non-diversified portfolio of securities which is one of a series of investment portfolios in Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The investment objective of the Fund is to 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 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, which are exempt from the federal regular and Ohio state income tax. Cash II Shares are sold at net asset value, without a sales load. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. 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. THE CASH II 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 BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. This prospectus contains the information you should read and know before you invest in Cash II Shares. Keep this prospectus for future reference. The Fund has also filed a Combined Statement of Additional Information for Cash II Shares and Institutional Shares dated December 31, 1993 with the Securities and Exchange Commission. The information contained in the Combined Statement of Additional Information is incorporated by reference in this prospectus. You may request a copy of the Combined Statement of Additional Information free of charge by calling 1-800-235-4669. To obtain other information or to make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1993 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 Acceptable Investments 3 Variable Rate Demand Notes 4 Participation Interests 4 Municipal Leases 4 Ratings 4 Credit Enhancement 5 Demand Features 5 Restricted and Illiquid Securities 5 When-Issued and Delayed Delivery Transactions 5 Temporary Investments 5 Ohio Municipal Securities 6 Standby Commitments 6 Ohio Investment Risks 6 Non-Diversification 7 Investment Limitations 7 Regulatory Compliance 7 FEDERATED MUNICIPAL TRUST INFORMATION 8 - ------------------------------------------------------ Management of Federated Municipal Trust 8 Board of Trustees 8 Investment Adviser 8 Advisory Fees 8 Adviser's Background 8 Distribution of Cash II Shares 9 Distribution Plan 9 Administrative Arrangements 9 Administration of the Fund 10 Administrative Services 10 Custodian 10 Transfer Agent and Dividend Disbursing Agent 10 Legal Counsel 10 Independent Public Accountants 10 NET ASSET VALUE 10 - ------------------------------------------------------ INVESTING IN CASH II SHARES 10 - ------------------------------------------------------ Share Purchases 10 Through a Financial Institution 10 Directly from the Distributor 11 By Wire 11 Minimum Investment Required 11 What Shares Cost 11 Systematic Investment Program 11 Automatic Investments 11 Subaccounting Services 12 Certificates and Confirmations 12 Dividends 12 Capital Gains 12 REDEEMING CASH II SHARES 12 - ------------------------------------------------------ Through a Financial Institution 12 Receiving Payment 13 By Check 13 By Wire 13 Directly from the Fund 13 By Mail 13 Signatures 13 Checkwriting 14 VISA Card 14 Redemption Before Purchase Instruments Clear 14 Accounts with Low Balances 14 SHAREHOLDER INFORMATION 14 - ------------------------------------------------------ Voting Rights 14 Massachusetts Partnership Law 15 TAX INFORMATION 15 - ------------------------------------------------------ Federal Income Tax 15 Ohio Tax Considerations 16 Other State and Local Taxes 16 PERFORMANCE INFORMATION 17 - ------------------------------------------------------ OTHER CLASSES OF SHARES 17 - ------------------------------------------------------ Financial Highlights--Institutional Shares 18 FINANCIAL STATEMENTS 19 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 40 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- CASH II SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price).................... None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)......... None Deferred Sales Load (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 CASH II SHARES OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)............................................................... 0.28% 12b-1 Fee...................................................................................... 0.30% Other Expenses................................................................................. 0.27% Total Cash II Shares Operating Expenses(2)................................................. 0.85%
(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 Total Cash II Shares Operating Expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1994. The Total Cash II Shares Operating Expenses were 0.78% for the fiscal year ended October 31, 1993, and were 0.97% 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 CASH II SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN CASH II SHARES" AND "FEDERATED MUNICIPAL TRUST INFORMATION." Wire-transferred redemptions of less than $5,000 may be subject to additional fees. Long-term shareholders may pay more than economic equivalent of the maximum front-end sales charge permitted under the rules of the National Association of Securities Dealers, Inc. ("NASD"). However, in order for a Fund investor to exceed the NASD's maximum front-end sales charge of 6.25%, a continuous investment in the Fund for 125 years would be required.
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. As noted in the table above, the Fund charges no redemption fee for Cash II Shares......................... $ 9 $ 27 $ 47 $ 105
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the foregoing table and example relates only to Cash II Shares of the Fund. The Fund also offers another class of shares called Institutional Shares.. Cash II Shares and Institutional Shares are subject to certain of the same expenses; however, Institutional Shares are not subject to a 12b-1 fee. See "Other Classes of Shares." 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 40.
YEAR ENDED OCTOBER 31, --------------------------------- 1993 1992 1991* -------- -------- ------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 - --------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------------------------------- Net investment income 0.02 0.03 0.02 - --------------------------------------------------------------- -------- -------- ------- LESS DISTRIBUTIONS - --------------------------------------------------------------- Dividends to shareholders from net investment income (0.02) (0.03) (0.02) - --------------------------------------------------------------- -------- -------- ------- NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 - --------------------------------------------------------------- -------- -------- ------- TOTAL RETURN** 2.02% 2.90% 2.27%(a) - --------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------------------------- Expenses 0.78% 0.76% 0.63%(b) - --------------------------------------------------------------- Net investment income 2.01% 2.86% 4.18%(b) - --------------------------------------------------------------- Expense waiver/reimbursement (c) 0.19% 0.25% 0.34%(b) - --------------------------------------------------------------- SUPPLEMENTAL DATA - --------------------------------------------------------------- Net assets, end of period (000 omitted) $127,017 $133,877 $94,081 - ---------------------------------------------------------------
* Reflects operations for the period from April 22, 1991 (date of initial public investment) to October 31, 1991. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (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 of beneficial interest representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to the Fund, as of the date of this prospectus, the Board of Trustees ("Trustees") have established two classes of shares, known as Cash II Shares and Institutional Shares. This prospectus relates only to Cash II Shares of the Fund. Cash II Shares ("Shares") of the Fund are designed primarily for the retail customers of financial institutions. A minimum initial investment of $25,000 over a 90-day period is required. The Fund may not be a suitable investment for non-Ohio taxpayers or retirement plans since it invests primarily in Ohio municipal securities. The Fund attempts to stabilize the value of a Share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to provide current income exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities 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 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 Ohio. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in a portfolio of Ohio municipal securities with remaining maturities of 13 months or less at the time of purchase by the Fund. As a matter of investment policy, which cannot be changed without approval of shareholders, the Fund invests its assets so that at least 80% of its annual interest income is exempt from federal regular and Ohio state income taxes. 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 the approval of shareholders. 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 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 3 counsel, exempt from both federal regular income tax and Ohio state income tax imposed upon non-corporate taxpayers. Examples of Ohio municipal securities include, but are not limited to: - tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; - bond anticipation notes ("BANs") 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 municipal securities 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 adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in municipal securities from financial institutions such as commercial and investment banks, savings and loan associations and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying municipal securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities and may be considered to be illiquid. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation certificate on any of the above. RATINGS. The Ohio municipal securities in which the Fund invests must either 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 Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1 and FIN-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 categories. See "Regulatory Compliance." CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been credit-enhanced by a guaranty, letter of credit or insurance. 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. The bankruptcy, receivership or default of the credit enhancer will adversely affect the quality and marketability of the underlying security. 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. 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 laws. Under criteria established by the Board of Trustees, certain restricted securities are considered liquid. To the extent restricted securities are deemed to be illiquid, the Fund will limit their purchases, together with other securities considered to be illiquid, to 10% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Ohio municipal securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in short-term, non-Ohio municipal tax-exempt obligations or other taxable temporary investments. All temporary investments will satisfy the same credit quality standards as the Fund's acceptable investments. See "Ratings" above. Temporary investments include: notes issued by or on behalf of municipal or corporate issuers; marketable obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; other debt securities; commercial paper; certificates of deposit of banks; and repurchase agreements (arrangements in which banks, broker/dealers, and other recognized financial institutions sell the Fund a temporary investment and agree 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 of generating income subject to federal regular or Ohio state income taxes. 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 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. STANDBY COMMITMENTS Some securities dealers are willing to sell municipal securities to the Fund accompanied by their commitments to repurchase the municipal securities prior to maturity, at the Fund's option, for the amortized cost of the municipal securities at the time of repurchase. These arrangements are not used to protect against changes in the market value of municipal securities. They permit the Fund, however, to remain fully invested and still provide liquidity to satisfy redemptions. The cost of municipal securities accompanied by these "standby" commitments could be greater than the cost of municipal securities without such commitments. Standby commitments are not marketable or otherwise assignable and have value only to the Fund. The default or bankruptcy of a securities dealer giving such a commitment would not affect the quality of the municipal securities purchased. However, without a standby commitment, these securities could be more difficult to sell. The Fund enters into standby commitments only with those dealers whose credit the investment adviser believes to be of high quality. The Fund will only enter into standby commitments if there will be no adverse effect on the exemption of distributions from Ohio state income taxes. OHIO INVESTMENT RISKS Yields on Ohio municipal securities depend on a variety of factors, including: the general conditions of the short-term municipal market and the municipal bond market; the size and maturity of the particular offering; the maturity of the obligations; and the rating of the issue. Further, any adverse economic conditions or developments affecting the State of Ohio or its municipalities could impact the Fund's portfolio. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Ohio municipal securities and demand features for such securities, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. Investing in Ohio municipal securities which meet the Fund's quality standards may not be possible if the State of Ohio or its municipalities do not maintain their current credit ratings. In addition, certain Ohio constitutional amendments, legislative measures, executive orders, administrative regulations, and voter initiatives could result in adverse consequences affecting Ohio municipal securities. An expanded discussion of the current economic risks associated with the purchase of Ohio municipal securities is contained in the Combined Statement of Additional Information. NON-DIVERSIFICATION The Fund is a non-diversified investment portfolio. As such, there is no limit on the percentage of assets which can be invested in any single issuer. An investment in the Fund, therefore, will entail greater risk than would exist in a diversified investment portfolio because the higher percentage of investments among fewer issuers may result in greater fluctuation in the total market value of the Fund's portfolio. Any economic, political, or regulatory developments affecting the value of the securities in the Fund's portfolio will have a greater impact on the total value of the portfolio than would be the case if the portfolio were diversified among more issuers. The Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that at the end of each quarter of the taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer; beyond that, no more than 25% of its total assets are invested in the securities of a single issuer. 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 above investment limitation cannot be changed without shareholder approval. The following investment limitations, however, can be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. The Fund will not: - invest more than 5% of its total assets in industrial development bonds or other municipal securities when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor; or - commit more than 10% of its net assets to illiquid obligations. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in this prospectus and its Combined 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, as amended. 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 INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF FEDERATED MUNICIPAL TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of Trustees is 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. The Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, 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, for which it receives an annual fee from the Fund. ADVISORY FEES. The Fund's adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. Under the advisory contract, which provides for the voluntary waiver of the advisory fee by the adviser, the adviser may voluntarily waive some or all of the advisory fee. This does not include reimbursement to the Fund of any expenses incurred by shareholders who use the transfer agent's subaccounting facilities. The adviser can terminate this voluntary waiver of expenses at any time at its sole discretion. The adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. 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, 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. Total assets under management or administration by these and other subsidiaries of Federated Investors are approximately $70 billion. Federated Investors, which was founded in 1956 as Federated Investors, Inc., develops and manages mutual funds primarily for the financial industry. Federated Investors' track record of competitive performance and its disciplined, risk-averse investment philosophy serve approximately 3,500 client institutions nationwide. Through these same client institutions, individual shareholders also have access to this same level of investment expertise. 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. Pursuant to the provisions of a distribution plan adopted in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund will pay to the distributor an amount computed at an annual rate of .30 of 1% of the average daily net asset value of the Shares to finance any activity which is principally intended to result in the sale of Shares subject to the Plan. The distributor may from time to time and for such periods as it deems appropriate, voluntarily reduce its compensation under the Plan to the extent the expenses attributable to the Shares exceed such lower expense limitation as the distributor may, by notice to the Trust, voluntarily declare to be effective. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers ("brokers") to provide sales and/or administrative services as agents for their clients or customers who beneficially own Shares of the Fund. Administrative services may include, but are not limited to, the following functions: 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 regarding the Shares; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as the Fund reasonably requests for Shares. Financial institutions will receive fees from the distributor 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 distributor. The Fund's 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. 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 Board of Trustees will consider appropriate changes in the services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state law. ADMINISTRATIVE ARRANGEMENTS. In addition to the fees paid by the distributor to financial institutions under the Plan as described above, the distributor may also pay financial institutions a fee with respect to the average daily net asset value of Shares held by their customers for providing administrative services. The rate of such fee will be determined by the average net asset value of the shares held by their customers in the Cash Series classes of the Trust and Cash Trust Series, another registered investment company distributed by Federated Securities Corp. This fee is in addition to amounts paid under the Plan and, if paid, will be reimbursed by the adviser and not the Fund. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund and the separate classes. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services, Inc., provides these at approximate cost. CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and dividend disbursing agent for the Fund. LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania. 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 adding the interest of the Shares in the value of all securities and other assets of the Fund, subtracting the interest of the Shares in liabilities of the Fund and those attributable to Shares, and dividing the remainder by the total number of Shares outstanding. The Fund, of course, cannot guarantee that its net asset value will always remain at $1.00 per Share. INVESTING IN CASH II SHARES - -------------------------------------------------------------------------------- SHARE PURCHASES Shares are sold on days on which the New York Stock Exchange and the Federal Reserve wire system are open for business. Shares may be purchased through a financial institution which has a sales agreement with the distributor or directly from the distributor, Federated Securities Corp. The Fund reserves the right to reject any purchase request. THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution (such as a bank or an investment dealer) to place an order to purchase Shares. Orders through a financial institution 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. DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase Shares directly from the distributor. To do so: complete and sign the new account form available from the Fund; enclose a check payable to Ohio Municipal Cash Trust-Cash II Shares; and mail both to Ohio Municipal Cash Trust, P.O. Box 8604, Boston, Massachusetts 02266-8604. The order is considered received after the check is converted by State Street Bank and Trust Company into federal funds. This is generally the next business day after State Street Bank receives the check. BY WIRE. To purchase Shares by wire, call the Fund. All information needed will be taken over the telephone, and the order is considered received when State Street Bank receives payment by wire. Federal funds should be wired as follows: State Street Bank and Trust Company, Boston, Massachusetts; 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; Title or Name of Account; and ABA Number 011000028. Shares cannot be purchased by wire on days on which the New York Stock Exchange is closed and on federal holidays restricting wire transfers. MINIMUM INVESTMENT REQUIRED The minimum initial investment in Shares is $25,000. However, an account may be opened with a smaller amount as long as the $25,000 minimum is reached within 90 days. An institutional investor's minimum investment will be calculated by combining all accounts it maintains with the Fund. Individual accounts established through a bank or broker may be subject to a different minimum investment requirement. WHAT SHARES COST Shares are sold at their net asset value next determined after an order is received. There is no sales charge imposed by the Fund. Investors who purchase Shares through a bank or broker may be charged an additional service fee by that bank or broker. The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m. (Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no Shares are tendered for redemption and no orders to purchase Shares are received; or (iii) the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. SYSTEMATIC INVESTMENT PROGRAM Once an account has been opened, shareholders may add to their investment on a regular basis in a minimum amount of $500. Under this program, funds may be automatically withdrawn periodically from the shareholder's checking account and invested in Fund shares. A shareholder may apply for participation in this program through his financial institution. AUTOMATIC INVESTMENTS Investors may wish to establish accounts with their brokers or administrators to have automatic investments made to the Fund. The investments may be made on predetermined dates or when the investor's account reaches a certain level. Participating brokers or administrators are responsible for prompt transmission of orders relating to the program; however, they may charge for this service and other services. Investors should read this prospectus in connection with any broker's or administrator's agreement or literature describing these services and fees. SUBACCOUNTING SERVICES Institutions are encouraged to open single master accounts. However, certain institutions may wish to use the transfer agent's subaccounting system to minimize their internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Financial institutions holding Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Shares. This prospectus should, therefore, be read together with any agreement between the customer and the financial institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Monthly confirmations are sent to report transactions such as purchases and redemptions as well as dividends paid during the month. DIVIDENDS Dividends are declared daily and paid monthly. Shares purchased by wire before 3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends on the day after the check is converted, upon instruction of the transfer agent, into federal funds. Dividends are automatically reinvested on payment dates in additional Shares unless cash payments are requested on an application or by contacting the Fund. CAPITAL GAINS Capital gains, if any, could result in an increase in dividends. Capital losses, if any, could result in a decrease in dividends. If, for some extraordinary reason, the Fund realizes net long-term or short-term capital gains, it will distribute them at least once every 12 months. REDEEMING CASH II SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares 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. Redemptions can be made through a financial institution or directly from the Fund. Redemption requests must be received in proper form. THROUGH A FINANCIAL INSTITUTION A shareholder may redeem Shares by calling his/her financial institution (such as a bank or an investment dealer) to request the redemption. Shares will be redeemed at the net asset value next determined after State Street Bank receives the redemption request from the financial institution. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions to the Fund. The financial institution may charge customary fees and commissions for this service. If, at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders will be promptly notified. An authorization form permitting the Fund to accept redemption requests by telephone must first be completed. Authorization forms and information on this service are available from Federated Securities Corp. Telephone redemption instructions may be recorded. 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, shareholders may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption, such as By Mail, should be considered. RECEIVING PAYMENT. Pursuant to instructions from the financial institution, redemptions will be made by check or by wire. BY CHECK. Normally a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper redemption request provided that the transfer agent has received payment for the Shares from the shareholder. Dividends are paid up to and including the day that a redemption request is processed. BY WIRE. Proceeds for redemption requests received before 12:00 noon (Eastern time) will be wired the same day but will not be entitled to that day's dividend. Redemption requests received after 12:00 noon (Eastern time) will receive that day's dividends and will be wired the following business day. DIRECTLY FROM THE FUND BY MAIL. Any shareholder may redeem Shares by sending a written request to State Street Bank. The written request should include the shareholder's name, the Fund name and class of shares, the account number, and the share or dollar amount requested. If Share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. Shareholders should call the Fund for assistance in redeeming by mail. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, 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 signatures on written redemption requests guaranteed by: - a trust company or commercial bank whose deposits are insured by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance Corporation ("FDIC"); - a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; - a savings bank or savings and loan association whose deposits are insured by the Saving Association Insurance Fund ("SAIF"), which is administered by the FDIC; 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. The Fund and its transfer agent have 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 and its transfer agent reserve the right to amend these standards at any time without notice. CHECKWRITING. At the shareholder's request, State Street Bank will establish a checking account for redeeming Shares. For further information, contact Federated Securities Corp. A fee may be charged for this service. With a Fund checking account, Shares may be redeemed simply by writing a check. The redemption will be made at the net asset value on the date that State Street Bank presents the check to the Fund. A check may not be written to close an account. If a shareholder wishes to redeem Shares and have the proceeds available, a check may be written and negotiated through the shareholder's bank. Checks should never be sent to State Street Bank to redeem Shares. Cancelled checks are returned to the shareholder each month. VISA CARD. At the shareholder's request, State Street Bank will establish a VISA account. The VISA account allows a shareholder to redeem Shares by using a VISA card. A fee determined by State Street Bank will be charged to the account for this service. For further information, contact Federated Securities Corp. REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR When Shares are purchased by check, the proceeds from the redemption of those Shares are not available, and the Shares may not be exchanged, until State Street Bank is reasonably certain that the purchase check has cleared, which could take up to ten calendar days. 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. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights except that in matters affecting only a particular Fund or class, only shares of that Fund or class are entitled to vote. As of November 29, 1993, Gradison & Company, Inc., Cincinnati, Ohio, owned 59.38% of the voting securities of the Cash II Shares of the Fund, and, therefore, may, for certain purposes, be deemed to control the Cash II Shares of the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. As a Massachusetts business trust, 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 for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of all series of the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders of the Fund, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such 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 of the Fund is held personally liable for the Trust's obligations, the Trust is required 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 cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. 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 some municipal bonds may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The alternative minimum tax, equal to up to 28% of alternative minimum taxable income for individuals, and 20% for corporations, 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. The Tax Reform Act of 1986 treats interest on certain "private activity" bonds issued after August 7, 1986, as a tax preference item for both individuals and corporations. Unlike traditional governmental purpose municipal bonds, which finance roads, schools, libraries, prisons and other public facilities, private activity bonds provide benefits to private parties. The Fund may purchase all types of municipal bonds, including private activity bonds. Thus, should it purchase any such bonds, a portion of the Fund's dividends may be treated as a tax preference item. In addition, in the case of a corporate shareholder, dividends of the Fund which represent interest on municipal bonds may be subject to the 20% corporate alternative minimum tax because the dividends are included in a corporation's "adjusted current earnings." The corporate alternative minimum tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's alternative minimum taxable income as a tax preference item. "Adjusted current earnings" is based upon the concept of a corporation's "earnings and profits." Since "earnings and profits" generally includes the full amount of any Fund dividend, and alternative minimum taxable income does not include the portion of the Fund's dividend attributable to municipal bonds which are not private activity bonds, 75% of the difference will be included in the calculation of the corporation's alternative minimum 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. Information on the tax status of dividends and distributions is provided annually. OHIO TAX CONSIDERATIONS Under existing Ohio laws, distributions made by the Fund will not be subject to Ohio individual income tax if 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 dividends will not be exempt from Ohio individual income tax. Distributions made by the Fund will not be subject to Ohio corporation franchise tax if such distributions qualify as "exempt-interest dividends" under the 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 the State of 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 STATE AND LOCAL TAXES Income from the Fund is not necessarily free from regular state income taxes in states other than Ohio or from personal property taxes. State laws differ on this issue and 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 the Fund advertises its yield, effective yield, and tax-equivalent yield for Cash II Shares. The yield of Cash II Shares represents the annualized rate of income earned on an investment in Cash II Shares 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 in Cash II Shares 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 of Cash II Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that Cash II Shares would have had to earn to equal their actual yield, assuming a specific tax rate. Advertisements and other sales literature may also refer to total return. Total return represents the change, over a specified period of time, in the value of an investment in Cash II 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, and tax-equivalent yield will be calculated separately for Cash II Shares and Institutional Shares. Because the Cash II Shares are subject to 12b-1 fees, the yield, the effective yield, and the tax-equivalent yield for Institutional Shares will exceed the yield, the effective yield, and the tax-equivalent yield for Cash II Shares for the same period. From time to time, the Fund may advertise its performance of Institutional Shares using certain reporting services and/or compare the performance of Institutional Shares to certain indices. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- Institutional Shares are sold to accounts for which financial institutions act in a fiduciary or agency capacity. Institutional Shares are sold at net asset value. Investments in Institutional Shares are subject to a minimum initial investment of $25,000. Institutional Shares are distributed without a 12b-1 Plan. Financial institutions and brokers providing sales and administrative services may receive different compensation depending upon which class of shares of the Fund is sold. The distributor may pay an administrative fee to a financial institution or broker for administrative services provided to the Cash II class, in addition to fees paid pursuant to the 12b-1 Plan. Any fee paid by the distributor for administrative services will not be an expense of the class, but will be reimbursed to the distributor by the investment adviser. The amount of dividends payable to Institutional Shares will exceed that of Cash II Shares by the difference between class expenses and distribution expenses by shares of each respective class. The stated advisory fee is the same for both classes of shares. 17 OHIO 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 40.
YEAR ENDED OCTOBER 31, ---------------------------------- 1993 1992 1991* -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 - -------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------------------------------- Net investment income 0.02 0.03 0.02 - -------------------------------------------------------------- ------- ------- ------- LESS DISTRIBUTIONS - -------------------------------------------------------------- Dividends to shareholders from net investment income (0.02) (0.03) (0.02) - -------------------------------------------------------------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 - -------------------------------------------------------------- ------- ------- ------- TOTAL RETURN** 2.33% 3.21% 2.40%(a) - -------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------------------------------- Expenses 0.48% 0.46% 0.35%(b) - -------------------------------------------------------------- Net investment income 2.30% 3.10% 4.46%(b) - -------------------------------------------------------------- Expense waiver/reimbursement (c) 0.19% 0.25% 0.32%(b) - -------------------------------------------------------------- SUPPLEMENTAL DATA - -------------------------------------------------------------- Net assets, end of period (000 omitted) $81,748 $74,342 $44,771 - --------------------------------------------------------------
* Reflects operations for the period from April 22, 1991 (date of initial public investment) to October 31, 1991. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENT OCTOBER 31, 1993 - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES--102.3% - ---------------------------------------------------------------------- OHIO--101.1% -------------------------------------------------------- $ 500,000 Allen County, OH, IDR Weekly VRDNs (Nickles Bakery of Ohio, Inc.)/(Society Bank N.A. LOC)/(Subject to AMT) P-1 $ 500,000 -------------------------------------------------------- 3,000,000 Cincinnati, OH, Building Acquisition, 2.93% GO UT BANs, 6/1/94 NR(2) 3,002,197 -------------------------------------------------------- 1,900,000 Cincinnati, OH, Student Loan Authority Weekly VRDNs (Cincinnati Student Loan Funding Corp.)/(National Westminster Bank PLC LOC)/(Subject to AMT) VMIG1 1,900,000 -------------------------------------------------------- 1,175,000 Cincinnati, OH, Student Loan Funding Corp. Weekly VRDNs (Series 1988B-1)/(Student Loan Funding Corp.)/ (Sumitomo Bank Ltd. LOC)/(Subject to AMT) VMIG1 1,175,000 -------------------------------------------------------- 5,375,000 Cincinnati, OH, Student Loan Revenue Bonds, 2.90% Annual TOBs (Series 1987A)/(Cincinnati Student Loan Funding Corp.)/(Fuji Bank Ltd. LOC)/(Subject to AMT), Mandatory Tender 7/1/94 VMIG1 5,375,000 -------------------------------------------------------- 4,000,000 Cincinnati--Hamilton County Port Authority Weekly VRDNs (4th Street Limited Partnership)/(PNC Bank, Kentucky LOC) P-1 4,000,000 -------------------------------------------------------- 2,675,000 Cincinnati--Hamilton County Port Authority, 2.95% Annual TOBs (Series 8)/(Bethesda One Limited Partnership)/(Bank One, Columbus, N.A. LOC), Optional Tender 8/1/94 P-1 2,675,000 -------------------------------------------------------- 9,000,000 Cleveland, OH, Gateway Economic Development Corp. Weekly VRDNs (Gateway Stadium Authority)/(Fuji Bank Ltd. LOC)/(Subject to AMT) A-1 9,000,000 -------------------------------------------------------- 400,000 Cleveland, OH, IDA Weekly VRDNs (Garland Company)/ (Society Bank N.A. LOC) P-1 400,000 --------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED - ---------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------- $2,000,000 Clinton County, OH, Hospital Authority Weekly VRDNs (Clinton Memorial Hospital)/(BancOhio National Bank LOC) P-1 $ 2,000,000 -------------------------------------------------------- 1,100,000 Columbus, OH, Sewer System Revenue Bonds Weekly VRDNs (Series B)/(Sanwa Bank, Ltd. LOC) A-1+ 1,100,000 -------------------------------------------------------- 1,295,000 Crawford County, OH, IDA, 2.95% TOBs (United Photographic, Inc.)/(Bank One, Columbus N.A. LOC), 3/1/94 P-1 1,295,000 -------------------------------------------------------- 1,000,000 Cuyahoga County, OH, IDA Weekly VRDNs (Animal Protection League)/(Society Bank N.A. LOC) P-1 1,000,000 -------------------------------------------------------- 765,000 Cuyahoga County, OH, IDA Weekly VRDNs (Parma-Commerce Parkway-West)/(Society Bank N.A. LOC) P-1 765,000 -------------------------------------------------------- 1,500,000 Cuyahoga County, OH, IDA Weekly VRDNs (Premier Manufacturing)/(First National Bank, Louisville LOC)/ (Subject to AMT) P-1 1,500,000 -------------------------------------------------------- 2,100,000 Cuyahoga County, OH, IDR Weekly VRDNs (East Park Retirement Community, Inc.)/(Society Bank N.A. LOC)/ (Subject to AMT) P-1 2,100,000 -------------------------------------------------------- 885,000 Cuyahoga County, OH, IDR Weekly VRDNs (Interstate Diesel Service, Inc.)/(Huntington National Bank LOC)/ (Subject to AMT) P-1 885,000 -------------------------------------------------------- 500,000 Cuyahoga County, OH, Weekly VRDNs (Landerhaven Country Club Estates Ltd.)/(Society Bank N.A. LOC) P-1 500,000 -------------------------------------------------------- 3,470,000 Cuyahoga Falls, OH, 2.82% BANs, 3/9/94 NR(3) 3,472,034 -------------------------------------------------------- 1,275,000 Cuyahoga Falls, OH, 2.87% BANs, 1/21/94 NR(3) 1,275,466 -------------------------------------------------------- 5,000,000 Dayton, OH, Revenue Refunding Bonds Weekly VRDNs (Series 1993E)/(Emery Air Freight Corp.)/(Mellon Bank N.A. LOC) VMIG1 5,000,000 --------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED - ---------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------- 1,000,000 Elyria, OH, 2.82% LT GO BANs, 4/7/94 NR(3) 1,000,499 --------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED - ---------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------- $1,640,000 Euclid, OH, 2.93% GO BANs, 9/29/94 NR(2) $ 1,641,880 -------------------------------------------------------- 725,000 Fairfield County, OH, 3.32% Sewer Improvement Bonds, 11/19/93 NR 725,146 -------------------------------------------------------- 2,415,000 Fairfield County, OH, 3.15% BANs, 10/28/94 NR 2,423,121 -------------------------------------------------------- 1,459,672 Fayetteville-Perry, OH, Local School District, 2.93% BANs, 6/10/94 NR 1,461,648 -------------------------------------------------------- 3,345,000 Franklin County, OH, IDA Weekly VRDNs (Unicorn Leasing Co.)/(Fifth Third Bank LOC)/(Subject to AMT) P-1 3,345,000 -------------------------------------------------------- 4,500,000 Franklin County, OH, IDR Weekly VRDNs (Heekin Can, Inc.)/(PNC Bank N.A. LOC) P-1 4,500,000 -------------------------------------------------------- 2,000,000 Franklin County, OH, IDRB Weekly VRDNs (Tigerpoly Manufacturing, Inc.)/(Mitsubishi Bank Ltd. LOC)/(Subject to AMT) P-1 2,000,000 -------------------------------------------------------- 7,800,000 Franklin County, OH, Weekly VRDNs (Series 1992)/ (Rickenbacker Holdings, Inc.)/(Bank One, Columbus N.A. LOC) P-1 7,800,000 -------------------------------------------------------- 2,000,000 Hamilton County, OH, 2.45% Metropolital Sewer System Improvement and Revenue BANs (Series A), 12/1/93 NR(3) 2,000,000 -------------------------------------------------------- 3,500,000 Hamilton County, OH, 2.74%, 11/10/93 NR(3) 3,500,034 -------------------------------------------------------- 2,500,000 Hamilton County, OH, Hospital Authority Revenue Bonds Weekly VRDNs (Series 1986A)/(Good Samaritan Hospital) A-1 2,500,000 -------------------------------------------------------- 3,000,000 Hamilton County, OH, Sewer System Improvement and Revenue Bonds Weekly VRDNs (P-FLOATS)/(FGIC Insured) VMIG1 3,000,000 -------------------------------------------------------- 2,500,000 Hamilton, OH, 2.82% LT GO BANs, 6/17/94 NR(3) 2,500,298 -------------------------------------------------------- 1,300,000 Hamilton, OH, 2.96%, 9/2/94 NR(3) 1,300,414 -------------------------------------------------------- 1,210,000 Hilliard, OH, 2.94% BANs, 4/15/94 NR(3) 1,211,278 --------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED - ---------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------- $ 760,000 Hillsboro, OH, IDR Weekly VRDNs (Series 1987)/ (TD Manufacturing Ltd.)/(Sanwa Bank Ltd. LOC)/ (Subject to AMT) VMIG1 $ 760,000 -------------------------------------------------------- 2,000,000 Holmes County, OH, IDA Weekly VRDNs (Poultry Processing, Inc.)/(Rabobank Nederland LOC)/(Subject to AMT) A-1+ 2,000,000 -------------------------------------------------------- 400,000 Kettering, OH, IDA Weekly VRDNs (Center-Plex Venture, Inc.)/(Society Bank N.A. LOC) P-1 400,000 -------------------------------------------------------- 1,000,000 Lake County, OH, 2.80% LT BANs, 11/9/93 NR(2) 1,000,064 -------------------------------------------------------- 1,735,000 Lake County, OH, 2.93% BANs, 10/13/94 NR(2) 1,737,072 -------------------------------------------------------- 355,000 Lucas County, OH, Health Care Improvement Weekly VRDNs (Sunshine Children's Home)/(National City Bank, Cleveland LOC) P-1 355,000 -------------------------------------------------------- 2,150,000 Lucas County, OH, Hospital Facility Improvement Revenue Bonds Weekly VRDNs (Series 93)/(Lott Industries, Inc.)/ (National City Bank LOC) P-1 2,150,000 -------------------------------------------------------- 2,400,000 Lucas County, OH, IDA Weekly VRDNs (Kuhlman Corp.)/ (Society Bank N.A. LOC) P-1 2,400,000 -------------------------------------------------------- 3,000,000 Lucas County, OH, Various Purpose Improvement Notes, 3.87% BANs (Series 1993-1), 8/18/94 NR(4) 3,008,509 -------------------------------------------------------- 1,500,000 Mahoning County, OH, IDR Weekly VRDNs (Tru-Cut Die Corp.)/(PNC Bank, Ohio N.A. LOC)/(Subject to AMT) P-1 1,500,000 -------------------------------------------------------- 3,025,000 Mahoning County, OH, Multifamily HFA Weekly VRDNs (International Towers Inc.)/(Marine Bank, Warren LOC)/ (Subject to AMT) A-1 3,025,000 -------------------------------------------------------- 1,660,000 Mansfield, OH, IDR Weekly VRDNs (Designed Metal Products, Inc.)/(Bank One, Indianapolis LOC)/(Subject to AMT) P-1 1,660,000 --------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED - ---------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------- 1,000,000 Massillon, OH, 3.13% BANs, 10/5/94 NR(3) 1,003,872 --------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED - ---------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------- $ 700,000 Medina County, OH, IDA Weekly VRDNs (National Metal Abrasive, Inc.)/(Society Bank N.A. LOC) P-1 $ 700,000 -------------------------------------------------------- 520,000 Medina County, OH, IDR, 3.05% TOBs (Bopco Associates)/ (Bank One, Akron N.A. LOC)/(Subject to AMT), 3/1/94 NR 520,000 -------------------------------------------------------- 750,000 Middleburg Heights, OH, 2.83% BANs 6/2/94 NR(2) 750,980 -------------------------------------------------------- 3,800,000 Montgomery County, OH, IDA Weekly VRDNs (Series 1992)/(Badger Paper Mills, Inc.)/(Central Trust Co. N.A. LOC)/(Subject to AMT) P-1 3,800,000 -------------------------------------------------------- 1,000,000 Moraine, OH, 2.50% BANs, 11/17/93 NR 1,000,043 -------------------------------------------------------- 500,000 Muskingham County, OH, Hospital Facilities Authority Weekly VRDNs (Bethesda Care Systems)/(BancOhio National Bank LOC) VMIG1 500,000 -------------------------------------------------------- 1,385,000 Napoleon, OH, 2.49% BANs, 2/23/94 NR(3) 1,385,208 -------------------------------------------------------- 3,000,000 North Olmsted, OH, 2.94% BANs, 3/24/94 MIG1 3,003,554 -------------------------------------------------------- 420,000 North Olmsted, OH, IDA Weekly VRDNs (Bryant & Stratton Corp.)/(Society Bank N.A. LOC)/ (Subject to AMT) P-1 420,000 -------------------------------------------------------- 825,000 North Olmsted, OH, IDR, 3.00% (Therm-All)/(National City Bank LOC), 2/1/94 P-1 825,000 -------------------------------------------------------- 2,430,000 Ohio Housing Finance Agency Weekly VRDNs (Westchester Village)/(Society Bank N.A. LOC) P-1 2,430,000 -------------------------------------------------------- 7,745,000 Ohio Housing Finance Agency, 3.00% TOBs (Lincoln Park Associates)/(Comerica Bank LOC), Optional Tender 11/1/93 VMIG1 7,745,000 -------------------------------------------------------- 1,000,000 Ohio State Air Quality Development Authority Weekly VRDNs (Timkin Co.)/(Credit Suisse LOC) A-1+ 1,000,000 --------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED - ---------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------- $3,350,000 Ohio State Air Quality Development Authority, 2.50% CP (Cincinnati Gas & Electric Co.)/(Morgan Bank (Delaware) N.A. LOC), Mandatory Tender 11/9/93 A-1+ $ 3,350,000 -------------------------------------------------------- 4,700,000 Ohio State Air Quality Development Authority, 2.50% CP (Cleveland Electric Illuminating Co.)/(FGIC Insured), Mandatory Tender 11/16/93 A-1+ 4,700,000 -------------------------------------------------------- 4,850,000 Ohio State Air Quality Development Authority, 2.70% CP (Cincinnati Gas & Electric Co.)/(Morgan Bank (Delaware) N.A. LOC), Mandatory Tender 2/11/94 A-1+ 4,850,000 -------------------------------------------------------- 3,000,000 Ohio State Air Quality Development Authority, 2.70% CP (Cleveland Electric Illuminating Co.)/(Citibank N.A. LOC)/ (FGIC Insured), Mandatory Tender 1/25/94 A-1 3,000,000 -------------------------------------------------------- 4,850,000 Ohio State Air Quality Development Authority, 2.85% Refunding Bonds Annual TOBs (Ohio Edison Company)/ (Bankers Trust Company LOC), Optional Tender 2/1/94 VMIG1 4,851,181 -------------------------------------------------------- 1,615,000 Ohio State IDR Weekly VRDNs (Series 1991)/(Standby Screw, Inc.)/(BancOhio National Bank LOC)/(Subject to AMT) A-1+ 1,615,000 -------------------------------------------------------- 1,000,000 Ohio State Water PCR Bonds Weekly VRDNs (PPG Industries) P-1 1,000,000 -------------------------------------------------------- 800,000 Ohio State Weekly VRDNs (John Carroll University)/(PNC Bank N.A. LOC) P-1 800,000 -------------------------------------------------------- 1,650,000 Orrville, OH, IDA Weekly VRDNs (O.S. Associates)/ (National City Bank LOC)/(Subject to AMT) A-1 1,650,000 -------------------------------------------------------- 1,000,000 Pickaway County, OH, IDA Weekly VRDNs (PPG Industries) P-1 1,000,000 -------------------------------------------------------- 460,000 Portage County, OH, IDA Weekly VRDNs (D&W Associates)/(Society Bank N.A. LOC) P-1 460,000 --------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED - ---------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------- $ 455,000 Portage County, OH, IDR, 3.05% TOBs (Neidlinger)/ (Society Bank N.A. LOC)/(Subject to AMT), 3/1/94 P-1 $ 455,000 -------------------------------------------------------- 6,230,000 Richland County, OH, 2.96% GO BANs, 9/15/94 NR 6,241,027 -------------------------------------------------------- 630,000 Ross County, OH, Airport Improvement Bonds, 3.61% BANs (Series 1991)/(Subject to AMT), 4/29/94 NR 631,828 -------------------------------------------------------- 2,200,000 Salem, OH, City School District, 2.55% BANs, 12/9/93 NR 2,200,110 -------------------------------------------------------- 2,500,000 Scioto County, OH, Hospital Authority Weekly VRDNs (AMBAC Insured) A-1 2,500,000 -------------------------------------------------------- 1,175,000 Shaker Heights, OH, 2.50% GO BANs, 5/26/94 NR(2) 1,175,318 -------------------------------------------------------- 2,000,000 Sharonville, OH, IDR Weekly VRDNs (Xtek, Inc.)/(Fifth Third Bank LOC)/(Subject to AMT) VMIG1 2,000,000 -------------------------------------------------------- 960,000 Solon, OH, IDR Weekly VRDNs (Graphic Laminating, Inc.)/ (Society Bank N.A. LOC) P-1 960,000 -------------------------------------------------------- 750,000 Stark County, OH, 3.10% General LT BANs, 12/10/93 MIG1 750,156 -------------------------------------------------------- 1,800,000 Stark County, OH, IDR Weekly VRDNs (Sancap Abrasives)/(Society Bank N.A. LOC) P-1 1,800,000 -------------------------------------------------------- 1,031,000 Streetsboro, OH, 3.33% General LT Various Purpose BANs, 12/9/93 NR 1,031,134 -------------------------------------------------------- 600,000 Student Loan Funding Corp. of Cincinnati, OH, Weekly VRDNs (Series 1991A)/(National Westminster Bank PLC LOC)/(Subject to AMT) VMIG1 600,000 -------------------------------------------------------- 3,000,000 Summit County, OH, 2.65% BANs, 3/10/94 P-1 3,000,000 -------------------------------------------------------- 1,440,000 Summit County, OH, 3.00% (Matech Machine Tool)/ (Bank One, Akron N.A. LOC), 2/1/94 P-1 1,440,000 -------------------------------------------------------- 3,300,000 Summit County, OH, IDR Weekly VRDNs (Maison Aine Limited Partnership)/(Society Bank N.A. LOC)/ (Subject to AMT) P-1 3,300,000 --------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED - ---------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------- $ 900,000 Summit County, OH, IDR, 2.75% Semi-Annual TOBs (Beechmer-Boyce)/(Society Bank N.A. LOC), 1/15/94 P-1 $ 900,000 -------------------------------------------------------- 1,200,000 Summit County, OH, IDR, 2.88% TOBs (Rogers Industrial Products, Inc.)/(Bank One, Akron N.A. LOC), 11/1/93 P-1 1,200,000 -------------------------------------------------------- 855,000 Summit County, OH, IDR, 3.00% TOBs (Universal Rack & Equipment Company)/(National City Bank, Cleveland LOC), 3/1/94 P-1 855,000 -------------------------------------------------------- 435,000 Summit County, OH, IDR, 3.05% TOBs (Keltec, Inc.)/ (Bank One, Akron N.A. LOC)/(Subject to AMT), 3/1/94 P-1 435,000 -------------------------------------------------------- 990,000 Summit County, OH, IDR, 3.10% (S.D. Meyers, Inc.)/ (Bank One, Akron N.A. LOC), 8/15/94 P-1 990,000 -------------------------------------------------------- 1,000,000 Toledo--Lucas County Port Authority IDA Weekly VRDNs (Medusa Corporation)/(Bayerische Vereinsbank Ag LOC)/ (Subject to AMT) AAA 1,000,000 -------------------------------------------------------- 1,500,000 Toledo--Lucas County Port Authority, 2.50% CP (CSX Transportation, Inc.)/(Bank of Nova Scotia LOC), Mandatory Tender 12/14/93 A-1+ 1,500,000 -------------------------------------------------------- 3,200,000 Trumbull County, OH, IDA Weekly VRDNs (Series 1989)/ (McDonald Steel, Inc.)/(PNC Bank N.A., LOC)/(Subject to AMT) A-1 3,200,000 -------------------------------------------------------- 3,400,000 Trumbull County, OH, Weekly VRDNs (Community Skilled Center of Warren, Ohio)/(Marine Bank N.A., Erie LOC) P-1 3,400,000 -------------------------------------------------------- 4,500,000 Westlake, OH, IDR Weekly VRDNs (Kahal Limited Partnership)/(Society Bank LOC)/(Subject to AMT) P-1 4,500,000 -------------------------------------------------------- 2,000,000 Wood County, OH, Weekly VRDNs (Principle Business Enterprises)/(National City Bank LOC)/(Subject to AMT) P-1 2,000,000 --------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED - ---------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------- $ 890,000 Wyoming, OH, 3.05% BANs, 12/4/93 NR(3) $ 890,117 -------------------------------------------------------- ------------ Total 211,139,188 -------------------------------------------------------- ------------ PUERTO RICO--1.2% -------------------------------------------------------- 2,500,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit Suisse and Sumitomo Bank Ltd. LOCs) A-1+ 2,500,000 -------------------------------------------------------- ------------ TOTAL INVESTMENTS (AT AMORTIZED COST) $213,639,188+ -------------------------------------------------------- ------------
* See Notes to Portfolio of Investments. + Also represents cost for federal tax purposes. OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following abbreviations are used in this portfolio: AMBAC -- American Municipal Bond Assurance Corporation AMT -- Alternative Minimum Tax BANs -- Bond Anticipation Notes CP -- Commercial Paper FGIC -- Financial Guaranty Insurance Company GO -- General Obligation HFA -- Housing Finance Authority/Agency IDA -- Industrial Development Authority IDR -- Industrial Development Revenue IDRB -- Industrial Development Revenue Bonds LOC -- Letter of Credit LOCs -- Letters of Credit LT -- Limited Tax PCR -- Pollution Control Revenue TOBs -- Tender Option Bonds UT -- Unlimited Tax VRDNs -- Variable Rate Demand Notes
Note: The categories of investments are shown as a percentage of net assets ($208,765,525) at October 31, 1993. (See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST NOTES TO PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL OBLIGATION RATINGS S&P A Standard & Poor's 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 (+) designation. SP-2 Satisfactory capacity to pay principal and interest. MOODY'S 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. FITCH Fitch's short-term ratings place greater emphasis on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. F-1 Strongest degree of assurance for timely payment. Those issues determined to provide exceptionally strong credit quality are given a plus (+) designation. F-2 Notes reflecting a degree of assurance for timely payment only slightly less in degree than the highest category. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P Standard & Poor's 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-1+, AA/A-1+, and A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) - -------------------------------------------------------------------------------- MOODY'S 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. FITCH Fitch usually assigns two ratings to long-term debt issues that include provisions for a variable rate demand feature. The long-term rating addresses the ability of the obligor to pay debt service and the short-term rating addresses the timely payment of the demand feature. Examples of rating designations are as follows: AAA/F-1+, AA/F-1+, and A/F-1. (The definitions for the long-term and short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS S&P A Standard & Poor's 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 designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign designation. A-2 Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated "A-1". MOODY'S P-1 Issues rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-2 Issues rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. The following is an explanation of the Fitch ratings. These ratings are not referenced in the Portfolio of Investments. FITCH F-1 Issues assigned this rating reflect a strong degree of assurance for timely payment. Those issuers determined to possess the strongest degree of assurance for timely payment are denoted with a plus (+) sign designation. - -------------------------------------------------------------------------------- F-2 Issuers carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as the "F-1+" and "F-1" categories. LONG-TERM DEBT RATINGS (INVESTMENT GRADE) S&P AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the 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. BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest than debt rated in higher ratings categories. MOODY'S AAA Bonds that 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 edge." Interest payments are protected by a large margin and principal is secure. While the various protective elements are likely to change, such changes which can be foreseen are most unlikely to impair the fundamentally strong position of such issues. AA Bonds that 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 that 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 that suggest a susceptibility to impairment some time in the future. BAA Bonds which are rated BAA are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. - -------------------------------------------------------------------------------- FITCH AAA Bonds that are rated AAA are of the highest credit quality. The obligor has an exceptionally strong ability to pay debt service. AA Bonds that are rated AA are of very high quality. The obligor has a very strong ability to pay debt service. Debt rated in this category may also have a (+) or (-) sign with a rating to indicate the relative position within the rating category. A Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. NR indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P, Moody's, or Fitch with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated in one of the two highest short-term ratings categories by a nationally recognized statistical rating organization. NR(1) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "'AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by Fitch. NR(2) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch. NR(3) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "A" by Standard & Poor's, Moody's, or Fitch. NR(4) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by Fitch. OHIO MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1993 - -------------------------------------------------------------------------------- ASSETS: - -------------------------------------------------------------------------------- Investments, at amortized cost and value (Note 2A) $213,639,188 - -------------------------------------------------------------------------------- Cash 239,476 - -------------------------------------------------------------------------------- Interest receivable 1,354,633 - -------------------------------------------------------------------------------- Deferred expenses (Note 2E) 36,258 - -------------------------------------------------------------------------------- ------------ Total assets 215,269,555 - -------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------------------- Payable for investments purchased $6,241,027 - ------------------------------------------------------------------- Dividends payable 156,809 - ------------------------------------------------------------------- Accrued expenses and other liabilities 106,194 - ------------------------------------------------------------------- ---------- Total liabilities 6,504,030 - -------------------------------------------------------------------------------- ------------ NET ASSETS for 208,765,525 shares of beneficial interest outstanding $208,765,525 - -------------------------------------------------------------------------------- ------------ NET ASSET VALUE, Offering Price, and Redemption Price Per Share: - -------------------------------------------------------------------------------- Institutional Shares ($81,748,179 / 81,748,179 shares of beneficial interest outstanding) $1.00 - -------------------------------------------------------------------------------- ------------ Cash II Shares ($127,017,346 / 127,017,346 shares of beneficial interest 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, 1993 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------- Interest income (Note 2B) $5,659,405 - ---------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------- Investment advisory fee (Note 5) $ 813,048 - --------------------------------------------------------------------- Administrative personnel and services (Note 5) 325,056 - --------------------------------------------------------------------- Custodian, transfer and dividend disbursing agent fees and expenses 112,854 - --------------------------------------------------------------------- Trustees' fees 4,273 - --------------------------------------------------------------------- Auditing fees 15,942 - --------------------------------------------------------------------- Legal fees 11,605 - --------------------------------------------------------------------- Printing and postage 13,392 - --------------------------------------------------------------------- Fund share registration costs 36,941 - --------------------------------------------------------------------- Distribution services fees (Note 5) 404,917 - --------------------------------------------------------------------- Insurance premiums 17,775 - --------------------------------------------------------------------- Miscellaneous 12,562 - --------------------------------------------------------------------- ---------- Total expenses 1,768,365 - --------------------------------------------------------------------- Deduct--Waiver of investment advisory fee (Note 5) 392,961 - --------------------------------------------------------------------- ---------- Net expenses 1,375,404 - ---------------------------------------------------------------------------------- ---------- Net investment income $4,284,001 - ---------------------------------------------------------------------------------- ----------
(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, ------------------------------ 1993 1992 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: - -------------------------------------------------------------- OPERATIONS-- - -------------------------------------------------------------- Net investment income $ 4,284,001 5,045,914 - -------------------------------------------------------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - -------------------------------------------------------------- Dividends to shareholders from net investment income: - -------------------------------------------------------------- Institutional Shares (1,570,539) (2,231,320) - -------------------------------------------------------------- Cash II Shares (2,713,462) (2,814,594) - -------------------------------------------------------------- ------------- ------------- Change in net assets from distributions to shareholders (4,284,001) (5,045,914) - -------------------------------------------------------------- ------------- ------------- FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - -------------------------------------------------------------- Proceeds from sale of shares 647,552,523 501,839,900 - -------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of dividends declared 2,703,916 3,069,194 - -------------------------------------------------------------- Cost of shares redeemed (649,710,289) (435,542,255) - -------------------------------------------------------------- ------------- ------------- Change in net assets from Fund share transactions 546,150 69,366,839 - -------------------------------------------------------------- ------------- ------------- Change in net assets 546,150 69,366,839 - -------------------------------------------------------------- NET ASSETS: - -------------------------------------------------------------- Beginning of period 208,219,375 138,852,536 - -------------------------------------------------------------- ------------- ------------- End of period $ 208,765,525 $ 208,219,375 - -------------------------------------------------------------- ------------- -------------
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1993 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company with several 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 provides two classes of shares ("Institutional Shares" and "Cash II Shares"). Cash II Shares are identical in all respects to Institutional Shares except that Cash II Shares are sold pursuant to a distribution plan ("Plan") adopted in accordance with Investment Company Act Rule 12b-1. (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. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that the best method currently available for valuing portfolio securities is amortized cost. The Fund's use of the amortized cost method to value its portfolio securities is conditioned on its compliance with Rule 2a-7 under the Investment Company Act of 1940. Since the Fund may invest 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 general tax-exempt mutual fund. In order to reduce the risk associated with such factors, at October 31, 1993, 72.5% 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 aggregate percentages by financial institution ranged from 0.4% to 11.2% of total investments. B. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest earned net of premium, and original issue discount as required by the Internal Revenue Code (the "Code"). C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal Revenue Code applicable to investment companies and to distribute to shareholders each year all of its net income. Accordingly, no provision for federal tax is necessary. Dividends paid by the Fund representing net interest received on tax-exempt municipal securities are not includable by shareholders as gross income for federal income tax purposes because the Fund intends to meet certain requirements of the Code applicable to regulated investment companies which will enable the Fund to pay exempt-interest dividends. The portion of such interest, if any, earned on private activity bonds issued after August 7, 1986 may be considered a tax preference item to shareholders for the purpose of computing the alternative minimum tax. OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objectives and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain 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. E. 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 the shares, have been deferred and are being amortized using the straight-line method through April 1996. F. EXPENSES--Expenses of the Fund (other than distribution services fees) and waivers and reimbursements, if any, are allocated to each class of shares based on its relative daily average net assets for the period. Expenses incurred by the Trust which do not specifically relate to an individual Fund are allocated among all Funds based on a Fund's relative net asset value size or as deemed appropriate by the administrator. G. OTHER--Investment transactions are accounted for on the date of the transaction. (3) DIVIDENDS The Fund computes its net income daily and, immediately prior to the calculation of its net asset value at the close of business, declares and records dividends to shareholders of record at the time of the previous computation of the Fund's net asset value. Payment of dividends is made monthly in cash, or in additional shares at the net asset value on the payable date. OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- (4) 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, 1993, capital paid-in aggregated $208,765,525. Transactions in Fund shares were as follows:
YEAR ENDED OCTOBER 31, ---------------------------- 1993 1992 ------------ ------------ INSTITUTIONAL SHARES - ---------------------------------------------------------------- Shares outstanding, beginning of period 74,342,130 44,771,476 - ---------------------------------------------------------------- Shares sold 222,190,842 213,513,139 - ---------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 60,099 286,483 - ---------------------------------------------------------------- Shares redeemed (214,844,892) (184,228,968) - ---------------------------------------------------------------- ------------ ------------ Shares outstanding, end of period 81,748,179 74,342,130 - ---------------------------------------------------------------- ------------ ------------ CASH II SHARES - ---------------------------------------------------------------- Shares outstanding, beginning of period 133,877,245 94,081,060 - ---------------------------------------------------------------- Shares sold 425,361,681 288,326,761 - ---------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 2,643,817 2,782,711 - ---------------------------------------------------------------- Shares redeemed (434,865,397) (251,313,287) - ---------------------------------------------------------------- ------------ ------------ Shares outstanding, end of period 127,017,346 133,877,245 - ---------------------------------------------------------------- ------------ ------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Federated Management, the Fund's investment adviser ("Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser has voluntarily agreed to waive a portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time in its sole discretion. During the fiscal year ended October 31, 1993 the Adviser earned $813,048 of which $392,961 was voluntarily waived. Organizational expenses ($37,324) and start-up administrative services expenses ($40,612) were borne initially by the Adviser. The Fund has agreed to pay the Adviser, at an annual rate of .005 of 1% of average daily net assets and .01 of 1% of average daily net assets for organization expenses and start-up administrative expenses, respectively, until the expenses borne initially by the Adviser are reimbursed, or the expiration of five years from April 24, 1991, the date the Trust's portfolio became effective, whichever occurs earlier. During the fiscal year ended October 31, 1993, the Fund paid Adviser $10,106 and $20,211, respectively, pursuant to this agreement. OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- During the fiscal year ended October 31, 1993, the Fund engaged in purchase and sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7 of the Investment Company Act of 1940 amounting to $231,225,000 and $257,985,000, respectively. These purchases and sales were conducted on an arms-length basis insofar as they were transacted for cash consideration only, at independent current market prices and without brokerage commission, fee or other remuneration. The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Trust will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the assets of the Fund, for fees it paid which relate to the distribution and administration of the Fund's Cash II Shares. The Plan provides that the Fund may incur distribution expenses up to .30 of 1% of the average daily net assets of the Cash II Shares, annually, to pay commissions, maintenance fees and to compensate the distributor. During the fiscal year ended October 31, 1993, FSC earned $404,917 in distribution services fees, none of which was voluntarily waived. Administrative personnel and services were provided at approximate cost by Federated Administrative Services, Inc. Certain Officers and Trustees of the Trust are Officers and Directors of the above corporations. (6) CURRENT CREDIT RATINGS Current credit ratings and related notes are unaudited. 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, 1993, 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 18 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 the securities owned as of October 31, 1993, 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 Ohio Municipal Cash Trust, an investment portfolio of Federated Municipal Trust, as of October 31, 1993, 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 & CO. Pittsburgh, Pennsylvania December 13, 1993 42 ADDRESSES - -------------------------------------------------------------------------------- Ohio Municipal Cash Trust Cash II Shares Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Investment Adviser Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Custodian State Street Bank and P.O. Box 8604 Trust Company Boston, Massachusetts 02266-8604 - ------------------------------------------------------------------------------------------------ Transfer Agent and Dividend Disbursing Agent Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - ------------------------------------------------------------------------------------------------ Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, D.C. 20037 - ------------------------------------------------------------------------------------------------ Independent Public Accountants Arthur Andersen & Co. 2100 One PPG Place Pittsburgh, Pennsylvania 15222 - ------------------------------------------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST CASH II SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company December 31, 1993 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 1030105A-CII (12/93) 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 non-diversified portfolio of securities which is one of a series of investment portfolios in Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The investment objective of the Fund is to 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 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, which are exempt from the federal regular and Ohio state income tax. Institutional Shares are sold at net asset value, without a sales load. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. 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. THE INSTITUTIONAL 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 BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. This prospectus contains the information you should read and know before you invest in Institutional Shares. Keep this prospectus for future reference. The Fund has also filed a Combined Statement of Additional Information for Cash II Shares and Institutional Shares dated December 31, 1993, with the Securities and Exchange Commission. The information contained in the Combined Statement of Additional Information is incorporated by reference in this prospectus. You may request a copy of the Combined Statement of Additional Information free of charge by calling 1-800-235-4669. To obtain other information or to make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1993 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 Acceptable Investments 3 Variable Rate Demand Notes 4 Participation Interests 4 Municipal Leases 4 Ratings 4 Credit Enhancement 5 Demand Features 5 Restricted and Illiquid Securities 5 When-Issued and Delayed Delivery Transactions 5 Temporary Investments 5 Ohio Municipal Securities 6 Standby Commitments 6 Ohio Investment Risks 6 Non-Diversification 7 Investment Limitations 7 Regulatory Compliance 7 FEDERATED MUNICIPAL TRUST INFORMATION 8 - ------------------------------------------------------ Management of Federated Municipal Trust 8 Board of Trustees 8 Investment Adviser 8 Advisory Fees 8 Adviser's Background 8 Distribution of Institutional Shares 9 Administration of the Fund 9 Administrative Services 9 Custodian 9 Transfer Agent and Dividend Disbursing Agent 9 Legal Counsel 9 Independent Public Accountants 9 NET ASSET VALUE 9 - ------------------------------------------------------ INVESTING IN INSTITUTIONAL SHARES 9 - ------------------------------------------------------ Share Purchases 9 By Wire 9 By Mail 10 Minimum Investment Required 10 What Shares Cost 10 Subaccounting Services 10 Certificates and Confirmations 10 Dividends 11 Capital Gains 11 REDEEMING INSTITUTIONAL SHARES 11 - ------------------------------------------------------ Telephone Redemption 11 Written Requests 11 Signatures 12 Receiving Payment 12 Redemption Before Purchase Instruments Clear 12 Accounts with Low Balances 12 SHAREHOLDER INFORMATION 12 - ------------------------------------------------------ Voting Rights 12 Massachusetts Partnership Law 13 TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 Ohio Tax Considerations 14 Other State and Local Taxes 15 PERFORMANCE INFORMATION 15 - ------------------------------------------------------ OTHER CLASSES OF SHARES 16 - ------------------------------------------------------ Financial Highlights--Cash II Shares 17 FINANCIAL STATEMENTS 18 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 39 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............. None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)................................................................................ None Deferred Sales Load (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 INSTITUTIONAL SHARES OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)........................................................ 0.28% 12b-1 Fee............................................................................... None Other Expenses.......................................................................... 0.27% Total Institutional Shares Operating Expenses(2).................................... 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 Total Institutional Shares Operating Expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1994. The Total Institutional Shares Operating Expenses were 0.48% for the fiscal year ended October 31, 1993, and were 0.67% absent the voluntary waiver of a portion of the management fee. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL SHARES" AND "FEDERATED MUNICIPAL TRUST 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. As noted in the table above, the Fund charges no redemption fee for Institutional Shares.................................... $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. The information set forth in the foregoing table and example relates only to Institutional Shares of the Fund. The Fund also offers another class of shares called Cash II Shares. Institutional Shares and Cash II Shares are subject to certain of the same expenses; however, Cash II Shares are subject to a 12b-1 fee of 0.30%. See "Other Classes of Shares." OHIO 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 39.
YEAR ENDED OCTOBER 31, -------------------------------- 1993 1992 1991* -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 - ----------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------------------------------- Net investment income 0.02 0.03 0.02 - ----------------------------------------------------------------- ------- ------- ------- LESS DISTRIBUTIONS - ----------------------------------------------------------------- Dividends to shareholders from net investment income (0.02) (0.03) (0.02) - ----------------------------------------------------------------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 - ----------------------------------------------------------------- ------- ------- ------- TOTAL RETURN** 2.33% 3.21% 2.40%(a) - ----------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------------------------------- Expenses 0.48% 0.46% 0.35%(b) - ----------------------------------------------------------------- Net investment income 2.30% 3.10% 4.46%(b) - ----------------------------------------------------------------- Expense waiver/reimbursement (c) 0.19% 0.25% 0.32%(b) - ----------------------------------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------------------------------- Net assets, end of period (000 omitted) $81,748 $74,342 $44,771 - -----------------------------------------------------------------
* Reflects operations for the period from April 22, 1991 (date of initial public investment) to October 31, 1991. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (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 of beneficial interest 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") have established two classes of shares, known as Institutional Shares and Cash II Shares. This prospectus relates only to Institutional Shares of the Fund. Institutional Shares ("Shares") of the Fund are designed for the investment of monies held by financial institutions in a fiduciary or agency capacity. A minimum initial investment of $25,000 over a 90-day period is required. The Fund may not be a suitable investment for non-Ohio taxpayers or retirement plans since it invests primarily in Ohio municipal securities. The Fund attempts to stabilize the value of a Share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to provide current income exempt from federal regular income tax and the personal income taxes imposed by the State of Ohio and Ohio municipalities 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 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 Ohio. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in a portfolio of Ohio municipal securities with remaining maturities of 13 months or less at the time of purchase by the Fund. As a matter of investment policy, which cannot be changed without approval of shareholders, the Fund invests its assets so that at least 80% of its annual interest income is exempt from federal regular and Ohio state income taxes. 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 the approval of shareholders. 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 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 both federal regular income tax and Ohio state income tax imposed upon non-corporate taxpayers. Examples of Ohio municipal securities include, but are not limited to: - tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; - bond anticipation notes ("BANs") 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 municipal securities 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 municipal interest index or a stated percentage of a prime rate or another 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 adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in municipal securities from financial institutions such as commercial and investment banks, savings and loan associations and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying municipal securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities and may be considered to be illiquid. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation certificate on any of the above. RATINGS. The Ohio municipal securities in which the Fund invests must either 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 Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1 and FIN-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 categories. See "Regulatory Compliance." CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been credit-enhanced by a guaranty, letter of credit or insurance. 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. The bankruptcy, receivership or default of the credit enhancer will adversely affect the quality and marketability of the underlying security. 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. 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 laws. Under criteria established by the Trustees, certain restricted securities are considered liquid. To the extent restricted securities are deemed to be illiquid, the Fund will limit their purchases, together with other securities considered to be illiquid, to 10% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Ohio municipal securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in short-term non-Ohio municipal tax-exempt obligations or other taxable temporary investments. All temporary investments will satisfy the same credit quality standards as the Fund's acceptable investments. See "Ratings" above. Temporary investments include: notes issued by or on behalf of municipal or corporate issuers; marketable obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; other debt securities; commercial paper; certificates of deposit of banks; and repurchase agreements (arrangements in which banks, broker/dealers, and other recognized financial institutions sell the Fund a temporary investment and agree 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 of generating income subject to federal regular or Ohio state income taxes. 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 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. STANDBY COMMITMENTS Some securities dealers are willing to sell municipal securities to the Fund accompanied by their commitments to repurchase the municipal securities prior to maturity, at the Fund's option, for the amortized cost of the municipal securities at the time of repurchase. These arrangements are not used to protect against changes in the market value of municipal securities. They permit the Fund, however, to remain fully invested and still provide liquidity to satisfy redemptions. The cost of municipal securities accompanied by these "standby" commitments could be greater than the cost of municipal securities without such commitments. Standby commitments are not marketable or otherwise assignable and have value only to the Fund. The default or bankruptcy of a securities dealer giving such a commitment would not affect the quality of the municipal securities purchased. However, without a standby commitment, these securities could be more difficult to sell. The Fund enters into standby commitments only with those dealers whose credit the investment adviser believes to be of high quality. The Fund will only enter into standby commitments if there will be no adverse effect on the exemption of distributions from Ohio state income taxes. OHIO 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 the municipal bond market; the size and maturity of the particular offering; the maturity of the obligations; and the rating of the issue. Further, any adverse economic conditions or developments affecting the State of Ohio or its municipalities could impact the Fund's portfolio. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Ohio municipal securities and demand features for such securities, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. Investing in Ohio municipal securities which meet the Fund's quality standards may not be possible if the State of Ohio or its municipalities do not maintain their high quality, short-term current credit ratings. In addition, certain Ohio constitutional amendments, legislative measures, executive orders, administrative regulations, and voter initiatives could result in adverse consequences affecting Ohio municipal securities. An expanded discussion of the current economic risks associated with the purchase of Ohio municipal securities is contained in the Combined Statement of Additional Information. NON-DIVERSIFICATION The Fund is a non-diversified investment portfolio. As such, there is no limit on the percentage of assets which can be invested in any single issuer. An investment in the Fund, therefore, will entail greater risk than would exist in a diversified investment portfolio because the higher percentage of investments among fewer issuers may result in greater fluctuation in the total market value of the Fund's portfolio. Any economic, political, or regulatory developments affecting the value of the securities in the Fund's portfolio will have a greater impact on the total value of the portfolio than would be the case if the portfolio were diversified among more issuers. The Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that at the end of each quarter of the taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer; beyond that, no more than 25% of its total assets are invested in the securities of a single issuer. 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 above investment limitation cannot be changed without shareholder approval. The following limitations, however, can be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. The Fund will not invest more than 5% of its total assets in industrial development bonds or other municipal securities when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in this prospectus and its Combined 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, as amended. 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 INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF FEDERATED MUNICIPAL TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of Trustees is 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. The Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, 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, for which it receives an annual fee from the Fund. ADVISORY FEES. The Fund's adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. Under the advisory contract, which provides for the voluntary waiver of the advisory fee by the adviser, the adviser may voluntarily waive some or all of the advisory fee. This does not include reimbursement to the Fund of any expenses incurred by shareholders who use the transfer agent's subaccounting facilities. The adviser can terminate this voluntary reimbursement of expenses at any time at its sole discretion. The adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. 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, 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. Total assets under management or administration by these and other subsidiaries of Federated Investors are approximately $70 billion. Federated Investors, which was founded in 1956 as Federated Investors, Inc., develops and manages mutual funds primarily for the financial industry. Federated Investors' track record of competitive performance and its disciplined, risk-averse investment philosophy serve approximately 3,500 client institutions nationwide. Through these same client institutions, individual shareholders also have access to this same level of investment expertise. DISTRIBUTION OF INSTITUTIONAL SHARES Federated Securities Corp. is the principal distributor for Institutional Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund and the separate classes. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services, Inc. provides these at approximate cost. CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and dividend disbursing agent for the Fund. LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania. 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 adding the interest of the Shares in the value of all securities and other assets of the Fund, subtracting the interest of the Shares in the liabilities of the Fund and those attributable to Shares, and dividing the remainder by the total number of Shares outstanding. The Fund, of course, cannot guarantee that its net asset value will always remain at $1.00 per Share. INVESTING IN INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- SHARE PURCHASES Shares are sold on days on which the New York Stock Exchange and the Federal Reserve wire system are open for business. Shares may be purchased either by wire or by mail. The Fund reserves the right to reject any purchase request. To purchase Shares, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken over the telephone. BY WIRE. To purchase Shares by Federal Reserve wire, call 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 same day. Federal funds should be wired as follows: State Street Bank and Trust Company, Boston, Massachusetts; 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; ABA Number 011000028. Shares cannot be purchased by wire on days on which the New York Stock Exchange is closed and on federal holidays restricting wire transfers. BY MAIL. To purchase Shares by mail, send a check made payable to Ohio Municipal Cash Trust-- Institutional Shares to the Trust's transfer agent, Federated Services Company, c/o State Street Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are considered received when payment by check is converted by State Street Bank into federal funds. This is normally the next business day after State Street Bank receives the check. MINIMUM INVESTMENT REQUIRED The minimum initial investment in the Shares is $25,000. However, an account may be opened with a smaller amount as long as the $25,000 minimum is reached within 90 days. An institutional investor's minimum investment will be calculated by combining all accounts it maintains with the Fund. Individual accounts established through a bank or broker may be subject to a different minimum investment requirement. WHAT SHARES COST Shares are sold at their net asset value next determined after an order is received. There is no sales charge imposed by the Fund. Investors who purchase Shares through a bank or broker may be charged an additional service fee by that bank or broker. The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m. (Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no Shares are tendered for redemption and no orders to purchase Shares are received; or (iii) the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. SUBACCOUNTING SERVICES Institutions are encouraged to open single master accounts. However, certain institutions may wish to use the transfer agent's subaccounting system to minimize their internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Financial institutions holding Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Shares. This prospectus should, therefore, be read together with any agreement between the customer and the financial institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Monthly confirmations are sent to report transactions such as purchases and redemptions as well as dividends paid during the month. DIVIDENDS Dividends are declared daily and paid monthly. Shares purchased by wire before 3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends on the day after the check is converted, upon instruction of the transfer agent, into federal funds. Dividends are automatically reinvested on payment dates in additional Shares unless cash payments are requested on an application or by contacting the Fund. CAPITAL GAINS Capital gains, if any, could result in an increase in dividends. Capital losses, if any, could result in a decrease in dividends. If, for some extraordinary reason, the Fund realizes net long-term or short-term capital gains, it will distribute them at least once every 12 months. REDEEMING INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares 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 by telephone request or by written request. TELEPHONE REDEMPTION Shareholders may redeem their Shares by telephoning the Fund. Redemption requests received before 12:00 noon (Eastern time) are not entitled to that day's dividend. A daily dividend will be paid on Shares redeemed if the redemption request is received after 12:00 noon (Eastern time). However, the proceeds are not wired until the following business day. If, at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders will be promptly notified. An authorization form permitting the Fund to accept redemption requests by telephone must first be completed. Authorization forms and information on this service are available from Federated Securities Corp. Telephone redemption instructions may be recorded. 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, shareholders may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption, such as Written Requests, should be considered. WRITTEN REQUESTS Shares may also be redeemed by sending a written request to the Fund. Call the Fund for specific instructions before redeeming by letter. The shareholder will be asked to provide in the request his name, the Fund name and class of shares, his account number, and the Share or dollar amount requested. If Share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, 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 signatures on written redemption requests guaranteed by: - a trust company or commercial bank whose deposits are insured by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance Corporation ("FDIC"); - a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; - a savings bank or savings and loan association whose deposits are insured by the Savings Association Insurance Fund ("SAIF"), which is administered by the FDIC; 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. The Fund and its transfer agent have 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 and its transfer agent reserve the right to amend these standards at any time without notice. RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request provided that the transfer agent has received payment for the Shares from the shareholder. REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR When Shares are purchased by check, the proceeds from the redemption of those Shares are not available, and the Shares may not be exchanged, until the Fund or its agents are reasonably certain that the purchase check has cleared, which could take up to ten calendar days. 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. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each Share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights except that in matters affecting only a particular Fund or class, only shares of that Fund or class are entitled to vote. As a Massachusetts business trust, 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 for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of all series of the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders of the Fund, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such 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 of the Fund is held personally liable for the Trust's obligations, the Trust is required 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 cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. 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 some municipal bonds may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The alternative minimum tax, equal to up to 28% of alternative minimum taxable income for individuals and 20% for corporations, 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. The Tax Reform Act of 1986 treats interest on certain "private activity" bonds issued after August 7, 1986, as a tax preference item for both individuals and corporations. Unlike traditional governmental purpose municipal bonds, which finance roads, schools, libraries, prisons and other public facilities, private activity bonds provide benefits to private parties. The Fund may purchase all types of municipal bonds, including private activity bonds. Thus, should it purchase any such bonds, a portion of the Fund's dividends may be treated as a tax preference item. In addition, in the case of a corporate shareholder, dividends of the Fund which represent interest on municipal bonds may be subject to the 20% corporate alternative minimum tax because the dividends are included in a corporation's "adjusted current earnings." The corporate alternative minimum tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's alternative minimum taxable income as a tax preference item. "Adjusted current earnings" is based upon the concept of a corporation's "earnings and profits." Since "earnings and profits" generally includes the full amount of any Fund dividend, and alternative minimum taxable income does not include the portion of the Fund's dividend attributable to municipal bonds which are not private activity bonds, 75% of the difference will be included in the calculation of the corporation's alternative minimum 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. Information on the tax status of dividends and distributions is provided annually. OHIO TAX CONSIDERATIONS Under existing Ohio laws, distributions made by the Fund will not be subject to Ohio individual income tax if 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 dividends will not be exempt from Ohio individual income tax. Distributions made by the Fund will not be subject to Ohio corporation franchise tax if such distributions qualify as "exempt-interest dividends" under the 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 the State of 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 STATE AND LOCAL TAXES Income from the Fund is not necessarily free from regular state income taxes in states other than Ohio or from personal property taxes. State laws differ on this issue and 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 the Fund advertises its yield, effective yield, and tax-equivalent yield for Institutional Shares. The yield of Institutional Shares represents the annualized rate of income earned on an investment in Institutional Shares 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 in Institutional Shares 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 of Institutional Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the Institutional Shares would have had to earn to equal their actual yield, assuming a specific tax rate. Advertisements and other sales literature may also refer to total return. Total return represents the change, over a specified period of time, in the value of an investment in Institutional 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, and tax-equivalent yield will be calculated separately for Institutional Shares and Cash II Shares. Because the Cash II Shares are subject to 12b-1 fees, the yield, the effective yield and the tax-equivalent yield for Institutional Shares will exceed the yield, the effective yield, and the tax-equivalent yield for Cash II Shares for the same period. From time to time, the Fund may advertise the performance of Institutional Shares using certain reporting services and/or compare the performance of Institutional Shares to certain indices. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- Cash II Shares are sold primarily to retail customers of financial institutions. Cash II Shares are sold at net asset value. Investments in Cash II Shares are subject to a minimum initial investment of $25,000. Cash II Shares are distributed pursuant to a 12b-1 Plan adopted by the Trust whereby the distributor is paid a fee of .30 of 1% of the Cash II Shares' average daily net assets. Financial institutions and brokers providing sales and/or administrative services may receive different compensation from one class of shares of the Fund than from another class of shares. While the distributor may, in addition to fees paid pursuant to the 12b-1 Plan, pay an administrative fee to a financial institution or broker for administrative services provided to a class, such a fee will not be an expense of the class, but will be reimbursed to the distributor by the investment adviser. The amount of dividends payable to Institutional Shares will exceed that of Cash II Shares by the difference between class expenses and distribution expenses borne by shares of each respective class. The stated advisory fee is the same for both classes of shares. 16 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 39.
YEAR ENDED OCTOBER 31, ------------------------------- 1993 1992 1991* -------- -------- ------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 - ------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------------------------ Net investment income 0.02 0.03 0.02 - ------------------------------------------------------------------ -------- -------- ------- LESS DISTRIBUTIONS - ------------------------------------------------------------------ Dividends to shareholders from net investment income (0.02) (0.03) (0.02) - ------------------------------------------------------------------ -------- -------- ------- NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 - ------------------------------------------------------------------ -------- -------- ------- TOTAL RETURN** 2.02% 2.90% 2.27%(a) - ------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------ Expenses 0.78% 0.76% 0.63%(b) - ------------------------------------------------------------------ Net investment income 2.01% 2.86% 4.18%(b) - ------------------------------------------------------------------ Expense waiver/reimbursement (c) 0.19% 0.25% 0.34%(b) - ------------------------------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------------------------------ Net assets, end of period (000 omitted) $127,017 $133,877 $94,081 - ------------------------------------------------------------------
* Reflects operations for the period from April 22, 1991 (date of initial public investment) to October 31, 1991. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENT OCTOBER 31, 1993 - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES--102.3% - ---------------------------------------------------------------------- OHIO--101.1% -------------------------------------------------------- $ 500,000 Allen County, OH, IDR Weekly VRDNs (Nickles Bakery of Ohio, Inc.)/(Society Bank N.A. LOC)/(Subject to AMT) P-1 $ 500,000 -------------------------------------------------------- 3,000,000 Cincinnati, OH, Building Acquisition, 2.93% GO UT BANs, 6/1/94 NR(2) 3,002,197 -------------------------------------------------------- 1,900,000 Cincinnati, OH, Student Loan Authority Weekly VRDNs (Cincinnati Student Loan Funding Corp.)/(National Westminster Bank PLC LOC)/(Subject to AMT) VMIG1 1,900,000 -------------------------------------------------------- 1,175,000 Cincinnati, OH, Student Loan Funding Corp. Weekly VRDNs (Series 1988B-1)/(Student Loan Funding Corp.)/ (Sumitomo Bank Ltd. LOC)/(Subject to AMT) VMIG1 1,175,000 -------------------------------------------------------- 5,375,000 Cincinnati, OH, Student Loan Revenue Bonds, 2.90% Annual TOBs (Series 1987A)/(Cincinnati Student Loan Funding Corp.)/(Fuji Bank Ltd. LOC)/(Subject to AMT), Mandatory Tender 7/1/94 VMIG1 5,375,000 -------------------------------------------------------- 4,000,000 Cincinnati--Hamilton County Port Authority Weekly VRDNs (4th Street Limited Partnership)/(PNC Bank, Kentucky LOC) P-1 4,000,000 -------------------------------------------------------- 2,675,000 Cincinnati--Hamilton County Port Authority, 2.95% Annual TOBs (Series 8)/(Bethesda One Limited Partnership)/(Bank One, Columbus, N.A. LOC), Optional Tender 8/1/94 P-1 2,675,000 -------------------------------------------------------- 9,000,000 Cleveland, OH, Gateway Economic Development Corp. Weekly VRDNs (Gateway Stadium Authority)/(Fuji Bank Ltd. LOC)/(Subject to AMT) A-1 9,000,000 -------------------------------------------------------- 400,000 Cleveland, OH, IDA Weekly VRDNs (Garland Company)/ (Society Bank N.A. LOC) P-1 400,000 --------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED - ---------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------- $2,000,000 Clinton County, OH, Hospital Authority Weekly VRDNs (Clinton Memorial Hospital)/(BancOhio National Bank LOC) P-1 $ 2,000,000 -------------------------------------------------------- 1,100,000 Columbus, OH, Sewer System Revenue Bonds Weekly VRDNs (Series B)/(Sanwa Bank, Ltd. LOC) A-1+ 1,100,000 -------------------------------------------------------- 1,295,000 Crawford County, OH, IDA, 2.95% TOBs (United Photographic, Inc.)/(Bank One, Columbus N.A. LOC), 3/1/94 P-1 1,295,000 -------------------------------------------------------- 1,000,000 Cuyahoga County, OH, IDA Weekly VRDNs (Animal Protection League)/(Society Bank N.A. LOC) P-1 1,000,000 -------------------------------------------------------- 765,000 Cuyahoga County, OH, IDA Weekly VRDNs (Parma-Commerce Parkway-West)/(Society Bank N.A. LOC) P-1 765,000 -------------------------------------------------------- 1,500,000 Cuyahoga County, OH, IDA Weekly VRDNs (Premier Manufacturing)/(First National Bank, Louisville LOC)/ (Subject to AMT) P-1 1,500,000 -------------------------------------------------------- 2,100,000 Cuyahoga County, OH, IDR Weekly VRDNs (East Park Retirement Community, Inc.)/(Society Bank N.A. LOC)/ (Subject to AMT) P-1 2,100,000 -------------------------------------------------------- 885,000 Cuyahoga County, OH, IDR Weekly VRDNs (Interstate Diesel Service, Inc.)/(Huntington National Bank LOC)/ (Subject to AMT) P-1 885,000 -------------------------------------------------------- 500,000 Cuyahoga County, OH, Weekly VRDNs (Landerhaven Country Club Estates Ltd.)/(Society Bank N.A. LOC) P-1 500,000 -------------------------------------------------------- 3,470,000 Cuyahoga Falls, OH, 2.82% BANs, 3/9/94 NR(3) 3,472,034 -------------------------------------------------------- 1,275,000 Cuyahoga Falls, OH, 2.87% BANs, 1/21/94 NR(3) 1,275,466 -------------------------------------------------------- 5,000,000 Dayton, OH, Revenue Refunding Bonds Weekly VRDNs (Series 1993E)/(Emery Air Freight Corp.)/(Mellon Bank N.A. LOC) VMIG1 5,000,000 --------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED - ---------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------- $1,000,000 Elyria, OH, 2.82% LT GO BANs, 4/7/94 NR(3) $ 1,000,499 -------------------------------------------------------- 1,640,000 Euclid, OH, 2.93% GO BANs, 9/29/94 NR(2) 1,641,880 -------------------------------------------------------- 725,000 Fairfield County, OH, 3.32% Sewer Improvement Bonds, 11/19/93 NR 725,146 -------------------------------------------------------- 2,415,000 Fairfield County, OH, 3.15% BANs, 10/28/94 NR 2,423,121 -------------------------------------------------------- 1,459,672 Fayetteville-Perry, OH, Local School District, 2.93% BANs, 6/10/94 NR 1,461,648 -------------------------------------------------------- 3,345,000 Franklin County, OH, IDA Weekly VRDNs (Unicorn Leasing Co.)/(Fifth Third Bank LOC)/(Subject to AMT) P-1 3,345,000 -------------------------------------------------------- 4,500,000 Franklin County, OH, IDR Weekly VRDNs (Heekin Can, Inc.)/(PNC Bank N.A. LOC) P-1 4,500,000 -------------------------------------------------------- 2,000,000 Franklin County, OH, IDRB Weekly VRDNs (Tigerpoly Manufacturing, Inc.)/(Mitsubishi Bank Ltd. LOC)/(Subject to AMT) P-1 2,000,000 -------------------------------------------------------- 7,800,000 Franklin County, OH, Weekly VRDNs (Series 1992)/ (Rickenbacker Holdings, Inc.)/(Bank One, Columbus N.A. LOC) P-1 7,800,000 -------------------------------------------------------- 2,000,000 Hamilton County, OH, 2.45% Metropolital Sewer System Improvement and Revenue BANs (Series A), 12/1/93 NR(3) 2,000,000 -------------------------------------------------------- 3,500,000 Hamilton County, OH, 2.74%, 11/10/93 NR(3) 3,500,034 -------------------------------------------------------- 2,500,000 Hamilton County, OH, Hospital Authority Revenue Bonds Weekly VRDNs (Series 1986A)/(Good Samaritan Hospital) A-1 2,500,000 -------------------------------------------------------- 3,000,000 Hamilton County, OH, Sewer System Improvement and Revenue Bonds Weekly VRDNs (P-FLOATS)/(FGIC Insured) VMIG1 3,000,000 -------------------------------------------------------- 2,500,000 Hamilton, OH, 2.82% LT GO BANs, 6/17/94 NR(3) 2,500,298 -------------------------------------------------------- 1,300,000 Hamilton, OH, 2.96%, 9/2/94 NR(3) 1,300,414 --------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED - ---------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------- $1,210,000 Hilliard, OH, 2.94% BANs, 4/15/94 NR(3) $ 1,211,278 -------------------------------------------------------- 760,000 Hillsboro, OH, IDR Weekly VRDNs (Series 1987)/(TD Manufacturing Ltd.)/(Sanwa Bank Ltd. LOC)/(Subject to AMT) VMIG1 760,000 -------------------------------------------------------- 2,000,000 Holmes County, OH, IDA Weekly VRDNs (Poultry Processing, Inc.)/(Rabobank Nederland LOC)/(Subject to AMT) A-1+ 2,000,000 -------------------------------------------------------- 400,000 Kettering, OH, IDA Weekly VRDNs (Center-Plex Venture, Inc.)/(Society Bank N.A. LOC) P-1 400,000 -------------------------------------------------------- 1,000,000 Lake County, OH, 2.80% LT BANs, 11/9/93 NR(2) 1,000,064 -------------------------------------------------------- 1,735,000 Lake County, OH, 2.93% BANs, 10/13/94 NR(2) 1,737,072 -------------------------------------------------------- 355,000 Lucas County, OH, Health Care Improvement Weekly VRDNs (Sunshine Children's Home)/(National City Bank, Cleveland LOC) P-1 355,000 -------------------------------------------------------- 2,150,000 Lucas County, OH, Hospital Facility Improvement Revenue Bonds Weekly VRDNs (Series 93)/(Lott Industries, Inc.)/ (National City Bank LOC) P-1 2,150,000 -------------------------------------------------------- 2,400,000 Lucas County, OH, IDA Weekly VRDNs (Kuhlman Corp.)/ (Society Bank N.A. LOC) P-1 2,400,000 -------------------------------------------------------- 3,000,000 Lucas County, OH, Various Purpose Improvement Notes, 3.87% BANs (Series 1993-1), 8/18/94 NR(4) 3,008,509 -------------------------------------------------------- 1,500,000 Mahoning County, OH, IDR Weekly VRDNs (Tru-Cut Die Corp.)/(PNC Bank, Ohio N.A. LOC)/(Subject to AMT) P-1 1,500,000 -------------------------------------------------------- 3,025,000 Mahoning County, OH, Multifamily HFA Weekly VRDNs (International Towers Inc.)/(Marine Bank, Warren LOC)/ (Subject to AMT) A-1 3,025,000 --------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED - ---------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------- $1,660,000 Mansfield, OH, IDR Weekly VRDNs (Designed Metal Products, Inc.)/(Bank One, Indianapolis LOC)/(Subject to AMT) P-1 $ 1,660,000 -------------------------------------------------------- 1,000,000 Massillon, OH, 3.13% BANs, 10/5/94 NR(3) 1,003,872 -------------------------------------------------------- 700,000 Medina County, OH, IDA Weekly VRDNs (National Metal Abrasive, Inc.)/(Society Bank N.A. LOC) P-1 700,000 -------------------------------------------------------- 520,000 Medina County, OH, IDR, 3.05% TOBs (Bopco Associates)/ (Bank One, Akron N.A. LOC)/(Subject to AMT), 3/1/94 NR 520,000 -------------------------------------------------------- 750,000 Middleburg Heights, OH, 2.83% BANs 6/2/94 NR(2) 750,980 -------------------------------------------------------- 3,800,000 Montgomery County, OH, IDA Weekly VRDNs (Series 1992)/(Badger Paper Mills, Inc.)/(Central Trust Co. N.A. LOC)/(Subject to AMT) P-1 3,800,000 -------------------------------------------------------- 1,000,000 Moraine, OH, 2.50% BANs, 11/17/93 NR 1,000,043 -------------------------------------------------------- 500,000 Muskingham County, OH, Hospital Facilities Authority Weekly VRDNs (Bethesda Care Systems)/(BancOhio National Bank LOC) VMIG1 500,000 -------------------------------------------------------- 1,385,000 Napoleon, OH, 2.49% BANs, 2/23/94 NR(3) 1,385,208 -------------------------------------------------------- 3,000,000 North Olmsted, OH, 2.94% BANs, 3/24/94 MIG1 3,003,554 -------------------------------------------------------- 420,000 North Olmsted, OH, IDA Weekly VRDNs (Bryant & Stratton Corp.)/(Society Bank N.A. LOC)/(Subject to AMT) P-1 420,000 -------------------------------------------------------- 825,000 North Olmsted, OH, IDR, 3.00% (Therm-All)/(National City Bank LOC), 2/1/94 P-1 825,000 -------------------------------------------------------- 2,430,000 Ohio Housing Finance Agency Weekly VRDNs (Westchester Village)/(Society Bank N.A. LOC) P-1 2,430,000 -------------------------------------------------------- 7,745,000 Ohio Housing Finance Agency, 3.00% TOBs (Lincoln Park Associates)/(Comerica Bank LOC), Optional Tender 11/1/93 VMIG1 7,745,000 --------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED - ---------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------- $1,000,000 Ohio State Air Quality Development Authority Weekly VRDNs (Timkin Co.)/(Credit Suisse LOC) A-1+ $ 1,000,000 -------------------------------------------------------- 3,350,000 Ohio State Air Quality Development Authority, 2.50% CP (Cincinnati Gas & Electric Co.)/(Morgan Bank (Delaware) N.A. LOC), Mandatory Tender 11/9/93 A-1+ 3,350,000 -------------------------------------------------------- 4,700,000 Ohio State Air Quality Development Authority, 2.50% CP (Cleveland Electric Illuminating Co.)/(FGIC Insured), Mandatory Tender 11/16/93 A-1+ 4,700,000 -------------------------------------------------------- 4,850,000 Ohio State Air Quality Development Authority, 2.70% CP (Cincinnati Gas & Electric Co.)/(Morgan Bank (Delaware) N.A. LOC), Mandatory Tender 2/11/94 A-1+ 4,850,000 -------------------------------------------------------- 3,000,000 Ohio State Air Quality Development Authority, 2.70% CP (Cleveland Electric Illuminating Co.)/(Citibank N.A. LOC)/ (FGIC Insured), Mandatory Tender 1/25/94 A-1 3,000,000 -------------------------------------------------------- 4,850,000 Ohio State Air Quality Development Authority, 2.85% Refunding Bonds Annual TOBs (Ohio Edison Company)/ (Bankers Trust Company LOC), Optional Tender 2/1/94 VMIG1 4,851,181 -------------------------------------------------------- 1,615,000 Ohio State IDR Weekly VRDNs (Series 1991)/(Standby Screw, Inc.)/(BancOhio National Bank LOC)/(Subject to AMT) A-1+ 1,615,000 -------------------------------------------------------- 1,000,000 Ohio State Water PCR Bonds Weekly VRDNs (PPG Industries) P-1 1,000,000 -------------------------------------------------------- 800,000 Ohio State Weekly VRDNs (John Carroll University)/(PNC Bank N.A. LOC) P-1 800,000 -------------------------------------------------------- 1,650,000 Orrville, OH, IDA Weekly VRDNs (O.S. Associates)/ (National City Bank LOC)/(Subject to AMT) A-1 1,650,000 -------------------------------------------------------- 1,000,000 Pickaway County, OH, IDA Weekly VRDNs (PPG Industries) P-1 1,000,000 --------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED - ---------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------- $ 460,000 Portage County, OH, IDA Weekly VRDNs (D&W Associates)/(Society Bank N.A. LOC) P-1 $ 460,000 -------------------------------------------------------- 455,000 Portage County, OH, IDR, 3.05% TOBs (Neidlinger)/ (Society Bank N.A. LOC)/(Subject to AMT), 3/1/94 P-1 455,000 -------------------------------------------------------- 6,230,000 Richland County, OH, 2.96% GO BANs, 9/15/94 NR 6,241,027 -------------------------------------------------------- 630,000 Ross County, OH, Airport Improvement Bonds, 3.61% BANs (Series 1991)/(Subject to AMT), 4/29/94 NR 631,828 -------------------------------------------------------- 2,200,000 Salem, OH, City School District, 2.55% BANs, 12/9/93 NR 2,200,110 -------------------------------------------------------- 2,500,000 Scioto County, OH, Hospital Authority Weekly VRDNs (AMBAC Insured) A-1 2,500,000 -------------------------------------------------------- 1,175,000 Shaker Heights, OH, 2.50% GO BANs, 5/26/94 NR(2) 1,175,318 -------------------------------------------------------- 2,000,000 Sharonville, OH, IDR Weekly VRDNs (Xtek, Inc.)/(Fifth Third Bank LOC)/(Subject to AMT) VMIG1 2,000,000 -------------------------------------------------------- 960,000 Solon, OH, IDR Weekly VRDNs (Graphic Laminating, Inc.)/ (Society Bank N.A. LOC) P-1 960,000 -------------------------------------------------------- 750,000 Stark County, OH, 3.10% General LT BANs, 12/10/93 MIG1 750,156 -------------------------------------------------------- 1,800,000 Stark County, OH, IDR Weekly VRDNs (Sancap Abrasives)/(Society Bank N.A. LOC) P-1 1,800,000 -------------------------------------------------------- 1,031,000 Streetsboro, OH, 3.33% General LT Various Purpose BANs, 12/9/93 NR 1,031,134 -------------------------------------------------------- 600,000 Student Loan Funding Corp. of Cincinnati, OH, Weekly VRDNs (Series 1991A)/(National Westminster Bank PLC LOC)/(Subject to AMT) VMIG1 600,000 -------------------------------------------------------- 3,000,000 Summit County, OH, 2.65% BANs, 3/10/94 P-1 3,000,000 -------------------------------------------------------- 1,440,000 Summit County, OH, 3.00% (Matech Machine Tool)/(Bank One, Akron N.A. LOC), 2/1/94 P-1 1,440,000 --------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED - ---------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------- $3,300,000 Summit County, OH, IDR Weekly VRDNs (Maison Aine Limited Partnership)/(Society Bank N.A. LOC)/(Subject to AMT) P-1 $ 3,300,000 -------------------------------------------------------- 900,000 Summit County, OH, IDR, 2.75% Semi-Annual TOBs (Beechmer-Boyce)/(Society Bank N.A. LOC), 1/15/94 P-1 900,000 -------------------------------------------------------- 1,200,000 Summit County, OH, IDR, 2.88% TOBs (Rogers Industrial Products, Inc.)/(Bank One, Akron N.A. LOC), 11/1/93 P-1 1,200,000 -------------------------------------------------------- 855,000 Summit County, OH, IDR, 3.00% TOBs (Universal Rack & Equipment Company)/(National City Bank, Cleveland LOC), 3/1/94 P-1 855,000 -------------------------------------------------------- 435,000 Summit County, OH, IDR, 3.05% TOBs (Keltec, Inc.)/(Bank One, Akron N.A. LOC)/(Subject to AMT), 3/1/94 P-1 435,000 -------------------------------------------------------- 990,000 Summit County, OH, IDR, 3.10% (S.D. Meyers, Inc.)/(Bank One, Akron N.A. LOC), 8/15/94 P-1 990,000 -------------------------------------------------------- 1,000,000 Toledo--Lucas County Port Authority IDA Weekly VRDNs (Medusa Corporation)/(Bayerische Vereinsbank Ag LOC)/ (Subject to AMT) AAA 1,000,000 -------------------------------------------------------- 1,500,000 Toledo--Lucas County Port Authority, 2.50% CP (CSX Transportation, Inc.)/(Bank of Nova Scotia LOC), Mandatory Tender 12/14/93 A-1+ 1,500,000 -------------------------------------------------------- 3,200,000 Trumbull County, OH, IDA Weekly VRDNs (Series 1989)/ (McDonald Steel, Inc.)/(PNC Bank N.A., LOC)/(Subject to AMT) A-1 3,200,000 -------------------------------------------------------- 3,400,000 Trumbull County, OH, Weekly VRDNs (Community Skilled Center of Warren, Ohio)/(Marine Bank N.A., Erie LOC) P-1 3,400,000 -------------------------------------------------------- 4,500,000 Westlake, OH, IDR Weekly VRDNs (Kahal Limited Partnership)/(Society Bank LOC)/(Subject to AMT) P-1 4,500,000 --------------------------------------------------------
OHIO MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ---------- -------------------------------------------------------- --------- ------------ SHORT-TERM MUNICIPAL SECURITIES-- CONTINUED - ---------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------- $2,000,000 Wood County, OH, Weekly VRDNs (Principle Business Enterprises)/(National City Bank LOC)/(Subject to AMT) P-1 $ 2,000,000 -------------------------------------------------------- 890,000 Wyoming, OH, 3.05% BANs, 12/4/93 NR(3) 890,117 -------------------------------------------------------- ------------ Total 211,139,188 -------------------------------------------------------- ------------ PUERTO RICO--1.2% -------------------------------------------------------- 2,500,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit Suisse and Sumitomo Bank Ltd. LOCs) A-1+ 2,500,000 -------------------------------------------------------- ------------ TOTAL INVESTMENTS (AT AMORTIZED COST) $213,639,188+ -------------------------------------------------------- ------------
* See Notes to Portfolio of Investments. + Also represents cost for federal tax purposes. OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following abbreviations are used in this portfolio: AMBAC -- American Municipal Bond Assurance Corporation AMT -- Alternative Minimum Tax BANs -- Bond Anticipation Notes CP -- Commercial Paper FGIC -- Financial Guaranty Insurance Company GO -- General Obligation HFA -- Housing Finance Authority/Agency IDA -- Industrial Development Authority IDR -- Industrial Development Revenue IDRB -- Industrial Development Revenue Bonds LOC -- Letter of Credit LOCs -- Letters of Credit LT -- Limited Tax PCR -- Pollution Control Revenue TOBs -- Tender Option Bonds UT -- Unlimited Tax VRDNs -- Variable Rate Demand Notes
Note: The categories of investments are shown as a percentage of net assets ($208,765,525) at October 31, 1993. (See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST NOTES TO PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL OBLIGATION RATINGS S&P A Standard & Poor's 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 (+) designation. SP-2 Satisfactory capacity to pay principal and interest. MOODY'S 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. FITCH Fitch's short-term ratings place greater emphasis on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. F-1 Strongest degree of assurance for timely payment. Those issues determined to provide exceptionally strong credit quality are given a plus (+) designation. F-2 Notes reflecting a degree of assurance for timely payment only slightly less in degree than the highest category. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P Standard & Poor's 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-1+, AA/A-1+, and A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) - -------------------------------------------------------------------------------- MOODY'S 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. FITCH Fitch usually assigns two ratings to long-term debt issues that include provisions for a variable rate demand feature. The long-term rating addresses the ability of the obligor to pay debt service and the short-term rating addresses the timely payment of the demand feature. Examples of rating designations are as follows: AAA/F-1+, AA/F-1+, and A/F-1. (The definitions for the long-term and short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS S&P A Standard & Poor's 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 designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign designation. A-2 Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated "A-1." MOODY'S P-1 Issues rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-2 Issues rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. The following is an explanation of the Fitch ratings. These ratings are not referenced in the Portfolio of Investments. FITCH F-1 Issues assigned this rating reflect a strong degree of assurance for timely payment. Those issuers determined to possess the strongest degree of assurance for timely payment are denoted with a plus (+) sign designation. - -------------------------------------------------------------------------------- F-2 Issuers carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as the "F-1+" and "F-1" categories. LONG-TERM DEBT RATINGS (INVESTMENT GRADE) S&P AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the 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. BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest than debt rated in higher ratings categories. MOODY'S AAA Bonds that 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 edge." Interest payments are protected by a large margin and principal is secure. While the various protective elements are likely to change, such changes which can be foreseen are most unlikely to impair the fundamentally strong position of such issues. AA Bonds that 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 that 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 that suggest a susceptibility to impairment some time in the future. BAA Bonds which are rated BAA are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. - -------------------------------------------------------------------------------- FITCH AAA Bonds that are rated AAA are of the highest credit quality. The obligor has an exceptionally strong ability to pay debt service. AA Bonds that are rated AA are of very high quality. The obligor has a very strong ability to pay debt service. Debt rated in this category may also have a (+) or (-) sign with a rating to indicate the relative position within the rating category. A Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. NR indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P, Moody's, or Fitch with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated in one of the two highest short-term ratings categories by a nationally recognized statistical rating organization. NR(1) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "'AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by Fitch. NR(2) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch. NR(3) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "A" by Standard & Poor's, Moody's, or Fitch. NR(4) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by Fitch. OHIO MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1993 - -------------------------------------------------------------------------------- ASSETS: - -------------------------------------------------------------------------------- Investments, at amortized cost and value (Note 2A) $213,639,188 - -------------------------------------------------------------------------------- Cash 239,476 - -------------------------------------------------------------------------------- Interest receivable 1,354,633 - -------------------------------------------------------------------------------- Deferred expenses (Note 2E) 36,258 - -------------------------------------------------------------------------------- ------------ Total assets 215,269,555 - -------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------------------- Payable for investments purchased $6,241,027 - ------------------------------------------------------------------- Dividends payable 156,809 - ------------------------------------------------------------------- Accrued expenses and other liabilities 106,194 - ------------------------------------------------------------------- ---------- Total liabilities 6,504,030 - -------------------------------------------------------------------------------- ------------ NET ASSETS for 208,765,525 shares of beneficial interest outstanding $208,765,525 - -------------------------------------------------------------------------------- ------------ NET ASSET VALUE, Offering Price, and Redemption Price Per Share: - -------------------------------------------------------------------------------- Institutional Shares ($81,748,179 / 81,748,179 shares of beneficial interest outstanding) $1.00 - -------------------------------------------------------------------------------- ------------ Cash II Shares ($127,017,346 / 127,017,346 shares of beneficial interest 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, 1993 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------- Interest income (Note 2B) $5,659,405 - ---------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------- Investment advisory fee (Note 5) $ 813,048 - --------------------------------------------------------------------- Administrative personnel and services (Note 5) 325,056 - --------------------------------------------------------------------- Custodian, transfer and dividend disbursing agent fees and expenses 112,854 - --------------------------------------------------------------------- Trustees' fees 4,273 - --------------------------------------------------------------------- Auditing fees 15,942 - --------------------------------------------------------------------- Legal fees 11,605 - --------------------------------------------------------------------- Printing and postage 13,392 - --------------------------------------------------------------------- Fund share registration costs 36,941 - --------------------------------------------------------------------- Distribution services fees (Note 5) 404,917 - --------------------------------------------------------------------- Insurance premiums 17,775 - --------------------------------------------------------------------- Miscellaneous 12,562 - --------------------------------------------------------------------- ---------- Total expenses 1,768,365 - --------------------------------------------------------------------- Deduct--Waiver of investment advisory fee (Note 5) 392,961 - --------------------------------------------------------------------- ---------- Net expenses 1,375,404 - ---------------------------------------------------------------------------------- ---------- Net investment income $4,284,001 - ---------------------------------------------------------------------------------- ----------
(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, ----------------------------- 1993 1992 ------------- ------------ INCREASE (DECREASE) IN NET ASSETS: - ---------------------------------------------------------------- OPERATIONS-- - ---------------------------------------------------------------- Net investment income $ 4,284,001 5,045,914 - ---------------------------------------------------------------- ------------- ------------ DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - ---------------------------------------------------------------- Dividends to shareholders from net investment income: - ---------------------------------------------------------------- Institutional Shares (1,570,539) (2,231,320) - ---------------------------------------------------------------- Cash II Shares (2,713,462) (2,814,594) - ---------------------------------------------------------------- ------------- ------------ Change in net assets from distributions to shareholders (4,284,001) (5,045,914) - ---------------------------------------------------------------- ------------- ------------ FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - ---------------------------------------------------------------- Proceeds from sale of shares 647,552,523 501,839,900 - ---------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of dividends declared 2,703,916 3,069,194 - ---------------------------------------------------------------- Cost of shares redeemed (649,710,289) (435,542,255) - ---------------------------------------------------------------- ------------- ------------ Change in net assets from Fund share transactions 546,150 69,366,839 - ---------------------------------------------------------------- ------------- ------------ Change in net assets 546,150 69,366,839 - ---------------------------------------------------------------- NET ASSETS: - ---------------------------------------------------------------- Beginning of period 208,219,375 138,852,536 - ---------------------------------------------------------------- ------------- ------------ End of period $ 208,765,525 $208,219,375 - ---------------------------------------------------------------- ------------- ------------
(See Notes which are an integral part of the Financial Statements) OHIO MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1993 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company with several 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 provides two classes of shares ("Institutional Shares" and "Cash II Shares"). Cash II Shares are identical in all respects to Institutional Shares except that Cash II Shares are sold pursuant to a distribution plan ("Plan") adopted in accordance with Investment Company Act Rule 12b-1. (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. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that the best method currently available for valuing portfolio securities is amortized cost. The Fund's use of the amortized cost method to value its portfolio securities is conditioned on its compliance with Rule 2a-7 under the Investment Company Act of 1940. Since the Fund may invest 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 general tax-exempt mutual fund. In order to reduce the risk associated with such factors, at October 31, 1993, 72.5% 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 aggregate percentages by financial institution ranged from 0.4% to 11.2% of total investments. B. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest earned net of premium, and original issue discount as required by the Internal Revenue Code. (the "Code"). C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal Revenue Code applicable to investment companies and to distribute to shareholders each year all of its net income. Accordingly, no provision for federal tax is necessary. Dividends paid by the Fund representing net interest received on tax-exempt municipal securities are not includable by shareholders as gross income for federal income tax purposes because the Fund intends to meet certain requirements of the Code applicable to regulated investment companies which will enable the Fund to pay exempt-interest dividends. The portion of such interest, if any, earned on private OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- activity bonds issued after August 7, 1986 may be considered a tax preference item to shareholders for the purpose of computing the alternative minimum tax. D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objectives and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain 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. E. 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 the shares, have been deferred and are being amortized using the straight-line method through April 1996. F. EXPENSES--Expense of the Fund (other than distribution services fees) and waivers and reimbursements, if any, are allocated to each class of shares based on its relative daily average net assets for the period. Expenses incurred by the Trust which do not specifically relate to an individual Fund are allocated among all Funds based on a Fund's relative net asset value size or as deemed appropriate by the administrator. G. OTHER--Investment transactions are accounted for on the date of the transaction. (3) DIVIDENDS The Fund computes its net income daily and, immediately prior to the calculation of its net asset value at the close of business, declares and records dividends to shareholders of record at the time of the previous computation of the Fund's net asset value. Payment of dividends is made monthly in cash, or in additional shares at the net asset value on the payable date. OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- (4) 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, 1993, capital paid-in aggregated $208,765,525. Transactions in Fund shares were as follows:
YEAR ENDED OCTOBER 31, ---------------------------- 1993 1992 ------------ ------------ INSTITUTIONAL SHARES - ----------------------------------------------------------------- Shares outstanding, beginning of period 74,342,130 44,771,476 - ----------------------------------------------------------------- Shares sold 222,190,842 213,513,139 - ----------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 60,099 286,483 - ----------------------------------------------------------------- Shares redeemed (214,844,892) (184,228,968) - ----------------------------------------------------------------- ------------ ------------ Shares outstanding, end of period 81,748,179 74,342,130 - ----------------------------------------------------------------- ------------ ------------ CASH II SHARES - ----------------------------------------------------------------- Shares outstanding, beginning of period 133,877,245 94,081,060 - ----------------------------------------------------------------- Shares sold 425,361,681 288,326,761 - ----------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 2,643,817 2,782,711 - ----------------------------------------------------------------- Shares redeemed (434,865,397) (251,313,287) - ----------------------------------------------------------------- ------------ ------------ Shares outstanding, end of period 127,017,346 133,877,245 - ----------------------------------------------------------------- ------------ ------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Federated Management, the Fund's investment adviser ("Adviser"), receives for its services an annual investment advisory fee equal to 0.40 of 1% of the Fund's average daily net assets. The Adviser has voluntarily agreed to waive a portion of its fee. The Adviser can modify or terminate this voluntary waiver of expenses at any time in its sole discretion. During the fiscal year ended October 31, 1993 the Adviser earned $813,048 of which $392,961 was voluntarily waived. Organizational expenses ($37,324) and start-up administrative services expenses ($40,612) were borne initially by the Adviser. The Fund has agreed to pay the Adviser, at an annual rate of .005 of 1% of average daily net assets and .01 of 1% of average daily net assets for organization expenses and start-up administrative expenses, respectively, until the expenses borne initially by the Adviser are reimbursed, OHIO MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- or the expiration of five years from April 24, 1991, the date the Trust's portfolio became effective, whichever occurs earlier. During the fiscal year ended October 31, 1993, the Fund paid Adviser $10,106 and $20,211, respectively, pursuant to this agreement. During the fiscal year ended October 31, 1993, the Fund engaged in purchase and sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7 of the Investment Company Act of 1940 amounting to $231,225,000 and $257,985,000, respectively. These purchases and sales were conducted on an arms-length basis insofar as they were transacted for cash consideration only, at independent current market prices and without brokerage commission, fee or other remuneration. The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Trust will compensate Federated Securities Corp., ("FSC"), the principal distributor, from the assets of the Fund, for fees it paid which relate to the distribution and administration of the Fund's Cash II Shares. The Plan provides that the Fund may incur distribution expenses up to .30 of 1% of the average daily net assets of the Cash II Shares, annually, to pay commissions, maintenance fees and to compensate the distributor. During the fiscal year ended October 31, 1993, FSC earned $404,917 in distribution services fees, none of which was voluntarily waived. Administrative personnel and services were provided at approximate cost by Federated Administrative Services, Inc. Certain Officers and Trustees of the Trust are Officers and Directors of the above corporations. (6) CURRENT CREDIT RATINGS Current credit ratings and related notes are unaudited. 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, 1993, 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 17 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 the securities owned as of October 31, 1993, 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 Ohio Municipal Cash Trust, an investment portfolio of Federated Municipal Trust, as of October 31, 1993, 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 & CO. Pittsburgh, Pennsylvania December 13, 1993 (This page intentionally left blank) ADDRESSES - -------------------------------------------------------------------------------- Ohio Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Investment Adviser Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Custodian State Street Bank and P.O. Box 8602 Trust Company Boston, Massachusetts 02266-8602 - ------------------------------------------------------------------------------------------------ Transfer Agent and Dividend Disbursing Agent Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - ------------------------------------------------------------------------------------------------ Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, D.C. 20037 - ------------------------------------------------------------------------------------------------ Independent Public Accountants Arthur Andersen & Co. 2100 One PPG Place Pittsburgh, Pennsylvania 15222 - ------------------------------------------------------------------------------------------------
OHIO MUNICIPAL CASH TRUST INSTITUTIONAL SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company December 31, 1993 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 1030105A-IS (12/93) OHIO MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH II SHARES INSTITUTIONAL SHARES COMBINED STATEMENT OF ADDITIONAL INFORMATION This Combined Statement of Additional Information should be read with the respective prospectus for Cash II Shares and Institutional Shares of Ohio Municipal Cash Trust (the "Fund") dated December 31, 1993. This Statement is not a prospectus itself. To receive a copy of either prospectus, write or call Federated Municipal Trust. FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 Statement dated December 31, 1993 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS TABLE OF CONTENTS - -------------------------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND 1 - --------------------------------------------------------------- INVESTMENT OBJECTIVE AND POLICIES 1 - --------------------------------------------------------------- Acceptable Investments 1 When-Issued and Delayed Delivery Transactions 1 Temporary Investments 2 Investment Limitations 2 Ohio Investment Risks 4 FEDERATED MUNICIPAL TRUST MANAGEMENT 4 - --------------------------------------------------------------- Officers and Trustees 4 The Funds 6 Fund Ownership 7 Trustee Liability 7 INVESTMENT ADVISORY SERVICES 7 - --------------------------------------------------------------- Adviser to the Fund 7 Advisory Fees 7 ADMINISTRATIVE SERVICES 8 - --------------------------------------------------------------- BROKERAGE TRANSACTIONS 8 - --------------------------------------------------------------- PURCHASING SHARES 8 - --------------------------------------------------------------- Distribution Plan (Cash II Shares Only) 8 Conversion to Federal Funds 9 DETERMINING NET ASSET VALUE 9 - --------------------------------------------------------------- Use of the Amortized Cost Method 9 REDEEMING SHARES 10 - --------------------------------------------------------------- Redemption in Kind 10 TAX STATUS 11 - --------------------------------------------------------------- The Fund's Tax Status 11 YIELD 11 - --------------------------------------------------------------- EFFECTIVE YIELD 11 - --------------------------------------------------------------- TAX-EQUIVALENT YIELD 11 - --------------------------------------------------------------- Tax-Equivalency Table 11 PERFORMANCE COMPARISONS 13 - --------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND - -------------------------------------------------------------------------------- The Fund is a portfolio in Federated Municipal Trust (the "Trust"), which was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. Shares of the Fund are offered in two classes, known as Cash II Shares and Institutional Shares (individually and collectively referred to as "Shares"). This Combined Statement of Additional Information relates to the above-mentioned Shares of the Fund. INVESTMENT OBJECTIVE AND POLICIES - -------------------------------------------------------------------------------- The Fund's investment objective is to 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 investment objective cannot be changed without approval of shareholders. ACCEPTABLE INVESTMENTS The Fund invests primarily in debt obligations issued by or on behalf of Ohio and 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 Ohio state income tax imposed upon non-corporate taxpayers. When determining whether a Ohio municipal security presents minimal credit risks, the investment adviser considers the creditworthiness of the issuer of the security, the issuer of a demand feature if the Fund has the unconditional right to demand payment for the security, or the guarantor of payment by either of those issuers. If a security loses its rating or the security's rating is reduced below the required minimum after the Fund purchased it, the Fund is not required to sell the security. The investment adviser considers this event, however, in its determination of whether the Fund should continue to hold the security in its portfolio. If ratings made by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") change because of changes in those organizations or in their rating systems, the Fund will try to use comparable ratings as standards in accordance with the investment policies described in the Fund's prospectuses. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests which represent undivided proportional interests in lease payments by a governmental or nonprofit entity. The lease payments and other rights under the lease provide for and secure the payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. In particular, lease obligations may be subject to periodic appropriation. If the entity does not appropriate funds for future lease payments, the entity cannot be compelled to make such payments. 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. Under the criteria currently established by the Board of Trustees ("Trustees"), the Fund's investment adviser must consider the following factors in determining the liquidity of municipal lease securities: (1) the frequency of trades and quotes for the security; (2) the volatility of quotations and trade prices for the security; (3) the number of dealers willing to purchase or sell the security and the number of potential purchasers; (4) dealer undertakings to make a market in the security; (5) the nature of the security and the nature of the marketplace trades; (6) the rating of the security and the financial condition and prospects of the issuer of the security; (7) such other factors as may be relevant to the Fund's ability to dispose of the security; (8) whether the lease can be terminated by the lessee; (9) the potential recovery, if any, from a sale of the leased property upon termination of the lease; (10) the lessee's general credit strength; (11) the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations; and (12) any credit enhancement or legal recourse provided upon an event of nonappropriation or other termination of the lease. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The Fund engages in when-issued and delayed delivery transactions only for the purpose of acquiring portfolio securities consistent with the Fund's investment objective and policies, not for investment leverage. These transactions are made to secure what is considered to be an advantageous price and yield for the Fund. 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. - -------------------------------------------------------------------------------- No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. The Fund may engage in these transactions to an extent that would cause the segregation of an amount up to 20% of the total value of its assets. TEMPORARY INVESTMENTS The Fund may also invest in high quality temporary investments during times of unusual market conditions for defensive purposes and to maintain liquidity. REPURCHASE AGREEMENTS Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities or other securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price within one year from the date of acquisition. 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 investment adviser to be creditworthy pursuant to guidelines established by the Trustees. REVERSE REPURCHASE AGREEMENTS The Fund may 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 to another person, such as a financial institution, broker, or dealer, 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 the ability to enter into reverse repurchase agreements does not ensure that the Fund will be able to avoid selling portfolio instruments at a disadvantageous time. When effecting reverse repurchase agreements, liquid assets of the Fund, in a dollar amount sufficient to make payment for obligations to be purchased, are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. From time to time, such as when suitable Ohio municipal securities are not available, the Fund may maintain a portion of its assets in cash. Any portion of the Fund's assets maintained in cash will reduce the amount of assets in Ohio municipal securities and thereby reduce the Fund's yield. 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 and engage in 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 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. 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 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. 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. LENDING CASH OR SECURITIES The Fund will not lend any of its assets except that it may acquire publicly or nonpublicly issued Ohio municipal securities or temporary investments or enter into repurchase agreements, 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 (including instruments issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment), 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 Fund does not consider the issuance of separate classes of shares to involve the issuance of "senior securities" within the meaning of the investment limitation set forth above. 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 IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in industrial development bonds or other municipal securities where the principal and interest are the responsibility of companies (or guarantors, where applicable) with 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 the Fund's investment adviser, owning individually more than 1/2 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. - -------------------------------------------------------------------------------- DEALING IN PUTS AND CALLS The Fund will not purchase or sell 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 MINERALS The Fund will not purchase or sell oil, gas, or other mineral exploration or development programs, or leases. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in securities which are illiquid, including repurchase agreements providing for settlement in more than seven days after notice, certain restricted securities not determined by the Trustees to be liquid, and non-negotiable fixed time deposits with maturities over seven days. 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 does not expect to borrow money or pledge securities in excess of 5% of the value of its net assets during the coming fiscal year. OHIO INVESTMENT RISKS The Fund invests in obligations of Ohio ("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 brief summary of the prevailing economic conditions and general summary of the state's financial condition. 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 experienced revenue shortfalls as a result of the recent recession. The State has acted promptly in addressing the fall in revenue with an expansion of the sales tax base and cuts in budgetary appropriations. However, due to the length and severity of the recent recession, the State has fully depleted the budget stabilization fund that exceeded $300 million, to achieve balanced budgets over the past several years. The Ohio economy is largely composed of manufacturing which is concentrated in the automobile sector and other durable goods. The exposure to these industries particularly the auto sector leaves the State vulnerable to an economic slowdown associated with business cycles. The State has diversified its economy somewhat over the past decade with services and trade composing roughly 50% of the economy. Unemployment in Ohio over the past two years has been below the national average, but population growth as in many great lakes states has been stagnant. The overall condition of the State is further demonstrated by its debt ratings. Ohio, once rated Aaa by Moody's in the decade of the 70's, was downgraded to Aa in 1979 and has maintained this rating since the one time downgrade. Standard & Poor's first rated the State in 1984 at AA that has remained unchanged. 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 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. FEDERATED MUNICIPAL TRUST MANAGEMENT - -------------------------------------------------------------------------------- OFFICERS AND TRUSTEES Officers and Trustees are listed with their addresses, principal occupations, and present positions, including any affiliation with Federated Management, Federated Investors, Federated Securities Corp., Federated Services Company, Federated Administrative Services, Inc., and the Funds (as defined below). - --------------------------------------------------------------------------------
POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - ----------------------------------------------------------------------------------------------------------------- John F. Donahue+* Chairman and Chairman and Trustee, Federated Investors; Chairman and Federated Investors Trustee Trustee, Federated Advisers, Federated Management, and Tower Federated Research; Director, AEtna Life and Casualty Pittsburgh, PA Company; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds; formerly, Director, The Standard Fire Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice President of the Trust. - ----------------------------------------------------------------------------------------------------------------- John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Wood/IPC Commercial Vice-President, John R. Wood and Associates, Inc., Department Realtors; President Northgate Village Development John R. Wood and Corporation; General Partner or Trustee in private real Associates, Inc., Realtors estate ventures in Southwest Florida; Director, Trustee, 3255 Tamiami Trail North or Managing General Partner of the Funds; formerly, Naples, FL President, Naples Property Management, Inc. - ----------------------------------------------------------------------------------------------------------------- William J. Copeland Trustee Director and Member of the Executive Committee, Michael One PNC Plaza- Baker, Inc.; Director, Trustee, or Managing General 23rd Floor Partner of the Funds; formerly Vice Chairman and Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. - ----------------------------------------------------------------------------------------------------------------- James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, 571 Hayward Mill Road Inc.; Director, Trustee, or Managing General Partner of Concord, MA the Funds; formerly, Director, Blue Cross of Massachusetts, Inc. - ----------------------------------------------------------------------------------------------------------------- Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and 3471 Fifth Avenue Montefiore Hospitals; Clinical Professor of Medicine and Suite 1111 Trustee, University of Pittsburgh; Director, Trustee, or Pittsburgh, PA Managing General Partner of the Funds. - ----------------------------------------------------------------------------------------------------------------- Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, 5916 Penn Mall Eat 'N Park Restaurants, Inc., and Statewide Settlement Pittsburgh, PA Agency, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. - ----------------------------------------------------------------------------------------------------------------- Glen R. Johnson* President and Trustee, Federated Investors; President and/or Trustee of Federated Investors Trustee some of the Funds; staff member, Federated Securities Tower Corp. and Federated Administrative Services, Inc. Pittsburgh, PA - ----------------------------------------------------------------------------------------------------------------- Peter E. Madden Trustee Consultant; State Representative, Commonwealth of 225 Franklin Street Massachusetts; Director, Trustee, or Managing General Boston, MA Partner of the Funds; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation and Trustee, Lahey Clinic Foundation, Inc. - ----------------------------------------------------------------------------------------------------------------- Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, 5916 Penn Mall Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A. - ----------------------------------------------------------------------------------------------------------------- Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; 1202 Cathedral of Trustee, Carnegie Endowment for International Peace, RAND Learning Corporation, Online Computer Library Center, Inc., and University of Pittsburgh U.S. Space Foundation; Chairman, Czecho Slovak Management Pittsburgh, PA Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; formerly, Chairman, National Advisory Council for Environmental Policy and Technology. - -----------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - ----------------------------------------------------------------------------------------------------------------- Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, 4905 Bayard Street or Managing General Partner of the Funds. Pittsburgh, PA - ----------------------------------------------------------------------------------------------------------------- J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Investors Federated Advisers, Federated Management, and Federated Tower Research; President and Director, Federated Pittsburgh, PA Administrative Services, Inc.; Trustee, Federated Services Company; President or Vice President of the Funds; Director, Trustee, or Managing General Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Trust. - ----------------------------------------------------------------------------------------------------------------- Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Federated Investors Investors; Chairman and Director, Federated Securities Tower Corp.; President or Vice President of the Funds; Director Pittsburgh, PA or Trustee of some of the Funds. - ----------------------------------------------------------------------------------------------------------------- Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated Federated Investors and Treasurer Investors; Tower Vice President and Treasurer, Federated Advisers, Pittsburgh, PA Federated Management, and Federated Research; Trustee, Federated Services Company; Executive Vice President, Treasurer, and Director, Federated Securities Corp.; Chairman, Treasurer, and Director, Federated Administrative Services, Inc.; Trustee or Director of some of the Funds; Vice President and Treasurer of the Funds. - ----------------------------------------------------------------------------------------------------------------- John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated Investors and Secretary Federated Investors; Vice President, Secretary, and Tower Trustee, Federated Advisers, Federated Management, and Pittsburgh, PA Federated Research; Trustee, Federated Services Company; Executive Vice President, Secretary, and Director, Federated Administrative Services, Inc.; Director and Executive Vice President, Federated Securities Corp.; Vice President and Secretary of the Funds. - ----------------------------------------------------------------------------------------------------------------- John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Federated Investors Executive Vice President, Federated Securities Corp.; Tower President and Trustee, Federated Advisers, Federated Pittsburgh, PA Management and Federated Research; Vice President of the Funds; Director, Trustee, or Managing General Partner of some of the Funds; formerly, Vice President, The Standard Fire Insurance Company and President of its Federated Research Division. - -----------------------------------------------------------------------------------------------------------------
* This Trustee is deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940, as amended. + Member of the Trust's Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. THE FUNDS "The Funds" and "Funds" mean the following investment companies: A.T. Ohio Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust; Automated Government Money Trust; The Boulevard Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress - -------------------------------------------------------------------------------- Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds; The Passageway Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; and Trust for U.S. Treasury Obligations. FUND OWNERSHIP Officers and Trustees, as a group, own more than 1% of the Fund's outstanding Shares as of November 29, 1993. As of November 29, 1993, the following shareholders of record owned 5% or more of the outstanding Institutional Shares of the Fund: Mahoning National Bank, Youngstown, Ohio, owned approximately 5,020,194 Shares (5.93%); Panabco, Newark, Ohio, owned approximately 11,487,113 Shares (13.57%); Society Bank, Dayton, Ohio, owned approximately 12,448,217 Shares (14.71%); Parcol & Co., Akron, Ohio, owned approximately 10,486,239 Shares (12.39%); Grand Old Co., Zanesville, Ohio, owned approximately 4,926,666 Shares (5.82%); Society National Bank, N.A., Cleveland, Ohio, owned approximately 13,312,062 Shares (15.73%); and SNBSO & Co., Springfield, Ohio, owned approximately 9,276,250 Shares (10.96%). As of November 29, 1993, the following shareholders of record owned 5% or more of the outstanding Cash II Shares of the Fund: First National Bank of Ohio, Akron, Ohio, owned approximately 7,345,169 Shares (5.65%); and Gradison & Company Inc., Cincinnati, Ohio, owned approximately 77,210,261 Shares (59.38%). 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. 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, his wife, and his son, J. Christopher Donahue. John F. Donahue is Chairman and Trustee, Federated Management; Chairman and Trustee, Federated Investors; and Chairman and Trustee of the Trust. John A. Staley, IV, is President and Trustee, Federated Management; Vice President and Trustee, Federated Investors; Executive Vice President, Federated Securities Corp.; and Vice President of the Trust. J. Christopher Donahue is Trustee, Federated Management; President and Trustee, Federated Investors; President and Director, Federated Administrative Services, Inc.; Trustee, Federated Services Company; and Vice President of the Trust. John W. McGonigle is Vice President, Secretary, and Trustee, Federated Management; Trustee, Vice President, Secretary and General Counsel, Federated Investors; Executive Vice President, Secretary and Director, Federated Administrative Services, Inc.; Executive Vice President and Director, Federated Securities Corp; Trustee, Federated Services Company; and Vice President and Secretary of the Trust. 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. During the fiscal years ended October 31, 1993, 1992, and 1991, the Fund's adviser earned $813,048, $681,466, and $179,829, respectively, of which $392,961, $422,901, and $144,855, respectively, were voluntarily waived because of undertakings to limit the Fund's expenses. - -------------------------------------------------------------------------------- STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2 1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1 1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this expense limitation, the investment advisory fee paid will be reduced by the amount of the excess, subject to an annual adjustment. If the expense limitation is exceeded, the amount to be reimbursed by the adviser will be limited, in any single fiscal year, by the amount of the investment advisory fee. These arrangements are not part of the advisory contract and have been established only to comply with applicable state authorities. They may be amended or rescinded in the future. ADMINISTRATIVE SERVICES - -------------------------------------------------------------------------------- Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides administrative personnel and services to the Fund at approximate cost. For the fiscal years ended October 31, 1993, 1992, and 1991, the Fund incurred costs for administrative services of $325,056, $267,671 and $80,247, respectively. John A. Staley, IV, an officer of the Trust, and Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, each hold approximately 15% and 20%, respectively, of the outstanding common stock and serve as directors of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services, Inc. For the fiscal years ended October 31, 1993, 1992, and 1991, Federated Administrative Services, Inc. paid approximately $165,431, $189,741, and $187,677, respectively, for services provided by Commercial Data Services, Inc. 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 investment 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 review 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. 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. Research services provided by brokers may be used by the adviser or by affiliates of Federated Investors in advising Federated funds 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. PURCHASING SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value without a sales charge on days the New York Stock Exchange and the Federal Reserve wire system are open for business. The procedure for purchasing Shares is explained in the respective prospectus under "Investing in Cash II Shares" and "Investing in Institutional Shares." DISTRIBUTION PLAN (CASH II SHARES ONLY) With respect to the Cash II Shares class of the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940 (the "Plan"). - -------------------------------------------------------------------------------- The Plan provides for payment of fees to Federated Securities Corp. to finance any activity which is principally intended to result in the sale of the Fund's Shares subject to the Plan. Such activities may include the advertising and marketing of Shares; preparing, printing, and distributing prospectuses and sales literature to prospective shareholders, brokers, or administrators; and implementing and operating the Plan. Pursuant to the Plan, the distributor may pay fees to brokers for distribution and administrative services and to administrators for administrative services as to Shares. The administrative services are provided by a representative who has knowledge of the shareholder's particular circumstances and goals and include, but are not limited to: communicating account openings; communicating account closings; entering purchase transactions; entering redemption transactions; providing or arranging to provide accounting support for all transactions, wiring funds and receiving funds for Share purchases and redemptions, confirming and reconciling all transactions; reviewing the activity in Fund accounts; providing training and supervision of broker personnel; posting and reinvesting dividends to Fund accounts or arranging for this service to be performed by the Fund's transfer agent; and maintaining and distributing current copies of prospectuses and shareholder reports to the beneficial owners of Shares and prospective shareholders. The Board of Trustees expects that the adoption of the Plan will result in the sale of a sufficient number of Shares so as to allow the Fund to achieve economic viability. It is also anticipated that an increase in the size of the Fund will facilitate more efficient portfolio management and assist the Fund in seeking to achieve its investment objective. For the fiscal years ended October 31, 1993, 1992, and 1991, brokers and administrators (financial institutions) earned fees in the amounts of $404,917, $295,193, and $87,793, respectively, of which $0, $0, and $5,132, respectively, were voluntarily waived, pursuant to the Plan. CONVERSION TO FEDERAL FUNDS It is the Fund's policy to be as fully invested as possible so that maximum interest may be earned. To this end, all payments from shareholders must be in federal funds or be converted into federal funds. State Street Bank and Trust Company acts as the shareholder's agent in depositing checks and converting them to federal funds. DETERMINING NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the value of a Share at $1.00. The days on which net asset value is calculated by the Fund are described in the respective prospectus. USE OF THE AMORTIZED COST METHOD 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. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7, as amended (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. Under the Rule, the Fund is permitted to purchase instruments which are subject to demand features or standby commitments. As defined by the Rule, a demand feature entitles the Fund to receive the principal amount of the instrument from the issuer or a third party (1) on no more than 30 days' notice or (2) at specified intervals not exceeding one year on no more than 30 days' notice. A standby commitment entitles the Fund to achieve same-day settlement and to receive an exercise price equal to the amortized cost of the underlying instrument plus accrued interest at the time of exercise. Although demand features and standby commitments are techniques and are defined as "puts" under the Rule, the Fund does not consider them to be "puts" as that term is used in the Fund's investment limitations. Demand features and standby commitments are features which enhance an instrument's liquidity, and the investment limitation which proscribes puts is designed to prohibit the purchase and sale of put and call options and is not designed to prohibit the Fund from using techniques which enhance the liquidity of portfolio instruments. MONITORING PROCEDURES The Trustees' 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% 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. INVESTMENT RESTRICTIONS The Rule requires that the Fund limit its investments to instruments that, in the opinion of the Trustees, present minimal credit risk and have received the requisite rating from one or more nationally recognized statistical rating organizations. If the instruments are not rated, the Trustees must determine that they are of comparable quality. The Rule also requires the Fund to maintain a dollar-weighted average portfolio maturity (not more than 90 days) appropriate to the objective of maintaining a stable net asset value of $1.00 per share. In addition, no instrument with a remaining maturity of more than 397 days can be purchased by the Fund. For a discussion of the treatment of variable rate municipal securities with demand features, refer to "Variable Rate Demand Notes" in the prospectus. Should the disposition of a portfolio security result in a dollar-weighted average portfolio maturity of more than 90 days, the Fund will invest its available cash to reduce the average maturity to 90 days or less as soon as possible. The Fund may attempt to increase yield by trading portfolio securities to take advantage of short-term market variations. This policy may, from time to time, result in high portfolio turnover. Under the amortized cost method of valuation, 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 indicated daily yield on Shares of the Fund computed the same way may tend to be lower than a similar computation made by using a method of calculation based upon market prices and estimates. REDEEMING SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares at the next computed net asset value after the Fund receives the redemption request. Redemption procedures are explained in the respective prospectus under "Redeeming Cash II Shares," and "Redeeming Institutional Shares." Although State Street Bank does not charge for telephone redemptions, it reserves the right to charge a fee for the cost of wire-transferred redemptions of less than $5,000. REDEMPTION IN KIND Although the Trust intends to redeem Shares in cash, it reserves the right under certain circumstances to pay the redemption price in whole or in part by a distribution of securities from the respective Fund's portfolio. To the extent available, such securities will be readily marketable. Redemption in kind will be made in conformity with applicable Securities and Exchange Commission rules, taking such securities at the same value employed in determining net asset value and selecting the securities in a manner the Trustees determine to be fair and equitable. The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act of 1940 under which the Trust is obligated to redeem Shares for any one shareholder in cash only up to the lesser of $250,000 or 1% of the net asset value of the respective class during any 90-day period. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders receiving their securities and selling them before their maturity could receive less than the redemption value of their securities and could incur certain transaction costs. TAX STATUS - -------------------------------------------------------------------------------- THE FUND'S TAX STATUS The Fund will pay no federal income tax because it expects to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. To qualify for this treatment, 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. YIELD - -------------------------------------------------------------------------------- The Fund's yield for Cash II Shares for the seven-day period ended October 31, 1993 was 1.94%. The yield for Institutional Shares was 2.24% for the same period. The Fund calculates its yield daily, for both classes of shares, 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). To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in either class of shares the performance will be reduced for those shareholders paying those fees. EFFECTIVE YIELD - -------------------------------------------------------------------------------- The Fund's effective yield for Cash II Shares for the seven-day period ended October 31, 1993 was 1.96%. The effective yield for Institutional Shares was 2.26% for the same period. The Fund's effective yield for both classes of Shares is computed by compounding monthly 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. TAX-EQUIVALENT YIELD - -------------------------------------------------------------------------------- The Fund's tax-equivalent yield for Cash II Shares for the seven-day period ended October 31, 1993 was 2.94%. The tax-equivalent yield for Institutional Shares was 3.39% for the same period. The tax-equivalent yield for both classes of Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that either class of Shares would have had to earn to equal its actual yield, assuming a joint 28% federal tax rate and the 5.9% regular personal income tax rate imposed by Ohio and assuming that income earned by the Fund is 100% tax-exempt on a regular federal, state, and local basis. TAX-EQUIVALENCY TABLE Both classes of Shares may also use a tax-equivalency table 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 from the - -------------------------------------------------------------------------------- regular personal income tax imposed by Ohio*. 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 1993 STATE OF OHIO - ----------------------------------------------------------------------------------------------------------- FEDERAL TAX BRACKET: 15.00% 28.00% 31.00% 36.00% 39.60% COMBINED FEDERAL AND STATE: 19.457% 33.201% 37.900% 43.500% 47.100% - ----------------------------------------------------------------------------------------------------------- SINGLE RETURN: $1-22,100 $22,101-53,500 $53,501-115,000 $115,001-250,000 OVER $250,000 - ----------------------------------------------------------------------------------------------------------- TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT - ----------------------------------------------------------------------------------------------------------- 1.50% 1.86% 2.25% 2.42% 2.65% 2.84% 2.00% 2.48% 2.99% 3.22% 3.54% 3.78% 2.50% 3.10% 3.74% 4.03% 4.42% 4.73% 3.00% 3.72% 4.49% 4.83% 5.31% 5.67% 3.50% 4.35% 5.24% 5.64% 6.19% 6.62% 4.00% 4.97% 5.99% 6.44% 7.08% 7.56% 4.50% 5.59% 6.74% 7.25% 7.96% 8.51% 5.00% 6.21% 7.49% 8.05% 8.85% 9.45% 5.50% 6.83% 8.23% 8.86% 9.73% 10.40% 6.00% 7.45% 8.98% 9.66% 10.62% 11.34%
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 1993 STATE OF OHIO - ----------------------------------------------------------------------------------------------------------- FEDERAL TAX BRACKET: 15.00% 28.00% 31.00% 36.00% 39.60% COMBINED FEDERAL AND STATE: 20.201% 33.943% 37.900% 43.500% 47.100% - ----------------------------------------------------------------------------------------------------------- JOINT RETURN: $1-36,900 $36,901-89,150 $89,151-140,000 $140,001-250,000 OVER $250,000 - ----------------------------------------------------------------------------------------------------------- TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT - ----------------------------------------------------------------------------------------------------------- 1.50% 1.88% 2.27% 2.42% 2.65% 2.84% 2.00% 2.51% 3.03% 3.22% 3.54% 3.78% 2.50% 3.13% 3.78% 4.03% 4.42% 4.73% 3.00% 3.76% 4.54% 4.83% 5.31% 5.67% 3.50% 4.39% 5.30% 5.64% 6.19% 6.62% 4.00% 5.01% 6.06% 6.44% 7.08% 7.56% 4.50% 5.64% 6.81% 7.25% 7.96% 8.51% 5.00% 6.27% 7.57% 8.05% 8.85% 9.45% 5.50% 6.89% 8.33% 8.86% 9.73% 10.40% 6.00% 7.52% 9.08% 9.66% 10.62% 11.34%
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 above charts are for illustrative purposes only. They are not an indicator of past or future performance of either class of Shares. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local regular or alternative minimum taxes. PERFORMANCE COMPARISONS - -------------------------------------------------------------------------------- The Fund's performance of both classes of Shares depends upon such variables as: - - portfolio quality; - - average portfolio maturity; - - type of instruments in which the portfolio is invested; - - changes in interest rates on money market instruments; - - changes in the Fund's or either class of Share's expenses; and - - the relative amount of Fund cash flow. From time to time, the Fund may advertise the performance of both classes of Shares compared to similar funds or portfolios using certain indices, reporting services, and financial publications. These may include the following: - - LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by making comparative calculations using total return. Total return assumes the reinvestment of all income dividends and capital gains distributions, if any. From time to time, the Fund will quote its Lipper ranking in the "money market funds" category in advertising and sales literature. Investors may use an index in addition to the prospectus of either class of Shares to obtain a more complete view of the performance of that class before investing. Of course, when comparing performance of either class of Shares to any index, factors such as composition of the index and prevailing market conditions should be considered in assessing the significance of such comparisons. When comparing funds using reporting services, or total return and yield, investors should take into consideration any relevant differences in funds such as permitted portfolio composition and methods used to value portfolio securities and compute offering price. Advertisements and other sales literature for both classes of Shares may refer to total return. Total return is the historic change in the value of an investment in either class of Shares based on the monthly reinvestment of dividends over a specified period of time. 1030105B (12/93) 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 non-diversified portfolio of securities which is one of a series of investment portfolios in Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The investment objective of the Fund is to provide current income exempt from federal regular income tax and the income taxes imposed by the Commonwealth of Virginia consistent with stability of principal. 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, which are exempt from the federal regular and Virginia state income taxes. Institutional Service Shares of the Fund are sold at net asset value, without a sales load. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. 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. THE INSTITUTIONAL SERVICE 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 BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. This prospectus contains the information you should read and know before you invest in Institutional Service Shares. Keep this prospectus for future reference. The Fund has also filed a Combined Statement of Additional Information for Institutional Service Shares and Institutional Shares dated December 31, 1993, with the Securities and Exchange Commission. The information contained in the Combined Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Combined Statement of Additional Information free of charge by calling 1-800-235-4669. To obtain other information or to make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1993 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 Acceptable Investments 4 Variable Rate Demand Notes 4 Participation Interests 4 Municipal Leases 4 Ratings 5 Credit Enhancement 5 Demand Features 5 Restricted and Illiquid Securities 5 When-Issued and Delayed Delivery Transactions 5 Temporary Investments 5 Virginia Municipal Securities 6 Standby Commitments 6 Virginia Investment Risks 7 Non-Diversification 7 Investment Limitations 7 Regulatory Compliance 8 FEDERATED MUNICIPAL TRUST INFORMATION 8 - ------------------------------------------------------ Management of Federated Municipal Trust 8 Board of Trustees 8 Investment Adviser 8 Advisory Fees 8 Adviser's Background 8 Distribution of Institutional Service Shares 9 Shareholder Services Plan 9 Administrative Arrangements 9 Administration of the Fund 10 Administrative Services 10 Custodian 10 Transfer Agent and Dividend Disbursing Agent 10 Legal Counsel 10 Independent Public Accountants 10 Expenses of the Fund and Institutional Service Shares 10 NET ASSET VALUE 11 - ------------------------------------------------------ INVESTING IN INSTITUTIONAL SERVICE SHARES 11 - ------------------------------------------------------ Share Purchases 11 By Wire 11 By Mail 11 Minimum Investment Required 11 What Shares Cost 12 Subaccounting Services 12 Certificates and Confirmations 12 Dividends 12 Capital Gains 12 REDEEMING INSTITUTIONAL SERVICE SHARES 13 - ------------------------------------------------------ Telephone Redemption 13 Written Requests 13 Signatures 13 Receiving Payment 14 Checkwriting 14 Redemption Before Purchase Instruments Clear 14 Accounts with Low Balances 14 SHAREHOLDER INFORMATION 14 - ------------------------------------------------------ Voting Rights 14 Massachusetts Partnership Law 15 TAX INFORMATION 15 - ------------------------------------------------------ Federal Income Tax 15 Virginia Tax Considerations 16 Other State and Local Taxes 16 PERFORMANCE INFORMATION 16 - ------------------------------------------------------ OTHER CLASSES OF SHARES 17 - ------------------------------------------------------ Financial Highlights-- Institutional Shares 18 FINANCIAL STATEMENTS 19 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 33 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SERVICE SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price).................................................................. None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).................................................................. None Deferred Sales Load (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 INSTITUTIONAL SERVICE SHARES 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)..................................................... 0.55% Shareholder Servicing Fee....................................................................0.10% Total Institutional Service Shares Operating Expenses (2).................................... 0.55%
(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 0.40%. (2) The Total Institutional Service Shares Operating Expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1994. The Total Institutional Service Shares Operating Expenses were 0.19% for the fiscal year ended October 31, 1993 and were 1.23% absent the voluntary waiver of the management fee and reimbursement of certain other operating expenses. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL SERVICE SHARES" AND "FEDERATED MUNICIPAL TRUST INFORMATION." Wire-transferred redemptions of less than $5,000 may be charged additional fees.
EXAMPLE 1 year 3 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. As noted in the table above, the Fund charges no redemption fee for Institutional Service Shares................................................................. $6 $18
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the foregoing table and example relates only to Institutional Service Shares of the Fund. The Fund also offers another class of shares called Institutional Shares. Institutional Service Shares and Institutional Shares are subject to certain of the same expenses; however, Institutional Shares are not subject to a Shareholder Servicing Fee. See "Other Classes of Shares." VIRGINIA 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 33.
PERIOD ENDED OCTOBER 31, 1993* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 - ----------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------------------------------------------------------------- Net investment income 0.003 - ----------------------------------------------------------------------------------------------- ----------------- LESS DISTRIBUTIONS - ----------------------------------------------------------------------------------------------- Dividends to shareholders from net investment income (0.003) - ----------------------------------------------------------------------------------------------- ----------------- NET ASSET VALUE, END OF PERIOD $ 1.00 - ----------------------------------------------------------------------------------------------- ----------------- TOTAL RETURN** 0.34%(a) - ----------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------------------------------------------------------------- Expenses 0.19%(b) - ----------------------------------------------------------------------------------------------- Net investment income 2.67%(b) - ----------------------------------------------------------------------------------------------- Expense waiver/reimbursement (c) 1.04%(b) - ----------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $45,648 - -----------------------------------------------------------------------------------------------
* Reflects operations for the period from September 16, 1993 (date of initial public investment) to October 31, 1993. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (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 of beneficial interest 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") have established two classes of shares, known as Institutional Service Shares and Institutional Shares. This prospectus relates only to the Institutional Service Shares of the Fund. Institutional Service Shares ("Shares") of the Fund are designed for the investment of moneys held by financial institutions in an agency capacity. A minimum initial investment of $25,000 over a 90-day period is required. The Fund may not be a suitable investment for non-Virginia taxpayers or retirement plans since it invests primarily in Virginia municipal securities. The Fund attempts to stabilize the value of a Share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to provide current income exempt from federal regular income tax and the income tax imposed by the Commonwealth of Virginia 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 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 Virginia. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in a portfolio of Virginia municipal securities with remaining maturities of 13 months or less at the time of purchase by the Fund. As a matter of investment policy, which cannot be changed without approval of shareholders, the Fund invests so that at least 80% of its annual interest income is exempt from federal regular and Virginia state income tax or so that at least 80% of its net assets is invested in obligations, the interest income from which is exempt from federal regular and Virginia state income tax. 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 the approval of shareholders. 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 the Commonwealth 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 both federal regular income tax and the income tax imposed by the Commonwealth of Virginia. Examples of Virginia municipal securities include, but are not limited to: tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes ("BANs") 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 municipal securities 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 adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in municipal securities from financial institutions such as commercial and investment banks, savings and loan associations and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying municipal securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities and may be considered to be illiquid. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation certificate on any of the above. RATINGS. The Virginia municipal securities in which the Fund invests must either 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 Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1 and FIN-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 categories. See "Regulatory Compliance." CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been credit enhanced by a guaranty, letter of credit or insurance. 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. The bankruptcy, receivership or default of the credit enhancer will adversely affect the quality and marketability of the underlying security. 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. 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 laws. Under criteria established by the Trustees, certain restricted securities are considered liquid. To the extent restricted securities are deemed to be illiquid, the Fund will limit their purchase, together with other securities considered to be illiquid, to 10% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Virginia municipal securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in short-term non-Virginia municipal tax-exempt obligations or other taxable temporary investments. All temporary investments will satisfy the same credit quality standards as the Fund's acceptable investments. See "Ratings" above. Temporary investments include: notes issued by or on behalf of municipal or corporate issuers; marketable obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; other debt securities; commercial paper; certificates of deposit of banks; and repurchase agreements (arrangements in which banks, broker/dealers, and other recognized financial institutions sell the Fund a temporary investment and agree 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 of generating income subject to federal regular income tax or personal income tax imposed by the Commonwealth of Virginia. 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 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. STANDBY COMMITMENTS Some securities dealers are willing to sell municipal securities to the Fund accompanied by their commitments to repurchase the municipal securities prior to maturity, at the Fund's option, for the amortized cost of the municipal securities at the time of repurchase. These arrangements are not used to protect against changes in the market value of municipal securities. They permit the Fund, however, to remain fully invested and still provide liquidity to satisfy redemptions. The cost of municipal securities accompanied by these "standby" commitments could be greater than the cost of municipal securities without such commitments. Standby commitments are not marketable or otherwise assignable and have value only to the Fund. The default or bankruptcy of a securities dealer giving such a commitment would not affect the quality of the municipal securities purchased. However, without a standby commitment, these securities could be more difficult to sell. The Fund enters into standby commitments only with those dealers whose credit the investment adviser believes to be of high quality. VIRGINIA 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 and maturity of the particular offering; the maturity of the obligations; and the rating of the issue. Further, any adverse economic conditions or developments affecting the Commonwealth of Virginia or its municipalities could impact the Fund's portfolio. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Virginia municipal securities and demand features for such securities, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. However, Virginia's substantial resources and conservative approach to financial operations and debt management provide superior protection to bondholders. Additionally, recovery from the recession appears to be underway in the Commonwealth, with revenues exceeding estimates and employment increasing slightly. Investing in Virginia municipal securities which meet the Fund's quality standards may not be possible if the Commonwealth of Virginia or its municipalities do not maintain their high quality, short-term credit ratings. In addition, certain Virginia constitutional amendments, legislative measures, executive orders, administrative regulations and voter initiatives could result in adverse consequences affecting Virginia municipal securities. An expanded discussion of the current economic risks associated with the purchase of Virginia municipal securities is contained in the Combined Statement of Additional Information. NON-DIVERSIFICATION The Fund is a non-diversified investment portfolio. As such, there is no limit on the percentage of assets which can be invested in any single issuer. An investment in the Fund, therefore, will entail greater risk than would exist in a diversified investment portfolio because the higher percentage of investments among fewer issuers may result in greater fluctuation in the total market value of the Fund's portfolio. Any economic, political, or regulatory developments affecting the value of the securities in the Fund's portfolio will have a greater impact on the total value of the portfolio than would be the case if the portfolio were diversified among more issuers. The Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that at the end of each quarter of the taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer; beyond that, no more than 25% of its total assets are invested in the securities of a single issuer. 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 above investment limitation cannot be changed without shareholder approval. The following investment limitation, however, can be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in this limitation becomes effective. The Fund will not invest more than 5% of its total assets in industrial development bonds or other municipal securities when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in this prospectus and its Combined 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, as amended. 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 INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF FEDERATED MUNICIPAL TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of Trustees is 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. The Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, 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, for which it receives an annual fee from the Fund. ADVISORY FEES. The Fund's adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. Under the advisory contract, which provides for the voluntary waiver of the advisory fee by the adviser, the adviser may voluntarily waive some or all of the advisory fee. This does not include reimbursement to the Fund of any expenses incurred by shareholders who use the transfer agent's subaccounting facilities. The adviser can terminate this voluntary waiver of expenses at any time at its sole discretion. The adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. 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. Total assets under management or administration by these and other subsidiaries of Federated Investors are approximately $70 billion. Federated Investors, which was founded in 1956 as Federated Investors, Inc., develops and manages mutual funds primarily for the financial industry. Federated Investors' track record of competitive performance and its disciplined, risk-averse investment philosophy serve approximately 3,500 client institutions nationwide. Through these same client institutions, individual shareholders also have access to this same level of investment expertise. 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 PLAN. The Fund has adopted a Shareholder Services Plan (the "Services Plan") with respect to Institutional Service Shares. Under the Services Plan, financial institutions will enter into shareholder service agreements with the Fund to provide administrative support services to their customers who from time to time may be owners of record or beneficial owners of Institutional Service Shares. These administrative services may include, but are not limited to, the provision of personal service and maintenance of shareholder accounts. In return for providing these support services, a financial institution may receive payments from the Fund at a rate not exceeding 0.10% of the average daily net assets of the Institutional Service Shares beneficially owned by the financial institution's customers for whom it is holder of record or with whom it has a servicing relationship. ADMINISTRATIVE ARRANGEMENTS. In addition to the fees paid by the distributor to financial institutions under the Plan as described above, the distributor may also pay financial institutions a fee with respect to the average net asset value of Shares held by their customers for providing administrative services. The rate of such fee will be determined by the average net asset value of the shares held by their customers in the Institutional Service Shares class of the Fund. This fee is in addition to amounts paid under the Plan and, if paid, 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 services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state law. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services, Inc., provides these at approximate cost. CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and dividend disbursing agent for the Fund. LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania. EXPENSES OF THE FUND AND INSTITUTIONAL SERVICE SHARES Holders of Shares pay their allocable portion of Fund and Trust expenses. The Trust expenses for which holders of Shares pay their allocable portion include, but are not limited to: the cost of organizing the Trust and continuing its existence; registering the Trust with federal and state securities authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees; legal fees of the Trust; association membership dues; and such non-recurring and extraordinary items as may arise. The Fund expenses for which holders of Shares pay their allocable portion include, but are not limited to: registering the Fund and shares of the Fund; investment advisory services; taxes and commissions; custodian fees; insurance premiums; auditors' fees; and such non-recurring and extraordinary items as may arise. At present, no expenses are allocated to the Shares as a class. However, the Trustees reserve the right to allocate certain other expenses to holders of Shares as it deems appropriate ("Class Expenses"). In any case, Class Expenses would be limited to: transfer agent fees as identified by the transfer agent as attributable to holders of Shares; printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses and proxies to current shareholders; registration fees paid to the Securities and Exchange Commission and registration fees paid to state securities commissions; expenses related to administrative personnel and services as required to support holders of Shares; legal fees relating solely to Shares; and Trustees' fees incurred as a result of issues relating solely to Shares. 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 adding the interest of the Shares in the value of all securities and other assets of the Fund, subtracting the interest of the Shares in the liabilities of the Fund and those attributable to Shares, and dividing the remainder by the total number of Shares outstanding. The Fund, of course, cannot guarantee that its net asset value will always remain at $1.00 per Share. INVESTING IN INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- SHARE PURCHASES Shares are sold on days on which the New York Stock Exchange and the Federal Reserve wire system are open for business. Shares may be purchased either by wire or by mail. The Fund reserves the right to reject any purchase request. To purchase Shares, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken over the telephone. BY WIRE. To purchase Shares by Federal Reserve wire, call 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 same day. Federal funds should be wired as follows: State Street Bank and Trust Company, Boston, Massachusetts; 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 days on which the New York Stock Exchange is closed and on federal holidays restricting wire transfers. BY MAIL. To purchase Shares by mail, send a check made payable to Virginia Municipal Cash Trust-- Institutional Service Shares to the Trust's transfer agent, Federated Services Company, c/o State Street Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are considered received when payment by check is converted by State Street Bank into federal funds. This is normally the next business day after State Street Bank receives the check. MINIMUM INVESTMENT REQUIRED The minimum initial investment in Shares is $25,000. However, an account may be opened with a smaller amount as long as the $25,000 minimum is reached within 90 days. An institutional investor's minimum investment will be calculated by combining all accounts it maintains with the Fund. Individual accounts established through a bank or broker may be subject to a different minimum investment requirement. WHAT SHARES COST Shares are sold at their net asset value next determined after an order is received. There is no sales charge imposed by the Fund. Investors who purchase Shares through a bank or broker may be charged an additional service fee by that bank or broker. The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m. (Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no Shares are tendered for redemption and no orders to purchase Shares are received; and (iii) the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. SUBACCOUNTING SERVICES Institutions are encouraged to open single master accounts. However, certain institutions may wish to use the transfer agent's subaccounting system to minimize their internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Financial institutions holding Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Shares. This prospectus should, therefore, be read together with any agreement between the customer and the financial institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Monthly confirmations are sent to report transactions such as purchases and redemptions as well as dividends paid during the month. DIVIDENDS Dividends are declared daily and paid monthly. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends on the day after the check is converted by , upon instruction of the transfer agent, into federal funds. Dividends are automatically reinvested on payment dates in additional Shares unless cash payments are requested on an application or by contacting the Fund. CAPITAL GAINS Capital gains, if any, could result in an increase in dividends. Capital losses, if any, could result in a decrease in dividends. If, for some extraordinary reason, the Fund realizes net long-term or short-term capital gains, it will distribute them at least once every 12 months. REDEEMING INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares 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 by telephone request or by written request. TELEPHONE REDEMPTION Shareholders may redeem their Shares by telephoning the Fund. Redemption requests received before 12:00 noon (Eastern time) are not entitled to that day's dividend. A daily dividend will be paid on Shares redeemed if the redemption request is received after 12:00 noon (Eastern time). However, the proceeds are not wired until the following business day. If, at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders will be promptly notified. An authorization form permitting the Fund to accept redemption requests by telephone must first be completed. Authorization forms and information on this service are available from Federated Securities Corp. Telephone redemption instructions may be recorded. 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, shareholders may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption, such as Written Requests, should be considered. WRITTEN REQUESTS Shares may also be redeemed by sending a written request to the Fund. Call the Fund for specific instructions before redeeming by letter. The shareholder will be asked to provide in the request his name, the Fund name and class of shares, his account number, and the Share or dollar amount requested. If Share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, 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 signatures on written redemption requests guaranteed by: a trust company or commercial bank whose deposits are insured by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance Corporation ("FDIC"); a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; a savings bank or savings and loan association whose deposits are insured by the Savings Association Insurance Fund ("SAIF"), which is administered by the FDIC; 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. The Fund and its transfer agent have 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 and its transfer agent reserve the right to amend these standards at any time without notice. RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. CHECKWRITING. At the shareholder's request, State Street Bank will establish a checking account for redeeming Shares. For further information, contact Federated Securities Corp. A fee may be charged for this service. With a Fund checking account, Shares may be redeemed simply by writing a check. The redemption will be made at the net asset value on the date that State Street Bank presents the check to the Fund. A check may not be written to close an account. If a shareholder wishes to redeem Shares and have the proceeds available, a check may be written and negotiated through the shareholder's bank. Checks should never be sent to State Street Bank to redeem Shares. Cancelled checks are returned to the shareholder each month. REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR When Shares are purchased by check, the proceeds from the redemption of those Shares are not available, and the Shares may not be exchanged, until the Fund or its agents are reasonably certain that the purchase check has cleared, which could take up to ten calendar days. 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. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only shares of that Fund or class are entitled to vote. As a Massachusetts business trust, 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 for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of all series of the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders of the Fund, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such 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 of the Fund is held personally liable for the Trust's obligations, the Trust is required 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 cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. 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 some municipal bonds may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The alternative minimum tax, equal to up to 28% of alternative minimum taxable income for individuals and 20% for corporations, 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. The Tax Reform Act of 1986 treats interest on certain "private activity" bonds issued after August 7, 1986, as a tax preference item for both individuals and corporations. Unlike traditional governmental purpose municipal bonds, which finance roads, schools, libraries, prisons and other public facilities, private activity bonds provide benefits to private parties. The Fund may purchase all types of municipal bonds, including private activity bonds. Thus, should it purchase any such bonds, a portion of the Fund's dividends may be treated as a tax preference item. In addition, in the case of a corporate shareholder, dividends of the Fund which represent interest on municipal bonds may be subject to the 20% corporate alternative minimum tax because the dividends are included in a corporation's "adjusted current earnings." The corporate alternative minimum tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's alternative minimum taxable income as a tax preference item. "Adjusted current earnings" is based upon the concept of a corporation's "earnings and profits." Since "earnings and profits" generally includes the full amount of any Fund dividend, and alternative minimum taxable income does not include the portion of the Fund's dividend attributable to municipal bonds which are not private activity bonds, 75% of the difference will be included in the calculation of the corporation's alternative minimum 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. Information on the tax status of dividends and distributions is provided annually. VIRGINIA TAX CONSIDERATIONS Under existing Virginia law, distributions made by the Fund will not be subject to Virginia individual or corporate income taxes to the extent that such distributions are attributable to interest earned on (i) obligations issued by or on behalf of the Commonwealth of Virginia or any political subdivision thereof; or (ii) 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 not be exempt from Virginia individual or corporate income taxes. OTHER STATE AND LOCAL TAXES Income from the Fund is not necessarily free from regular state income taxes in states other than Virginia or from personal property taxes. State laws differ on this issue and 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 the Fund advertises its yield, effective yield, and tax-equivalent yield for Institutional Service Shares. The yield of Institutional Service Shares represents the annualized rate of income earned on an investment in Institutional Service Shares 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 in Institutional Service Shares 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 of Institutional Service Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the Institutional Service Shares would have had to earn to equal their actual yield, assuming a specific tax rate. Advertisements and other sales literature may also refer to total return. Total return represents the change, over a specified period of time, in the value of an investment in Institutional Service 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, and tax-equivalent yield will be calculated separately for Institutional Service Shares and Institutional Shares. Because Institutional Service Shares are subject to a shareholder services plan fee, the yield, the effective yield, and the tax-equivalent yield for Institutional Shares will exceed the yield, the effective yield, and the tax-equivalent yield for Institutional Service Shares for the same period. From time to time, the Fund may advertise the performance of Institutional Service Shares using certain reporting services and/or compare the performance of Institutional Service Shares to certain indices. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- Institutional Shares are sold to accounts for which financial institutions act in a fiduciary capacity. Institutional Shares are sold at net asset value. Investments in Institutional Shares are also subject to a minimum initial investment of $25,000. Institutional Service Shares are subject to a shareholder services plan fee of.10 of 1% of the Institutional Service Shares' average daily net assets. Institutional Shares are not subject to a shareholder services plan fee. Financial institutions and brokers providing sales and/or administrative services may receive different compensation from one class of shares of the Fund than from another class of shares depending upon which class of shares of the Fund is sold. The distributor may pay an administrative fee to a financial institution or broker for administrative services provided to the Institutional Service Shares class, but such a fee will not be an expense of the class but will be reimbursed to the distributor by the investment adviser. Administrative fees are not paid in conjunction with Institutional Shares. The difference between class expenses and distribution expenses borne by shares of each respective class will cause the amount of dividends payable to a particular class of shares to exceed the amount of dividends payable to another class of shares whose distribution expenses are greater. Thus, because Institutional Shares are not subject to a shareholder services plan fee, the Institutional Shares' dividends will exceed the dividends paid by the Institutional Service Shares. The stated advisory fee is the same for all classes of shares. VIRGINIA 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 33.
PERIOD ENDED OCTOBER 31, 1993* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 - ----------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------------------------------------------------------------- Net investment income 0.003 - ----------------------------------------------------------------------------------------------- ----------------- LESS DISTRIBUTIONS - ----------------------------------------------------------------------------------------------- Dividends to shareholders from net investment income (0.003) - ----------------------------------------------------------------------------------------------- ----------------- NET ASSET VALUE, END OF PERIOD $ 1.00 - ----------------------------------------------------------------------------------------------- ----------------- TOTAL RETURN** 0.35%(a) - ----------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------------------------------------------------------------- Expenses 0.09%(b) - ----------------------------------------------------------------------------------------------- Net investment income 2.68%(b) - ----------------------------------------------------------------------------------------------- Expense waiver/reimbursement (c) 1.04%(b) - ----------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $ 7,210 - -----------------------------------------------------------------------------------------------
* Reflects operations for the period from September 16, 1993 (date of initial public investment) to October 31, 1993. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Cumulative total return. (b) Computed on an annualized basis. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (See Notes which are an integral part of the Financial Statements) VIRGINIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1993 - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P OR PRINCIPAL FITCH* AMOUNT (NOTE 6) VALUE - ------------- --------------------------------------------------------------------- ----------- -------------- SHORT-TERM MUNICIPAL SECURITIES--104.3% - ------------------------------------------------------------------------------------ VIRGINIA--97.7% --------------------------------------------------------------------- $ 1,000,000 Alexandria, VA, IDA Weekly VRDNs (American Red Cross)/(Sanwa Bank, Ltd. LOC) P-1 $ 1,000,000 --------------------------------------------------------------------- 2,500,000 Alexandria, VA, Redevelopment and Housing Authority Weekly VRDNs (Crystal City Apartments)/(Safeco Insurance Co. of America Insured)/(Subject AMT) A-1+ 2,500,000 --------------------------------------------------------------------- 500,000 Amelia County, VA, IDA Weekly VRDNs (Series 1991)/ (Chambers Waste Systems)/(NationsBank of North Carolina N.A. LOC)/(Subject to AMT) VMIG1 500,000 --------------------------------------------------------------------- 2,000,000 Arlington County, VA, 3.60% BANs, 8/1/94 SP-1+ 2,013,182 --------------------------------------------------------------------- 2,200,000 Arlington County, VA, Weekly VRDNs (Ballston Public Parking)/(Citibank N.A. LOC) A-1 2,200,000 --------------------------------------------------------------------- 1,440,000 Chesapeake Bay Bridge & Tunnel District, VA, General Resolution Revenue Bonds Weekly VRDNs (P-Floats) (Series 1991)/(MBIA Insured) VMIG1 1,440,000 --------------------------------------------------------------------- 2,000,000 Chesapeake, VA, IDA Weekly VRDNs (Series 1988)/ (Sumitomo Machinery Corp. of America)/(Sumitomo Bank, Ltd. LOC)/(Subject to AMT) VMIG1 2,000,000 --------------------------------------------------------------------- 2,050,000 Chesterfield County, VA, IDA, 2.90% CP (Series 1987A)/ (Virginia Electric Power Co.), Mandatory Tender 11/15/93 A-1 2,050,000 --------------------------------------------------------------------- 1,440,000 Fairfax County, VA, EDA Weekly VRDNs (Series 1993)/ (Future Homemakers of America)/(NationsBank of Virginia N.A. LOC) P-1 1,440,000 --------------------------------------------------------------------- 1,050,000 Fairfax County, VA, EDA Weekly VRDNs (William Byrd Press)/(NationsBank of Virginia N.A. LOC) VMIG1 1,050,000 --------------------------------------------------------------------- 2,000,000 Fairfax County, VA, Housing Authority Weekly VRDNs (Chase Commons Associates)/(Bankers Trust Company LOC) VMIG1 2,000,000 --------------------------------------------------------------------- 2,000,000 Fairfax County, VA, IDA Weekly VRDNs (Fairfax Hospital System, Inc.)/(Dai-Ichi Kangyo Bank, Ltd. LOC) A-1+ 2,000,000 --------------------------------------------------------------------- 2,340,000 Fairfax County, VA, Water Authority Revenue Bonds Weekly VRDNs (P-FLOATS)/(Series 1992) VMIG1 2,340,000 --------------------------------------------------------------------- 3,000,000 Falls Church, VA, IDA, 2.65% Semi-Annual TOBs (Series 1985)/(Kaiser Permanente), Optional Tender 5/1/94 A-1+ 3,000,000 --------------------------------------------------------------------- 1,300,000 Greensville County, VA, IDA Daily VRDNs (Purdue Farms, Inc.)/(Morgan Guaranty Trust Co. LOC)/(Subject to AMT) A-1+ 1,300,000 --------------------------------------------------------------------- 4,000,000 Halifax, VA, IDA, MMMs, PCR, 3.10% CP (Virginia Electric Power Co.)/(Subject to AMT), Mandatory Tender 1/25/94 A-1+ 4,000,000 --------------------------------------------------------------------- 1,223,000 Norfolk, VA, Redevelopment and Housing Authority Weekly VRDNs (Series 1990)/(St. Paul's Associates, L.P.)/ (NationsBank of Virginia N.A. LOC) P-1 1,223,000 --------------------------------------------------------------------- 1,600,000 Peninsula Port Authority, VA, Daily VRDNs (Shell Oil Co.) AAA 1,600,000 --------------------------------------------------------------------- 1,000,000 Peninsula Port Authority of VA Weekly VRDNs (Series 1993)/(Allied Signal, Inc. Guaranty) A-1 1,000,000 --------------------------------------------------------------------- 2,980,000 Richmond, VA, 3.00% SB, 1/15/94 AA 2,984,053 --------------------------------------------------------------------- 3,000,000 Richmond, VA, Redevelopment and Housing Authority Weekly VRDNs (Series 1989)/(Belmont Apartments)/ (NationsBank of North Carolina N.A. LOC) P-1 3,000,000 --------------------------------------------------------------------- 2,000,000 Suffolk, VA, Redevelopment and Housing Authority Weekly VRDNs (Terry/Peterson Development Corp.)/ (NationsBank of Virginia N.A. LOC) P-1 2,000,000 --------------------------------------------------------------------- 3,000,000 Virginia Education Loan Authority, 2.85% TOBs (Series 1993H)/(Escrowed in Treasuries)/(Subject to AMT), Mandatory Tender 2/24/94 VMIG1 3,000,000 --------------------------------------------------------------------- 2,000,000 Virginia Housing Development Authority Weekly VRDNs (Series 1987A)/(AHC Service Corp.)/(Mitsubishi Bank, Ltd. LOC) P-1 2,000,000 --------------------------------------------------------------------- 4,000,000 Virginia State, HDA, 2.95% Semi-Annual TOBs (Series 1992B)/(Stem II)/(Subject to AMT), Mandatory Tender 3/24/94 A-1+ 4,001,794 --------------------------------------------------------------------- -------------- TOTAL 51,642,029 --------------------------------------------------------------------- -------------- PUERTO RICO--6.6% --------------------------------------------------------------------- 3,500,000 Puerto Rico Commonwealth, 3.00% TRANS (Series 1993A), 7/29/94 SP-1+ 3,510,041 --------------------------------------------------------------------- -------------- TOTAL INVESTMENTS (AT AMORTIZED COST) $ 55,152,070\ --------------------------------------------------------------------- --------------
* See Notes to Portfolio of Investments. \ Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($52,858,271) at October 31, 1993. (See Notes which are an integral part of the Financial Statements) VIRGINIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following abbreviations are used in this portfolio: AMT--Alternative Minimum Tax BANs--Bond Anticipation Notes CP--Commercial Paper EDA--Economic Development Authority HDA--Hospital Development Authority IDA--Industrial Development Authority LOC--Letter of Credit MBIA--Municipal Bond Investors Assurance MMMs--Money Market Municipals PCR--Pollution Control Revenue SB--Serial Bond TOBs--Tender Option Bonds TRANs--Tax and Revenue Anticipation Notes VRDNs--Variable Rate Demand Notes VIRGINIA MUNICIPAL CASH TRUST NOTES TO PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL OBLIGATION RATINGS S&P A Standard & Poor's 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 (+) designation. SP-2 Satisfactory capacity to pay principal and interest. MOODY'S Moody's short-term ratings are designated Moody's Investment Grade (MIG OR VMIG (see below)). The purpose of the MIG of 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. FITCH Fitch's short-term ratings place greater emphasis on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. F-1 Strongest degree of assurance for timely payment. Those issues determined to provide exceptionally strong credit quality are given a plus (+) designation. F-2 Notes reflecting a degree of assurance for timely payment only slightly less in degree than the highest category. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P Standard & Poor's 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-1+, AA/A-1+, and A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) MOODY'S 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. FITCH Fitch usually assigns two ratings to long-term debt issues that include provisions for a variable rate demand feature. The long-term rating addresses the ability of the obligor to pay debt service and the short-term rating addresses the timely payment of the demand feature. Examples of rating designations are as follows: AAA/F-1+, AA/F-1+, and A/F-1. (The definitions for the long-term and short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS S&P A Standard & Poor's 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 designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) designation. A-2 Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated "A-1." MOODY'S P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. The following is an explanation of the Fitch ratings. These ratings are not referenced in the Portfolio of Investments. FITCH F-1 Issues assigned this rating reflect a strong degree of assurance for timely payment. Those issuers determined to possess the strongest degree of assurance for timely payment are denoted with a plus (+) sign designation. F-2 Issuers carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as the "F-1+" and "F-1" categories. LONG-TERM DEBT RATINGS (INVESTMENT GRADE) S&P AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the 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. BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest than debt rated in higher ratings categories. MOODY'S AAA Bonds that 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 edge." Interest payments are protected by a large margin and principal is secure. While the various protective elements are likely to change, such changes which can be foreseen are most unlikely to impair the fundamentally strong position of such issues. AA Bonds that 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 that 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 that suggest a susceptibility to impairment some time in the future. BAA Bonds which are rated BAA are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. FITCH AAA Bonds that are rated AAA are of the highest credit quality. The obligor has an exceptionally strong ability to pay debt service. AA Bonds that are rated AA are of very high quality. The obligor has a very strong ability to pay debt service. Debt rated in this category may also have a (+) or (-) sign with a rating to indicate the relative position within the rating category. A Bonds are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. NR indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P, Moody's, or Fitch with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated in one of the two highest short-term ratings categories by a nationally recognized statistical ratings organization. NR(1) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by Fitch. NR(2) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch. NR(3) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "A" by Standard & Poor's, Moody's, or Fitch. NR(4) The underlying issuer/obligor/gurantor has other outstanding long-term debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by Fitch. VIRGINIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1993 - -------------------------------------------------------------------------------- ASSETS: - -------------------------------------------------------------------------------------------------- Investments, at amortized cost and value (Note 2A) $ 55,152,070 - -------------------------------------------------------------------------------------------------- Cash 411,467 - -------------------------------------------------------------------------------------------------- Interest receivable 200,207 - -------------------------------------------------------------------------------------------------- Receivable for Fund shares sold 171,923 - -------------------------------------------------------------------------------------------------- -------------- Total assets 55,935,667 - -------------------------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------------------------------------- Payable for investments purchased $ 3,000,000 - ----------------------------------------------------------------------------------- Dividends payable 35,508 - ----------------------------------------------------------------------------------- Accrued expenses and other liabilities 41,888 - ----------------------------------------------------------------------------------- ------------- Total liabilities 3,077,396 - -------------------------------------------------------------------------------------------------- -------------- NET ASSETS for 52,858,271 shares of beneficial interest outstanding $ 52,858,271 - -------------------------------------------------------------------------------------------------- -------------- NET ASSET VALUE, Offering Price, and Redemption Price Per Share: - -------------------------------------------------------------------------------------------------- Institutional Service Shares ($45,647,769 / 45,647,769 shares of beneficial interest outstanding) $1.00 - -------------------------------------------------------------------------------------------------- -------------- Institutional Shares ($7,210,502 / 7,210,502 shares of beneficial interest outstanding) $1.00 - -------------------------------------------------------------------------------------------------- -------------- (See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS FOR THE PERIOD FROM SEPTEMBER 16, 1993 (DATE OF INITIAL PUBLIC INVESTMENT) TO OCTOBER 31, 1993 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------------------------- Interest income (Note 2B) $ 148,599 - ---------------------------------------------------------------------------------------------------- EXPENSES: - ---------------------------------------------------------------------------------------------------- Investment advisory fee (Note 5) $ 20,894 - ----------------------------------------------------------------------------------------- Administrative personnel and services fees (Note 5) 24,647 - ----------------------------------------------------------------------------------------- Custodian, transfer and dividend disbursing agent fees and expenses 13,246 - ----------------------------------------------------------------------------------------- Shareholder services fees 4,695 - ----------------------------------------------------------------------------------------- --------- Total expenses 63,482 - ----------------------------------------------------------------------------------------- Deduct-- - ----------------------------------------------------------------------------------------- Waiver of investment advisory fee (Note 5) $ 20,894 - ------------------------------------------------------------------------------ Reimbursement of other operating expenses (Note 5) 33,250 54,144 - ------------------------------------------------------------------------------ --------- --------- Net expenses 9,338 - ---------------------------------------------------------------------------------------------------- ----------- Net investment income $ 139,261 - ---------------------------------------------------------------------------------------------------- ----------- (See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
PERIOD ENDED 10/31/93* INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------------------------------------------------------ OPERATIONS-- - ------------------------------------------------------------------------------------------------ Net investment income $ 139,261 - ------------------------------------------------------------------------------------------------ ---------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - ------------------------------------------------------------------------------------------------ Dividends to shareholders from net investment income: - ------------------------------------------------------------------------------------------------ Institutional Service Shares (124,823) - ------------------------------------------------------------------------------------------------ Institutional Shares (14,438) - ------------------------------------------------------------------------------------------------ ---------------- Change in net assets from distributions to shareholders (139,261) - ------------------------------------------------------------------------------------------------ ---------------- FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - ------------------------------------------------------------------------------------------------ Proceeds from sale of shares 122,368,804 - ------------------------------------------------------------------------------------------------ Net asset value of shares issued to shareholders in payment of dividends declared 95,476 - ------------------------------------------------------------------------------------------------ Cost of shares redeemed (69,606,009) - ------------------------------------------------------------------------------------------------ ---------------- Change in net assets from Fund share transactions 52,858,271 - ------------------------------------------------------------------------------------------------ ---------------- Change in net assets 52,858,271 - ------------------------------------------------------------------------------------------------ NET ASSETS: - ------------------------------------------------------------------------------------------------ Beginning of period -- - ------------------------------------------------------------------------------------------------ ---------------- End of period $ 52,858,271 - ------------------------------------------------------------------------------------------------ ---------------- *The period from September 16, 1993 (date of initial public investment) to October 31, 1993. (See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1993 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company with several 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. Effective September 16, 1993, the Fund provides two classes of shares ("Institutional Service Shares" and "Institutional Shares"). Institutional Shares are identical in all respects to Institutional Service Shares except that Institutional Service Shares are sold pursuant to a shareholder services plan of up to .10 of 1% of average daily net assets of the Institutional Service 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. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that the best method currently available for valuing portfolio securities is amortized cost. The Fund's use of the amortized cost method to value its portfolio securities is conditioned on its compliance with Rule 2a-7 under the Investment Company Act of 1940. Since the Fund may invest 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 general tax-exempt mutual fund. In order to reduce the risk associated with such factors, at October 31, 1993, 48.3% of the securities in the portfolio of investments were backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies of various financial institutions. The aggregate percentages by financial institutions ranged from 1.8% to 10.4% of total investments. B. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest earned net of premium, and original issue discount as required by the Internal Revenue Code. C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal Revenue Code (the "Code") applicable to investment companies and to distribute to shareholders each year all of its net income. Accordingly, no provision for federal tax is necessary. Dividends paid by the Fund representing net interest received on tax-exempt municipal securities are not includable by shareholders as gross income for federal income tax purposes because the Fund intends to meet certain requirements of the Code applicable to regulated investment companies which will enable the Fund to pay exempt-interest dividends. The portion of such interest, if any, earned on private activity bonds issued after August 7, 1986, may be considered a tax preference item to shareholders for the purpose of computing the alternative minimum tax. D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objective and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain 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. E. EXPENSES--Expenses of the Fund (other than shareholder servicing fees) and waivers and reimbursements, if any, are allocated to each class of shares based on its relative daily average net assets for the period. Expenses incurred by the Trust which do not specifically relate to an individual fund are allocated among all funds based on a fund's relative net asset value size or as deemed appropriate by the administrator. F. OTHER--Investment transactions are accounted for on the date of the transaction.
(3) DIVIDENDS The Fund computes its net income daily and, immediately prior to the calculation of its net asset value at the close of business, declares and records dividends to shareholders of record at the time of the previous computation of the Fund's net asset value. Payment of dividends is made monthly in cash or in additional shares at the net asset value on the payable date. (4) 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, 1993, capital paid-in aggregated $52,858,271. Transactions in Fund shares were as follows:
YEAR ENDED INSTITUTIONAL SERVICE SHARES 10/31/93** Shares outstanding, beginning of period -- - --------------------------------------------------------------------------------------------------- Shares sold 113,204,248 - --------------------------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 95,476 - --------------------------------------------------------------------------------------------------- Shares redeemed (67,651,955) - --------------------------------------------------------------------------------------------------- ------------- Shares outstanding, end of period 45,647,769 - --------------------------------------------------------------------------------------------------- ------------- ** The period from September 16, 1993 (date of initial public investment) to October 31, 1993.
YEAR ENDED INSTITUTIONAL SHARES 10/31/93** Shares outstanding, beginning of period -- - --------------------------------------------------------------------------------------------------- Shares sold 9,164,556 - --------------------------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared -- - --------------------------------------------------------------------------------------------------- Shares redeemed (1,954,054) - --------------------------------------------------------------------------------------------------- ------------- Shares outstanding, end of period 7,210,502 - --------------------------------------------------------------------------------------------------- ------------- **The period from September 16, 1993 (date of initial public investment) to October 31, 1993.
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Federated Management, the Fund's investment adviser ("Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. Adviser has voluntarily agreed to waive a portion of its fee. Adviser can modify or terminate this voluntary waiver of expense at any time at its sole discretion. For the period from September 16, 1993 (date of initial public investment) to October 31, 1993, the investment advisory fee amounted to $20,894, all of which was voluntarily waived in accordance with such undertaking. In addition, Adviser voluntarily reimbursed $33,250 of the Fund's other operating expenses. Organizational expenses ($35,000) were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser during the five-year period following the date the Trust's portfolio became effective. During the fiscal year ended October 31, 1993, the Fund engaged in purchase and sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7 of the Investment Company Act of 1940 amounting to $41,592,120 and $34,809,000, respectively. These purchases and sales were conducted on an arms-length basis insofar as they were transacted for cash consideration only, at independent current market prices and without brokerage commission, fee or other remuneration. Administrative personnel and services were provided at approximate cost by Federated Administrative Services, Inc. Certain Officers and Trustees of the Trust are Officers and Directors of the above corporations. (6) CURRENT CREDIT RATINGS Current credit ratings and related notes are unaudited. 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, 1993, the related statement of operations for the year then ended, the statement of changes in net assets, and the financial highlights (see pages 2 and 18 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 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 the securities owned as of October 31, 1993, 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 Virginia Municipal Cash Trust, an investment portfolio of Federated Municipal Trust, as of October 31, 1993, 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 & CO. Pittsburgh, Pennsylvania December 13, 1993 THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK ADDRESSES - -------------------------------------------------------------------------------- Virginia Municipal Cash Trust Institutional Service Shares Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8602 Trust Company Boston, Massachusetts 02266-8602 - --------------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, D.C. 20037 - --------------------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen & Co. 2100 One PPG Place Pittsburgh, Pennsylvania 15222 - ---------------------------------------------------------------------------------------------------------------------
VIRGINIA MUNICIPAL CASH TRUST INSTITUTIONAL SERVICE SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company December 31, 1993 3080501A-ISS (12/93) 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 non-diversified portfolio of securities which is one of a series of investment portfolios in Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The investment objective of the Fund is to provide current income exempt from federal regular income tax and the income taxes imposed by the Commonwealth of Virginia consistent with stability of principal. 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, which are exempt from the federal regular and Virginia state income taxes. Institutional Shares of the Fund are sold at net asset value, without a sales load. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. 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. THE INSTITUTIONAL 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 BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. This prospectus contains the information you should read and know before you invest in Institutional Shares. Keep this prospectus for future reference. The Fund has also filed a Combined Statement of Additional Information for Institutional Shares and Institutional Service Shares dated December 31, 1993, with the Securities and Exchange Commission. The information contained in the Combined Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Combined Statement of Additional Information free of charge by calling 1-800-235-4669. To obtain other information or to make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated December 31, 1993 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 Acceptable Investments 3 Variable Rate Demand Notes 4 Participation Interests 4 Municipal Leases 4 Ratings 4 Credit Enhancement 5 Demand Features 5 Restricted and Illiquid Securities 5 When-Issued and Delayed Delivery Transactions 5 Temporary Investments 5 Virginia Municipal Securities 6 Standby Commitments 6 Virginia Investment Risks 6 Non-Diversification 7 Investment Limitations 7 Regulatory Compliance 8 FEDERATED MUNICIPAL TRUST INFORMATION 8 - ------------------------------------------------------ Management of Federated Municipal Trust 8 Board of Trustees 8 Investment Adviser 8 Advisory Fees 8 Adviser's Background 8 Distribution of Institutional Shares 9 Administration of the Fund 9 Administrative Services 9 Custodian 9 Transfer Agent and Dividend Disbursing Agent 9 Legal Counsel 9 Independent Public Accountants 9 Expenses of the Fund and Institutional Shares 9 NET ASSET VALUE 10 - ------------------------------------------------------ INVESTING IN INSTITUTIONAL SHARES 10 - ------------------------------------------------------ Share Purchases 10 By Wire 10 By Mail 10 Minimum Investment Required 10 What Shares Cost 11 Subaccounting Services 11 Certificates and Confirmations 11 Dividends 11 Capital Gains 11 REDEEMING INSTITUTIONAL SHARES 12 - ------------------------------------------------------ Telephone Redemption 12 Written Requests 12 Signatures 12 Receiving Payment 13 Redemption Before Purchase Instruments Clear 13 Accounts with Low Balances 13 SHAREHOLDER INFORMATION 13 - ------------------------------------------------------ Voting Rights 13 Massachusetts Partnership Law 13 TAX INFORMATION 14 - ------------------------------------------------------ Federal Income Tax 14 Virginia Tax Considerations 15 Other State and Local Taxes 15 PERFORMANCE INFORMATION 15 - ------------------------------------------------------ OTHER CLASSES OF SHARES 16 - ------------------------------------------------------ Financial Highlights--Institutional Service Shares 17 FINANCIAL STATEMENTS 18 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 32 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price).................................................................. None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).................................................................. None Deferred Sales Load (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 INSTITUTIONAL SHARES OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)...................................................................... 0.00% 12b-1 Fee.............................................................................................. None Other Expenses (after expense reimbursement)........................................................... 0.45% Total Institutional Shares Operating Expenses (2)............................................ 0.45%
(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 0.40%. (2) The Total Institutional Shares Operating Expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1994. The Total Institutional Shares Operating Expenses were 0.09% and were 1.13% absent the voluntary waiver of the management fee and reimbursement of certain other operating expenses. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL SHARES" AND "FEDERATED MUNICIPAL TRUST INFORMATION." Wire-transferred redemptions of less than $5,000 may be charged additional fees.
EXAMPLE 1 year 3 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. As noted in the table above, the Fund charges no redemption fee for Institutional Shares................................................... $5 $14
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the foregoing table and example relates only to Institutional Shares of the Fund. The Fund also offers another class of shares called Institutional Service Shares. Institutional Shares and Institutional Service Shares are subject to certain of the same expenses; however, Institutional Service Shares are subject to a Shareholder Servicing Fee of 0.10%. See "Other Classes of Shares." VIRGINIA 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 32.
PERIOD ENDED OCTOBER 31, 1993* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 - ------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------------------------------------------------------ Net investment income 0.003 ------- - ------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------------------------------------------------------------ Dividends to shareholders from net investment income (0.003) ------- - ------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $ 1.00 ------- - ------------------------------------------------------------------------------------------------ TOTAL RETURN** 0.35%(a) - ------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------------------------------------ Expenses 0.09%(b) - ------------------------------------------------------------------------------------------------ Net investment income 2.68%(b) - ------------------------------------------------------------------------------------------------ Expense waiver/reimbursement (c) 1.04%(b) - ------------------------------------------------------------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------ Net assets, end of period (000 omitted) $7,210 - ------------------------------------------------------------------------------------------------
* Reflects operations for the period from September 16, 1993 (date of initial public investment) to October 31, 1993. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a)Cumulative total return. (b)Computed on an annualized basis. (c)This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (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 of beneficial interest representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to this Fund, as of the date of this prospectus, the Board of Trustees (the "Trustees") have established two classes of shares, known as Institutional Shares and Institutional Service Shares. This prospectus relates only to Institutional Shares of the Fund. Institutional Shares ("Shares") of the Fund are designed for the investment of moneys held by financial institutions in a fiduciary capacity. A minimum initial investment of $25,000 over a 90-day period is required. The Fund may not be a suitable investment for non-Virginia taxpayers or retirement plans since it invests primarily in Virginia municipal securities. The Fund attempts to stabilize the value of a Share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to provide current income exempt from federal regular income tax and the income tax imposed by the Commonwealth of Virginia 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 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 Virginia. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in a portfolio of Virginia municipal securities with remaining maturities of 13 months or less at the time of purchase by the Fund. As a matter of investment policy which cannot be changed without approval of shareholders, the Fund invests so that at least 80% of its annual interest income is exempt from federal regular and Virginia state income tax or so that at least 80% of its net assets is invested in obligations, the interest income from which is exempt from federal regular and Virginia state income tax. 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 the approval of shareholders. 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 the Commonwealth 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 theopinion of qualified legal counsel, exempt from both federal regular income tax and the income tax imposed by the Commonwealth of Virginia. Examples of Virginia municipal securities include, but are not limited to: tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes ("BANs") 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 municipal securities 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 adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in municipal securities from financial institutions such as commercial and investment banks, savings and loan associations and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying municipal securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities and may be considered to be illiquid. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation certificate on any of the above. RATINGS. The Virginia municipal securities in which the Fund invests must either 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 Corporation ("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1 and FIN-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 categories. See "Regulatory Compliance." CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been credit enhanced by a guaranty, letter of credit or insurance. 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. The bankruptcy, receivership or default of the credit enhancer will adversely affect the quality and marketability of the underlying security. 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. 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 laws. Under criteria established by the Trustees, certain restricted securities are considered liquid. To the extent restricted securities are deemed to be illiquid, the Fund will limit their purchase, together with other securities considered to be illiquid, to 10% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Virginia municipal securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in short-term non-Virginia municipal tax-exempt obligations or other taxable, temporary investments. All temporary investments will satisfy the same credit quality standards as the Fund's acceptable investments. See "Ratings" above. Temporary investments include: notes issued by or on behalf of municipal or corporate issuers; marketable obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; other debt securities; commercial paper; certificates of deposit of banks; and repurchase agreements (arrangements in which banks, broker/dealers, and other recognized financial institutions sell the Fund a temporary investment and agree 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 of generating income subject to federal regular income tax or personal income tax imposed by the Commonwealth of Virginia. 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 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. STANDBY COMMITMENTS Some securities dealers are willing to sell municipal securities to the Fund accompanied by their commitments to repurchase the municipal securities prior to maturity, at the Fund's option, for the amortized cost of the municipal securities at the time of repurchase. These arrangements are not used to protect against changes in the market value of municipal securities. They permit the Fund, however, to remain fully invested and still provide liquidity to satisfy redemptions. The cost of municipal securities accompanied by these "standby" commitments could be greater than the cost of municipal securities without such commitments. Standby commitments are not marketable or otherwise assignable and have value only to the Fund. The default or bankruptcy of a securities dealer giving such a commitment would not affect the quality of the municipal securities purchased. However, without a standby commitment, these securities could be more difficult to sell. The Fund enters into standby commitments only with those dealers whose credit the investment adviser believes to be of high quality. VIRGINIA 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 and maturity of the particular offering; the maturity of the obligations; and the rating of the issue. Further, any adverse economic conditions or developments affecting the Commonwealth of Virginia or its municipalities could impact the Fund's portfolio. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Virginia municipal securities and demand features for such securities, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. However, Virginia's substantial resources and conservative approach to financial operations and debt management provide superior protection to bondholders. Additionally, recovery from the recession appears to be underway in the Commonwealth, with revenues exceeding estimates and employment increasing slightly. Investing in Virginia municipal securities which meet the Fund's quality standards may not be possible if the Commonwealth of Virginia or its municipalities do not maintain their high quality, short-term credit ratings. In addition, certain Virginia constitutional amendments, legislative measures, executive orders, administrative regulations and voter initiatives could result in adverse consequences affecting Virginia municipal securities. An expanded discussion of the current economic risks associated with the purchase of Virginia municipal securities is contained in the Combined Statement of Additional Information. NON-DIVERSIFICATION The Fund is a non-diversified investment portfolio. As such, there is no limit on the percentage of assets which can be invested in any single issuer. An investment in the Fund, therefore, will entail greater risk than would exist in a diversified investment portfolio because the higher percentage of investments among fewer issuers may result in greater fluctuation in the total market value of the Fund's portfolio. Any economic, political, or regulatory developments affecting the value of the securities in the Fund's portfolio will have a greater impact on the total value of the portfolio than would be the case if the portfolio were diversified among more issuers. The Fund intends to comply with Subchapter M of the Internal Revenue Code. This undertaking requires that at the end of each quarter of the taxable year, with regard to at least 50% of the Fund's total assets, no more than 5% of its total assets are invested in the securities of a single issuer; beyond that, no more than 25% of its total assets are invested in the securities of a single issuer. 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 above investment limitation cannot be changed without shareholder approval. The following investment limitation, however, can be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in this limitation becomes effective. The Fund will not invest more than 5% of its total assets in industrial development bonds or other municipal securities when the payment of principal and interest is the responsibility of companies (or guarantors, where applicable) with less than three years of continuous operations, including the operation of any predecessor. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in this prospectus and its Combined 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, as amended. 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 INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF FEDERATED MUNICIPAL TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Board of Trustees is 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. The Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, 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, for which it receives an annual fee from the Fund. ADVISORY FEES. The Fund's adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. Under the advisory contract, which provides for the voluntary waiver of the advisory fee by the adviser, the adviser may voluntarily waive some or all of the advisory fee. This does not include reimbursement to the Fund of any expenses incurred by shareholders who use the transfer agent's subaccounting facilities. The adviser can terminate this voluntary waiver of expenses at any time at its sole discretion. The adviser has also undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. 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. Total assets under management or administration by these and other subsidiaries of Federated Investors are approximately $70 billion. Federated Investors, which was founded in 1956 as Federated Investors, Inc., develops and manages mutual funds primarily for the financial industry. Federated Investors' track record of competitive performance and its disciplined, risk-averse investment philosophy serve approximately 3,500 client institutions nationwide. Through these same client institutions, individual shareholders also have access to this same level of investment expertise. DISTRIBUTION OF INSTITUTIONAL SHARES Federated Securities Corp. is the principal distributor for Institutional Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services, Inc., provides these at approximate cost. CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and dividend disbursing agent for the Fund. LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania. EXPENSES OF THE FUND AND INSTITUTIONAL SHARES Holders of Shares pay their allocable portion of Fund and Trust expenses. The Trust expenses for which holders of Shares pay their allocable portion include, but are not limited to: the cost of organizing the Trust and continuing its existence; registering the Trust with federal and state securities authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees; legal fees of the Trust; association membership dues; and such non-recurring and extraordinary items as may arise. The Fund expenses for which holders of Shares pay their allocable portion include, but are not limited to: registering the Fund and shares of the Fund; investment advisory services; taxes and commissions; custodian fees; insurance premiums; auditors' fees; and such non-recurring and extraordinary items as may arise. At present, no expenses are allocated to the Shares as a class. However, the Trustees reserve the right to allocate certain other expenses to holders of Shares as it deems appropriate ("Class Expenses"). In any case, Class Expenses would be limited to: transfer agent fees as identified by the transfer agent as attributable to holders of Shares; printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses and proxies to current shareholders; registration fees paid to the Securities and Exchange Commission and registration fees paid to state securities commissions; expenses related to administrative personnel and services as required to support holders of Shares; legal fees relating solely to Shares; and Trustees' fees incurred as a result of issues relating solely to Shares. 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 adding the interest of the Shares in the value of all securities and other assets of the Fund, subtracting the interest of the Shares in the liabilities of the Fund and those attributable to Shares, and dividing the remainder by the total number of Shares outstanding. The Fund, of course, cannot guarantee that its net asset value will always remain at $1.00 per Share. INVESTING IN INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- SHARE PURCHASES Shares are sold on days on which the New York Stock Exchange and the Federal Reserve wire system are open for business. Shares may be purchased either by wire or by mail. The Fund reserves the right to reject any purchase request. To purchase Shares, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken over the telephone. BY WIRE. To purchase Shares by Federal Reserve wire, call 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 same day. Federal funds should be wired as follows: State Street Bank and Trust Company, Boston, Massachusetts; 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 days on which the New York Stock Exchange is closed and on federal holidays restricting wire transfers. BY MAIL. To purchase Shares by mail, send a check made payable to Virginia Municipal Cash Trust-- Institutional Shares to the Trust's transfer agent, Federated Services Company, c/o State Street Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are considered received when payment by check is converted by State Street Bank into federal funds. This is normally the next business day after State Street Bank receives the check. MINIMUM INVESTMENT REQUIRED The minimum initial investment in Shares is $25,000. However, an account may be opened with a smaller amount as long as the $25,000 minimum is reached within 90 days. An institutional investor's minimum investment will be calculated by combining all accounts it maintains with the Fund. Individual accounts established through a bank or broker may be subject to a different minimum investment requirement. WHAT SHARES COST Shares are sold at their net asset value next determined after an order is received. There is no sales charge imposed by the Fund. Investors who purchase Shares through a bank or broker may be charged an additional service fee by that bank or broker. The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m. (Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no Shares are tendered for redemption and no orders to purchase Shares are received; and (iii) the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. SUBACCOUNTING SERVICES Institutions are encouraged to open single master accounts. However, certain institutions may wish to use the transfer agent's subaccounting system to minimize their internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Financial institutions holding Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Shares. This prospectus should, therefore, be read together with any agreement between the customer and the financial institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Monthly confirmations are sent to report transactions such as purchases and redemptions as well as dividends paid during the month. DIVIDENDS Dividends are declared daily and paid monthly. Shares purchased by wire before 1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends on the day after the check is converted, upon instruction of the transfer agent, into federal funds. Dividends are automatically reinvested on payment dates in additional Shares unless cash payments are requested on an application or by contacting the Fund. CAPITAL GAINS Capital gains, if any, could result in an increase in dividends. Capital losses, if any, could result in a decrease in dividends. If, for some extraordinary reason, the Fund realizes net long-term or short-term capital gains, it will distribute them at least once every 12 months. REDEEMING INSTITUTIONAL SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares 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 by telephone request or by written request. TELEPHONE REDEMPTION Shareholders may redeem their Shares by telephoning the Fund. Redemption requests received before 12:00 noon (Eastern time) are not entitled to that day's dividend. A daily dividend will be paid on Shares redeemed if the redemption request is received after 12:00 noon (Eastern time). However, the proceeds are not wired until the following business day. If, at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders will be promptly notified. An authorization form permitting the Fund to accept redemption requests by telephone must first be completed. Authorization forms and information on this service are available from Federated Securities Corp. Telephone redemption instructions may be recorded. 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, shareholders may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption, such as Written Requests, should be considered. WRITTEN REQUESTS Shares may also be redeemed by sending a written request to the Fund. Call the Fund for specific instructions before redeeming by letter. The shareholder will be asked to provide in the request his name, the Fund name and class of shares, his account number, and the Share or dollar amount requested. If Share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, 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 signatures on written redemption requests guaranteed by: a trust company or commercial bank whose deposits are insured by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance Corporation ("FDIC"); a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; a savings bank or savings and loan association whose deposits are insured by the Savings Association Insurance Fund ("SAIF"), which is administered by the FDIC; 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. The Fund and its transfer agent have 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 and its transfer agent reserve the right to amend these standards at any time without notice. RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR When Shares are purchased by check, the proceeds from the redemption of those Shares are not available, and the Shares may not be exchanged, until the Fund or its agents are reasonably certain that the purchase check has cleared, which could take up to ten calendar days. 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. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only shares of that Fund or class are entitled to vote. As a Massachusetts business trust, 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 for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of the outstanding shares of all series of the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders of the Fund, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such 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 of the Fund is held personally liable for the Trust's obligations, the Trust is required 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 cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. 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 some municipal bonds may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The alternative minimum tax, equal to up to 28% of alternative minimum taxable income for individuals and 20% for corporations, 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. The Tax Reform Act of 1986 treats interest on certain "private activity" bonds issued after August 7, 1986, as a tax preference item for both individuals and corporations. Unlike traditional governmental purpose municipal bonds, which finance roads, schools, libraries, prisons and other public facilities, private activity bonds provide benefits to private parties. The Fund may purchase all types of municipal bonds, including private activity bonds. Thus, should it purchase any such bonds, a portion of the Fund's dividends may be treated as a tax preference item. In addition, in the case of a corporate shareholder, dividends of the Fund which represent interest on municipal bonds may be subject to the 20% corporate alternative minimum tax because the dividends are included in a corporation's "adjusted current earnings." The corporate alternative minimum tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's alternative minimum taxable income as a tax preference item. "Adjusted current earnings" is based upon the concept of a corporation's "earnings and profits." Since "earnings and profits" generally includes the full amount of any Fund dividend, and alternative minimum taxable income does not include the portion of the Fund's dividend attributable to municipal bonds which are not private activity bonds, 75% of the difference will be included in the calculation of the corporation's alternative minimum 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. Information on the tax status of dividends and distributions is provided annually. VIRGINIA TAX CONSIDERATIONS Under existing Virginia law, distributions made by the Fund will not be subject to Virginia individual or corporate income taxes to the extent that such distributions are attributable to interest earned on (i) obligations issued by or on behalf of the Commonwealth of Virginia or any political subdivision thereof; or (ii) 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 not be exempt from Virginia individual or corporate income taxes. OTHER STATE AND LOCAL TAXES Income from the Fund is not necessarily free from regular state income taxes in states other than Virginia or from personal property taxes. State laws differ on this issue and 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 the Fund advertises its yield, effective yield, and tax-equivalent yield for Institutional Shares. The yield of Institutional Shares represents the annualized rate of income earned on an investment in Institutional Shares 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 in Institutional Shares 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 of Institutional Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the Institutional Shares would have had to earn to equal their actual yield, assuming a specific tax rate. Advertisements and other sales literature may also refer to total return. Total return represents the change, over a specified period of time, in the value of an investment in Institutional 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, and tax-equivalent yield will be calculated separately for Institutional Shares and Institutional Service Shares. Because Institutional Service Shares are subject to a shareholder services plan fee, the yield, the effective yield, and the tax-equivalent yield for Institutional Shares will exceed the yield, the effective yield, and the tax-equivalent yield for Institutional Service Shares for the same period. From time to time, the Fund may advertise the performance of Institutional Shares using certain reporting services and/or compare the performance of Institutional Shares to certain indices. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- Institutional Service Shares are sold to accounts for which financial institutions act in an agency capacity. Institutional Service Shares are sold at net asset value. Investments in Institutional Service Shares are also subject to a minimum initial investment of $25,000. Institutional Service Shares are subject to a shareholder services plan fee of .10 of 1% of the Institutional Service Shares' average daily net assets. Institutional Shares are not subject to a shareholder services plan fee. Financial institutions and brokers providing sales and/or administrative services may receive different compensation from one class of shares of the Fund than from another class of shares depending upon which class of shares of the Fund is sold. The distributor may pay an administrative fee to a financial institution or broker for administrative services provided to the Institutional Service Shares class, but such a fee will not be an expense of the class but will be reimbursed to the distributor by the investment adviser. Administrative fees are not paid in conjunction with Institutional Shares. The difference between class expenses and distribution expenses borne by shares of each respective class will cause the amount of dividends payable to a particular class of shares to exceed the amount of dividends payable to another class of shares whose distribution expenses are greater. Thus, because Institutional Shares are not subject to a shareholder services plan fee, the Institutional Shares' dividends will exceed the dividends paid by the Institutional Service Shares. The stated advisory fee is the same for all classes of shares. VIRGINIA 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 32.
PERIOD ENDED OCTOBER 31, 1993* NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 - ------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------------------------------------------------------ Net investment income 0.003 ------- - ------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------------------------------------------------------------ Dividends to shareholders from net investment income (0.003) ------- - ------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $ 1.00 ------- - ------------------------------------------------------------------------------------------------ TOTAL RETURN** 0.34%(a) - ------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------------------------------------ Expenses 0.19%(b) - ------------------------------------------------------------------------------------------------ Net investment income 2.67%(b) - ------------------------------------------------------------------------------------------------ Expense waiver/reimbursement (c) 1.04%(b) - ------------------------------------------------------------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------ Net assets, end of period (000 omitted) $45,648 - ------------------------------------------------------------------------------------------------
* Reflects operations for the period from September 16, 1993 (date of initial public investment) to October 31, 1993. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a)Cumulative total return. (b)Computed on an annualized basis. (c)This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (See Notes which are an integral part of the Financial Statements) VIRGINIA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS OCTOBER 31, 1993 - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, S&P PRINCIPAL OR FITCH* AMOUNT (NOTE 6) VALUE - ------------- --------------------------------------------------------------------- ------------ -------------- SHORT-TERM MUNICIPAL SECURITIES--104.3% - ------------------------------------------------------------------------------------ VIRGINIA--97.7% --------------------------------------------------------------------- $ 1,000,000 Alexandria, VA, IDA Weekly VRDNs (American Red Cross)/(Sanwa Bank, Ltd. LOC) P-1 $ 1,000,000 --------------------------------------------------------------------- 2,500,000 Alexandria, VA, Redevelopment and Housing Authority Weekly VRDNs (Crystal City Apartments)/(Safeco Insurance Co. of America Insured)/(Subject AMT) A-1+ 2,500,000 --------------------------------------------------------------------- 500,000 Amelia County, VA, IDA Weekly VRDNs (Series 1991)/ (Chambers Waste Systems)/(NationsBank of North Carolina N.A. LOC)/(Subject to AMT) VMIG1 500,000 --------------------------------------------------------------------- 2,000,000 Arlington County, VA, 3.60% BANs, 8/1/94 SP-1+ 2,013,182 --------------------------------------------------------------------- 2,200,000 Arlington County, VA, Weekly VRDNs (Ballston Public Parking)/(Citibank N.A. LOC) A-1 2,200,000 --------------------------------------------------------------------- 1,440,000 Chesapeake Bay Bridge & Tunnel District, VA, General Resolution Revenue Bonds Weekly VRDNs (P-Floats)/ (Series 1991)/(MBIA Insured) VMIG1 1,440,000 --------------------------------------------------------------------- 2,000,000 Chesapeake, VA, IDA Weekly VRDNs (Series 1988)/ (Sumitomo Machinery Corp. of America)/(Sumitomo Bank, Ltd. LOC)/(Subject to AMT) VMIG1 2,000,000 --------------------------------------------------------------------- 2,050,000 Chesterfield County, VA, IDA, 2.90% CP (Series 1987A)/ (Virginia Electric Power Co.), Mandatory Tender 11/15/93 A-1 2,050,000 --------------------------------------------------------------------- 1,440,000 Fairfax County, VA, EDA Weekly VRDNs (Series 1993)/ (Future Homemakers of America)/(NationsBank of Virginia N.A. LOC) P-1 1,440,000 --------------------------------------------------------------------- 1,050,000 Fairfax County, VA, EDA Weekly VRDNs (William Byrd Press)/(NationsBank of Virginia N.A. LOC) VMIG1 1,050,000 --------------------------------------------------------------------- 2,000,000 Fairfax County, VA, Housing Authority Weekly VRDNs (Chase Commons Associates)/(Bankers Trust Company LOC) VMIG1 2,000,000 --------------------------------------------------------------------- 2,000,000 Fairfax County, VA, IDA Weekly VRDNs (Fairfax Hospital System, Inc.)/(Dai-Ichi Kangyo Bank, Ltd. LOC) A-1+ 2,000,000 --------------------------------------------------------------------- 2,340,000 Fairfax County, VA, Water Authority Revenue Bonds Weekly VRDNs (P-FLOATS)/(Series 1992) VMIG1 2,340,000 --------------------------------------------------------------------- 3,000,000 Falls Church, VA, IDA, 2.65% Semi-Annual TOBs (Series 1985)/(Kaiser Permanente) Optional Tender, 5/1/94 A-1+ 3,000,000 --------------------------------------------------------------------- 1,300,000 Greensville County, VA, IDA Daily VRDNs (Purdue Farms, Inc.)/(Morgan Guaranty Trust Co. LOC)/(Subject to AMT) A-1+ 1,300,000 --------------------------------------------------------------------- 4,000,000 Halifax, VA, IDA, MMMs, PCR, 3.10% CP (Virginia Electric Power Co.)/(Subject to AMT) Mandatory Tender, 1/25/94 A-1+ 4,000,000 --------------------------------------------------------------------- 1,223,000 Norfolk, VA, Redevelopment and Housing Authority Weekly VRDNs (Series 1990)/(St. Paul's Associates, L.P.)/ (NationsBank of Virginia N.A. LOC) P-1 1,223,000 --------------------------------------------------------------------- 1,600,000 Peninsula Port Authority, VA, Daily VRDNs (Shell Oil Co.) AAA 1,600,000 --------------------------------------------------------------------- 1,000,000 Peninsula Port Authority of VA Weekly VRDNs (Series 1993)/(Allied Signal, Inc. Guaranty) A-1 1,000,000 --------------------------------------------------------------------- 2,980,000 Richmond, VA, 3.00% SB, 1/15/94 AA 2,984,053 --------------------------------------------------------------------- 3,000,000 Richmond, VA, Redevelopment and Housing Authority Weekly VRDNs (Series 1989)/(Belmont Apartments)/ (NationsBank of North Carolina N.A. LOC) P-1 3,000,000 --------------------------------------------------------------------- 2,000,000 Suffolk, VA, Redevelopment and Housing Authority Weekly VRDNs (Terry/Peterson Development Corp.)/ (NationsBank of Virginia N.A. LOC) P-1 2,000,000 --------------------------------------------------------------------- 3,000,000 Virginia Education Loan Authority, 2.85% TOBs (Series 1993H)/(Escrowed in Treasuries)/(Subject to AMT), Mandatory Tender 2/24/94 VMIG1 3,000,000 --------------------------------------------------------------------- 2,000,000 Virginia Housing Development Authority Weekly VRDNs (Series 1987A)/(AHC Service Corp.)/(Mitsubishi Bank, Ltd. LOC) P-1 2,000,000 --------------------------------------------------------------------- 4,000,000 Virginia State, HDA, 2.95% Semi-Annual TOBs (Series 1992B)/(Stem II)/(Subject to AMT) Mandatory Tender, 3/24/94 A-1+ 4,001,794 --------------------------------------------------------------------- -------------- TOTAL 51,642,029 --------------------------------------------------------------------- -------------- PUERTO RICO--6.6% --------------------------------------------------------------------- 3,500,000 Puerto Rico Commonwealth, 3.00% TRANS (Series 1993A), 7/29/94 SP-1+ 3,510,041 --------------------------------------------------------------------- -------------- TOTAL INVESTMENTS (AT AMORTIZED COST) $ 55,152,070\ --------------------------------------------------------------------- --------------
* See Notes to Portfolio of Investments. \ Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($52,858,271) at October 31, 1993. (See Notes which are an integral part of the Financial Statements) VIRGINIA MUNICIPAL CASH TRUST - -------------------------------------------------------------------------------- The following abbreviations are used in this portfolio: AMT--Alternative Minimum Tax BANs--Bond Anticipation Notes CP--Commercial Paper EDA--Economic Development Authority HDA--Hospital Development Authority IDA--Industrial Development Authority LOC--Letter of Credit MBIA--Municipal Bond Investors Assurance MMMs--Money Market Municipals PCR--Pollution Control Revenue SB--Serial Bond TOBs--Tender Option Bonds TRANs--Tax and Revenue Anticipation Notes VRDNs--Variable Rate Demand Notes VIRGINIA MUNICIPAL CASH TRUST NOTES TO PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL OBLIGATION RATINGS S&P A Standard & Poor's 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 (+) designation. SP-2 Satisfactory capacity to pay principal and interest. MOODY'S Moody's short-term ratings are designated Moody's Investment Grade (MIG OR VMIG (see below)). The purpose of the MIG of 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. FITCH Fitch's short-term ratings place greater emphasis on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. F-1 Strongest degree of assurance for timely payment. Those issues determined to provide exceptionally strong credit quality are given a plus (+) designation. F-2 Notes reflecting a degree of assurance for timely payment only slightly less in degree than the highest category. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS S&P Standard & Poor's 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-1+, AA/A-1K, and A/A-1. (The definitions for the long-term and the short-term ratings are provided below.) MOODY'S 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. FITCH Fitch usually assigns two ratings to long-term debt issues that include provisions for a variable rate demand feature. The long-term rating addresses the ability of the obligor to pay debt service and the short-term rating addresses the timely payment of the demand feature. Examples of rating designations are as follows: AAA/F-1+, AA/F-1K, and A/F-1. (The definitions for the long-term and short-term ratings are provided below.) COMMERCIAL PAPER (CP) RATINGS S&P A Standard & Poor's 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 designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) designation. A-2 Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated "A-1." MOODY'S P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. The following is an explanation of the Fitch ratings. These ratings are not referenced in the Portfolio of Investments. FITCH F-1 Issues assigned this rating reflect a strong degree of assurance for timely payment. Those issuers determined to possess the strongest degree of assurance for timely payment are denoted with a plus (+) sign designation. F-2 Issuers carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as the "F-1+" and "F-1" categories. LONG-TERM DEBT RATINGS (INVESTMENT GRADE) S&P AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the 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. BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest than debt rated in higher ratings categories. MOODY'S AAA Bonds that 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 edge." Interest payments are protected by a large margin and principal is secure. While the various protective elements are likely to change, such changes which can be foreseen are most unlikely to impair the fundamentally strong position of such issues. AA Bonds that 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 that 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 that suggest a susceptibility to impairment some time in the future. BAA Bonds which are rated BAA are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. FITCH AAA Bonds that are rated AAA are of the highest credit quality. The obligor has an exceptionally strong ability to pay debt service. AA Bonds that are rated AA are of very high quality. The obligor has a very strong ability to pay debt service. Debt rated in this category may also have a (+) or (-) sign with a rating to indicate the relative position within the rating category. A Bonds are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. NR indicates that both the bonds and the obligor or credit enhancer are not currently rated by S&P, Moody's, or Fitch with respect to short-term indebtedness. However, management considers them to be of comparable quality to securities rated in one of the two highest short-term ratings categories by a nationally recognized statistical ratings organization. NR(1) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AAA" by Standard & Poor's, "Aaa" by Moody's or "AAA" by Fitch. NR(2) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "AA" by Standard & Poor's, "Aa" by Moody's or "AA" by Fitch. NR(3) The underlying issuer/obligor/guarantor has other outstanding long-term debt rated "A" by Standard & Poor's, Moody's, or Fitch. NR(4) The underlying issuer/obligor/gurantor has other outstanding long-term debt rated "BBB" by Standard & Poor's, "Baa" by Moody's, or "BBB" by Fitch. VIRGINIA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1993 - -------------------------------------------------------------------------------- ASSETS: - -------------------------------------------------------------------------------------------------- Investments, at amortized cost and value (Note 2A) $ 55,152,070 - -------------------------------------------------------------------------------------------------- Cash 411,467 - -------------------------------------------------------------------------------------------------- Interest receivable 200,207 - -------------------------------------------------------------------------------------------------- Receivable for Fund shares sold 171,923 - -------------------------------------------------------------------------------------------------- -------------- Total assets 55,935,667 - -------------------------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------------------------------------- Payable for investments purchased $ 3,000,000 - ----------------------------------------------------------------------------------- Dividends payable 35,508 - ----------------------------------------------------------------------------------- Accrued expenses and other liabilities 41,888 - ----------------------------------------------------------------------------------- ------------- Total liabilities 3,077,396 - -------------------------------------------------------------------------------------------------- -------------- NET ASSETS for 52,858,271 shares of beneficial interest outstanding $ 52,858,271 - -------------------------------------------------------------------------------------------------- -------------- NET ASSET VALUE, Offering Price, and Redemption Price Per Share: - -------------------------------------------------------------------------------------------------- Institutional Service Shares ($45,647,769 / 45,647,769 shares of beneficial interest outstanding) $1.00 - -------------------------------------------------------------------------------------------------- -------------- Institutional Shares ($7,210,502 / 7,210,502 shares of beneficial interest outstanding) $1.00 - -------------------------------------------------------------------------------------------------- -------------- (See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS FOR THE PERIOD FROM SEPTEMBER 16, 1993 (DATE OF INITIAL PUBLIC INVESTMENT) TO OCTOBER 31, 1993 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------------------------- Interest income (Note 2B) $ 148,599 - ---------------------------------------------------------------------------------------------------- EXPENSES: - ---------------------------------------------------------------------------------------------------- Investment advisory fee (Note 5) $ 20,894 - ----------------------------------------------------------------------------------------- Administrative personnel and services fees (Note 5) 24,647 - ----------------------------------------------------------------------------------------- Custodian, transfer and dividend disbursing agent fees and expenses 13,246 - ----------------------------------------------------------------------------------------- Shareholder services fees 4,695 - ----------------------------------------------------------------------------------------- --------- Total expenses 63,482 - ----------------------------------------------------------------------------------------- Deduct-- - ----------------------------------------------------------------------------------------- Waiver of investment advisory fee (Note 5) $ 20,894 - ------------------------------------------------------------------------------ Reimbursement of other operating expenses (Note 5) 33,250 54,144 - ------------------------------------------------------------------------------ --------- --------- Net expenses 9,338 - ---------------------------------------------------------------------------------------------------- ----------- Net investment income $ 139,261 - ---------------------------------------------------------------------------------------------------- ----------- (See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
PERIOD ENDED 10/31/93* INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------------------------------------------------------- OPERATIONS-- - ------------------------------------------------------------------------------------------------- Net investment income $ 139,261 - ------------------------------------------------------------------------------------------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - ------------------------------------------------------------------------------------------------- Dividends to shareholders from net investment income: - ------------------------------------------------------------------------------------------------- Institutional Service Shares (124,823) - ------------------------------------------------------------------------------------------------- Institutional Shares (14,438) - ------------------------------------------------------------------------------------------------- --------------- Change in net assets from distributions to shareholders (139,261) - ------------------------------------------------------------------------------------------------- --------------- FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - ------------------------------------------------------------------------------------------------- Proceeds from sale of shares 122,368,804 - ------------------------------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of dividends declared 95,476 - ------------------------------------------------------------------------------------------------- Cost of shares redeemed (69,606,009) - ------------------------------------------------------------------------------------------------- --------------- Change in net assets from Fund share transactions 52,858,271 - ------------------------------------------------------------------------------------------------- --------------- Change in net assets 52,858,271 - ------------------------------------------------------------------------------------------------- NET ASSETS: - ------------------------------------------------------------------------------------------------- Beginning of period -- - ------------------------------------------------------------------------------------------------- --------------- End of period $ 52,858,271 - ------------------------------------------------------------------------------------------------- --------------- *The period from September 16, 1993 (date of initial public investment) to October 31, 1993. (See Notes which are an integral part of the Financial Statements)
VIRGINIA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1993 - -------------------------------------------------------------------------------- (1) ORGANIZATION Federated Municipal Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company with several 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. Effective September 16, 1993, the Fund provides two classes of shares ("Institutional Service Shares" and "Institutional Shares"). Institutional Shares are identical in all respects to Institutional Service Shares except that Institutional Service Shares are sold pursuant to a shareholder services plan of up to .10 of 1% of average daily net assets of the Institutional Service 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. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that the best method currently available for valuing portfolio securities is amortized cost. The Fund's use of the amortized cost method to value its portfolio securities is conditioned on its compliance with Rule 2a-7 under the Investment Company Act of 1940. Since the Fund may invest 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 general tax-exempt mutual fund. In order to reduce the risk associated with such factors, at October 31, 1993, 48.3% of the securities in the portfolio of investments were backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies of various financial institutions. The aggregate percentages by financial institutions ranged from 1.8% to 10.4% of total investments. B. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest earned net of premium, and original issue discount as required by the Internal Revenue Code. C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal Revenue Code (the "Code") applicable to investment companies and to distribute to shareholders each year all of its net income. Accordingly, no provision for federal tax is necessary. Dividends paid by the Fund representing net interest received on tax-exempt municipal securities are not includable by shareholders as gross income for federal income tax purposes because the Fund intends to meet certain requirements of the Code applicable to regulated investment companies which will enable the Fund to pay exempt-interest dividends. The portion of such interest, if any, earned on private activity bonds issued after August 7, 1986, may be considered a tax preference item to shareholders for the purpose of computing the alternative minimum tax. D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objective and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain 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. E. EXPENSES--Expenses of the Fund (other than shareholder servicing fees) and waivers and reimbursements, if any, are allocated to each class of shares based on its relative daily average net assets for the period. Expenses incurred by the Trust which do not specifically relate to an individual fund are allocated among all funds based on a fund's relative net asset value size or as deemed appropriate by the administrator. F. OTHER--Investment transactions are accounted for on the date of the transaction.
(3) DIVIDENDS The Fund computes its net income daily and, immediately prior to the calculation of its net asset value at the close of business, declares and records dividends to shareholders of record at the time of the previous computation of the Fund's net asset value. Payment of dividends is made monthly in cash, or in additional shares at the net asset value on the payable date. (4) 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, 1993, capital paid-in aggregated $52,858,271. Transactions in Fund shares were as follows:
YEAR ENDED INSTITUTIONAL SERVICE SHARES 10/31/93** Shares outstanding, beginning of period -- - --------------------------------------------------------------------------------------------------- Shares sold 113,204,248 - --------------------------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 95,476 - --------------------------------------------------------------------------------------------------- Shares redeemed (67,651,955) - --------------------------------------------------------------------------------------------------- ------------- Shares outstanding, end of period 45,647,769 - --------------------------------------------------------------------------------------------------- ------------- ** The period from September 16, 1993 (date of initial public investment) to October 31, 1993.
VIRGINIA MUNICIPAL CASH TRUST - --------------------------------------------------------------------------------
YEAR ENDED INSTITUTIONAL SHARES 10/31/93** Shares outstanding, beginning of period -- - --------------------------------------------------------------------------------------------------- Shares sold 9,164,556 - --------------------------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared -- - --------------------------------------------------------------------------------------------------- Shares redeemed (1,954,054) - --------------------------------------------------------------------------------------------------- ------------- Shares outstanding, end of period 7,210,502 - --------------------------------------------------------------------------------------------------- ------------- **The period from September 16, 1993 (date of initial public investment) to October 31, 1993.
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Federated Management, the Fund's investment adviser ("Adviser"), receives for its services an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. Adviser has voluntarily agreed to waive a portion of its fee. Adviser can modify or terminate this voluntary waiver of expense at any time at its sole discretion. For the period from September 16, 1993 (date of initial public investment) to October 31, 1993, the investment advisory fee amounted to $20,894, all of which was voluntarily waived in accordance with such undertaking. In addition, Adviser voluntarily reimbursed $33,250 of the Fund's other operating expenses. Organizational expenses ($35,000) were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser during the five-year period following the date the Trust's portfolio became effective. During the fiscal year ended October 31, 1993, the Fund engaged in purchase and sale transactions with other funds advised by the Adviser pursuant to Rule 17a-7 of the Investment Company Act of 1940 amounting to $41,592,120 and $34,809,000, respectively. These purchases and sales were conducted on an arms-length basis insofar as they were transacted for cash consideration only, at independent current market prices and without brokerage commission, fee or other remuneration. Administrative personnel and services were provided at approximate cost by Federated Administrative Services, Inc. Certain Officers and Trustees of the Trust are Officers and Directors of the above corporations. (6) CURRENT CREDIT RATINGS Current credit ratings and related notes are unaudited. 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, 1993, the related statement of operations for the year then ended, the statement of changes in net assets, and the financial highlights (see pages 2 and 17 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 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 the securities owned as of October 31, 1993, 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 Virginia Municipal Cash Trust, an investment portfolio of Federated Municipal Trust, as of October 31, 1993, 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 & CO. Pittsburgh, Pennsylvania December 13, 1993 THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK ADDRESSES - -------------------------------------------------------------------------------- Virginia Municipal Cash Trust Institutional Shares Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8602 Trust Company Boston, Massachusetts 02266-8602 - --------------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, D.C. 20037 - --------------------------------------------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen & Co. 2100 One PPG Place Pittsburgh, Pennsylvania 15222 - ---------------------------------------------------------------------------------------------------------------------
VIRGINIA MUNICIPAL CASH TRUST INSTITUTIONAL SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company December 31, 1993 3080501A-IS (12/93) VIRGINIA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SHARES INSTITUTIONAL SERVICE SHARES COMBINED STATEMENT OF ADDITIONAL INFORMATION This Combined Statement of Additional Information should be read with the respective prospectus for Institutional Shares and Institutional Service Shares of Virginia Municipal Cash Trust (the "Fund") dated December 31, 1993. This Statement is not a prospectus itself. To receive a copy of either prospectus, write or call Federated Municipal Trust. FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 Statement dated December 31, 1993 FEDERATED SECURITIES CORP. --------------------------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS TABLE OF CONTENTS - -------------------------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND 1 - --------------------------------------------------------------- INVESTMENT OBJECTIVE AND POLICIES 1 - --------------------------------------------------------------- Acceptable Investments 1 When-Issued and Delayed Delivery Transactions 1 Temporary Investments 2 Reverse Repurchase Agreements 2 Investment Limitations 2 Virginia Investment Risks 4 FEDERATED MUNICIPAL TRUST MANAGEMENT 5 - --------------------------------------------------------------- Officers and Trustees 5 The Funds 7 Fund Ownership 7 Trustee Liability 7 INVESTMENT ADVISORY SERVICES 7 - --------------------------------------------------------------- Adviser to the Fund 7 Advisory Fees 8 SHAREHOLDER SERVICES PLAN (INSTITUTIONAL SERVICE SHARES ONLY) 8 - --------------------------------------------------------------- ADMINISTRATIVE SERVICES 9 - --------------------------------------------------------------- BROKERAGE TRANSACTIONS 9 - --------------------------------------------------------------- PURCHASING SHARES 9 - --------------------------------------------------------------- Conversion to Federal Funds 9 DETERMINING NET ASSET VALUE 9 - --------------------------------------------------------------- Use of Amortized Cost Method 9 REDEEMING SHARES 10 - --------------------------------------------------------------- Redemption in Kind 10 TAX STATUS 11 - --------------------------------------------------------------- The Fund's Tax Status 11 YIELD 11 - --------------------------------------------------------------- EFFECTIVE YIELD 11 - --------------------------------------------------------------- TAX-EQUIVALENT YIELD 12 - --------------------------------------------------------------- Tax-Equivalency Table 12 PERFORMANCE COMPARISONS 12 - --------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND - -------------------------------------------------------------------------------- The Fund is a portfolio in Federated Municipal Trust (the "Trust"), which was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. Shares of the Fund are offered in two classes, known as Institutional Shares and Institutional Service Shares (individually and collectively referred to as "Shares"). This Combined Statement of Additional Information relates to the above-mentioned Shares of the Fund. INVESTMENT OBJECTIVE AND POLICIES - -------------------------------------------------------------------------------- The Fund's investment objective is to provide current income exempt from federal regular income tax and the income tax imposed by the Commonwealth of Virginia consistent with stability of principal. The investment objective cannot be changed without approval of shareholders. ACCEPTABLE INVESTMENTS The Fund invests primarily in debt obligations issued by or on behalf of the Commonwealth of Virginia and 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 both federal regular income tax and the income taxes imposed by the Commonwealth of Virginia. When determining whether a Virginia municipal security presents minimal credit risks, the investment adviser considers the creditworthiness of the issuer of the security, the issuer of a demand feature if the Fund has the unconditional right to demand payment for the security, or the guarantor of payment by either of those issuers. If a security loses its rating or the security's rating is reduced below the required minimum after the Fund purchased it, the Fund is not required to sell the security. The investment adviser considers this event, however, in its determination of whether the Fund should continue to hold the security in its portfolio. If ratings made by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") change because of changes in those organizations or in their rating systems, the Fund will try to use comparable ratings as standards in accordance with the investment policies described in the Fund's prospectuses. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests which represent undivided proportional interests in lease payments by a governmental or non-profit entity. The lease payments and other rights under the lease provide for and secure the payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. In particular, lease obligations may be subject to periodic appropriation. If the entity does not appropriate funds for future lease payments, the entity cannot be compelled to make such payments. 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. Under the criteria currently established by the Board of Trustees ("Trustees"), the Fund's investment adviser must consider the following factors in determining the liquidity of municipal lease securities: (1) the frequency of trades and quotes for the security; (2) the volatility of quotations and trade prices for the security; (3) the number of dealers willing to purchase or sell the security and the number of potential purchasers; (4) dealer undertakings to make a market in the security; (5) the nature of the security and the nature of the marketplace trades; (6) the rating of the security and the financial condition and prospects of the issuer of the security; (7) such other factors as may be relevant to the Fund's ability to dispose of the security; (8) whether the lease can be terminated by the lessee; (9) the potential recovery, if any, from a sale of the leased property upon termination of the lease; (10) the lessee's general credit strength; (11) the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations; and (12) any credit enhancement or legal recourse provided upon an event of nonappropriation or other termination of the lease. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The Fund engages in when-issued and delayed delivery transactions only for the purpose of acquiring portfolio securities consistent with the Fund's investment objective and policies, not for investment leverage. These transactions are made to secure what is considered to be an advantageous price and yield for the Fund. 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. No fees or other expenses, other than normal transaction costs, are incurred. However liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. The Fund may engage in these transactions to an extent that would cause the segregation of an amount up to 20% of the total value of its assets. TEMPORARY INVESTMENTS The Fund may also invest in high quality temporary investments during times of unusual market conditions for defensive purposes and to maintain liquidity. REPURCHASE AGREEMENTS Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities or other securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price within one year from the date of acquisition. 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 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 investment adviser to be creditworthy pursuant to guidelines established by the Trustees. From time to time, such as when suitable Virginia municipal securities are not available, the Fund may maintain a portion of its assets in cash. Any portion of the Fund's assets maintained in cash will reduce the amount of assets in Virginia municipal securities and thereby reduce the Fund's yield. REVERSE REPURCHASE AGREEMENTS The Fund may enter into reverse repurchase agreements. This transaction is similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument to another person, such as a financial institution, broker, or dealer, 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 the ability to enter into reverse repurchase agreements does not ensure that the Fund will be able to avoid selling portfolio instruments at a disadvantageous time. When effecting reverse repurchase agreements, liquid assets of the Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. During the period any reverse repurchase agreements are outstanding, but only to the extent necessary to assure completion of the reverse repurchase agreements, the Fund will restrict the purchase of portfolio instruments to money market instruments maturing on or before the expiration date on the reverse repurchase agreement. 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. 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 COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. 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. 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. 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 (including instruments issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment), 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 Fund does not consider the issuance of separate classes of shares to involve the issuance of "senior securities" within the meaning of the investment limitation set forth above. 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 IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in industrial development bonds or other municipal securities where the principal and interest is the responsibility of companies (or guarantors, where applicable) with 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 the Fund's investment adviser, owning individually more than 1/2 of 1% of the issuer's securities, together own more than 5% of the issuer's securities. INVESTING IN MINERALS The Fund will not purchase or sell oil, gas, or other mineral exploration or development programs, or leases. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in securities which are illiquid, including repurchase agreements providing for settlement in more than seven days after notice, certain restricted securities not determined by the Trustees to be liquid, and non-negotiable fixed time deposits with maturities over seven days. INVESTING IN RESTRICTED SECURITIES The Fund will not invest more than 10% of its total 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 Trustees. 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 does not expect to borrow money or pledge securities in excess of 5% of the value of its net assets during the coming fiscal year. In order to comply with certain state restrictions, the Fund will not invest in real estate limited partnerships or oil, gas or other mineral leases. VIRGINIA INVESTMENT RISKS The Commonwealth of Virginia's credit strength is derived from a diversified economy, relatively low unemployment rates, strong financial management, and a low debt burden. The Commonwealth's economy benefits significantly from its proximity to Washington, D.C. Government is the Commonwealth's third-largest employment sector, comprising 21% of total employment. Other important sectors of the economy include shipbuilding, tourism, construction, and agriculture. The effects of the most recent base-closing legislation were muted because of consolidation from out-of-state bases to Virginia installations. While military operations at the Pentagon are unlikely to be threatened, another round of base closings scheduled for 1995 may jeopardize a number of Virginia installations. Virginia is a very conservative debt issuer and has maintained debt levels that are low in relation to its substantial resources. Conservative policies also dominate the Commonwealth's financial operations; and the Commonwealth administration continually demonstrates its ability and willingness to adjust financial planning and budgeting to preserve financial balance. For example, economic weakness in the Commonwealth and the region caused personal income and sale and corporate tax collections to fall below projected forecasts and placed the Commonwealth under budgetary strain. The Commonwealth reacted by reducing its revenue expectations for the 1990-92 biennium and preserved financial balance through a series of transfers, appropriation reductions, and other budgetary revisions. Management's actions resulted in a modest budget surplus for fiscal 1992 and another modest surplus was reported for fiscal year 1993, which ended June 30. 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, its counties, and its municipalities. FEDERATED MUNICIPAL TRUST MANAGEMENT - -------------------------------------------------------------------------------- OFFICERS AND TRUSTEES Officers and Trustees are listed with their addresses, principal occupations, and present positions, including any affiliation with Federated Management, Federated Investors, Federated Securities Corp., Federated Services Company, Federated Administrative Services, Inc., and the Funds (as defined below).
POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS John F. Donahue\* Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated Investors Tower Trustee Federated Advisers, Federated Management, and Federated Research; Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds; formerly, Director, The Standard Fire Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice President of the Trust. John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President, Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate Department Village Development Corporation; General Partner or Trustee in private John R. Wood and real estate ventures in Southwest Florida; Director, Trustee, or Associates, Inc., Realtors Managing General Partner of the Funds; formerly, President, Naples 3255 Tamiami Trail North Property Management, Inc. Naples, FL William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; One PNC Plaza-- Director, Trustee, or Managing General Partner of the Funds; formerly, 23rd Floor Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Pittsburgh, PA Director, Ryan Homes, Inc. James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, 571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Concord, MA Blue Cross of Massachusetts, Inc. Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore 3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds. Pittsburgh, PA Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park 5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. Glen R. Johnson* President and Trustee, Federated Investors; President and/or Trustee of some of the Federated Investors Tower Trustee Funds; staff member, Federated Securities Corp. and Federated Pittsburgh, PA Administrative Services, Inc. Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; 225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly, Boston, MA President, State Street Bank and Trust Company and State Street Boston Corporation and Trustee, Lahey Clinic Foundation, Inc. Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, 5916 Penn Mall Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A. Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie 1202 Cathedral of Learning Endowment for International Peace, RAND Corporation, Online Computer University of Pittsburgh Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak Pittsburgh, PA Management Center; Director, Trustee or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; formerly, Chairman, National Advisory Council for Environmental Policy and Technology. Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing 4905 Bayard Street General Partner of the Funds. Pittsburgh, PA J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Investors Tower Federated Management, and Federated Research; Trustee, Federated Pittsburgh, PA Services Company; President and Director, Federated Administrative Services, Inc.; President or Vice President of the Funds; Director, Trustee, or Managing General Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Trust. Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Federated Investors Tower Director, Federated Securities Corp.; President or Vice President of the Pittsburgh, PA Funds; Director or Trustee of some of the Funds. Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated Investors; Vice Federated Investors Tower and Treasurer President and Treasurer, Federated Advisers, Federated Management, and Pittsburgh, PA Federated Research; Trustee, Federated Services Company; Executive Vice President, Treasurer, and Director, Federated Securities Corp.; Chairman, Treasurer, and Director, Federated Administrative Services, Inc.; Trustee or Director of some of the Funds; Vice President and Treasurer of the Funds. John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated Federated Investors Tower and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers, Pittsburgh, PA Federated Management, and Federated Research; Trustee, Federated Services Company; Executive Vice President, Secretary, and Director, Federated Administrative Services, Inc.; Director and Executive Vice President, Federated Securities Corp.; Vice President and Secretary of the Funds. John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Federated Pittsburgh, PA Advisers, Federated Management, and Federated Research; Vice President of the Funds; Director, Trustee, or Managing General Partner of some of the Funds; formerly, Vice President, The Standard Fire Insurance Compa- ny and President of its Federated Research Division.
*This Trustee is deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940, as amended. \Member of the Trust's Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. THE FUNDS "The Funds" and "Funds" mean the following investment companies: A.T. Ohio Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust; Automated Government Money Trust; The Boulevard Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust, Inc.--1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds; The Passageway Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; and Trust for U.S. Treasury Obligations. FUND OWNERSHIP Officers and Trustees own less than 1% of the Fund's outstanding Shares. As of November 29, 1993, the following shareholders of record owned 5% or more of the outstanding Institutional Shares of the Fund: Firstblue & Company, Bluefield, West Virginia, owned approximately 1,002,485 Shares (10.95%); The Flat Top National Bank, Bluefield, West Virginia, owned approximately 1,301,800 Shares (14.22%); NABAF & Company, Fredricksburg, Virginia, owned approximately 984,493 Shares (10.76%); Marshall National Bank & Trust, Marshall, Virginia, owned 1,303,390 Shares (14.24%); Planta & Co., Staunton, Virginia, owned approximately 1,822,016 Shares (19.91%); Comfort & Co., Hampton, Virginia, owned approximately 1,422,909 Shares (15.55%); and Chesnat, Kilmarnock, Virginia, owned approximately 940,663 Shares (10.28%). As of November 29, 1993, the following shareholders of record owned 5% or more of the outstanding Institutional Service Shares of the Fund: Lawrence Lucchino, Bethesda, Maryland, owned approximately 7,641,847 Shares (14.20%); ARES, McLean, Virginia, owned approximately 5,444,829 Shares (10.12%); W&L Construction & Paving Inc., Chilhowie, Virginia, owned approximately 6,393,104 Shares (11.88%); and Charles L. Wilson and Thomas G. Wilson Trust, Waynesboro, Virginia, owned approximately 5,216,627 Shares (9.69%). 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. 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, his wife, and his son, J. Christopher Donahue. John F. Donahue is Chairman and Trustee, Federated Management; Chairman and Trustee, Federated Investors; and Chairman and Trustee of the Trust. John A. Staley, IV, is President and Trustee, Federated Management; Vice President and Trustee, Federated Investors; Executive Vice President, Federated Securities Corp.; and Vice President of the Trust. J. Christopher Donahue is Trustee, Federated Management; President and Trustee, Federated Investors; President and Director, Federated Administrative Services, Inc.; and Vice President of the Trust. John W. McGonigle is Vice President, Secretary, and Trustee, Federated Management; Trustee, Vice President, Secretary and General Counsel, Federated Investors; Executive Vice President, Secretary and Director, Federated Administrative Services, Inc.; Executive Vice President and Director, Federated Securities Corp.; and Vice President and Secretary of the Trust. 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. During the period from September 16, 1993 (date of initial public investment), to October 31, 1993, the Fund's adviser earned $20,894, all of which was voluntarily waived. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this expense limitation, the investment advisory fee paid will be reduced by the amount of the excess, subject to an annual adjustment. If the expense limitation is exceeded, the amount to be reimbursed by the adviser will be limited, in any single fiscal year, by the amount of the investment advisory fee. These arrangements are not part of the advisory contract and have been established only to comply with applicable state authorities. They may be amended or rescinded in the future. SHAREHOLDER SERVICES PLAN (INSTITUTIONAL SERVICE SHARES ONLY) - -------------------------------------------------------------------------------- The Trust has adopted a Shareholder Services Plan (the "Services Plan") with respect to Institutional Service Shares of the Fund. Pursuant to the Services Plan, financial institutions will enter into shareholder service agreements with the Fund to provide administrative support services to their customers who from time to time may be owners of record or beneficial owners of Institutional Service Shares of the Fund. In return for providing these support services, a financial institution may receive payments from Institutional Service Shares at a rate not exceeding 0.10% of the average daily net assets of Institutional Service Shares beneficially owned by the financial institution's customers for whom it is holder of record or with whom it has a servicing relationship. The Services Plan is designed to stimulate financial institutions to render administrative support services to the Fund and its shareholders. These administrative support services include, but are not limited to, the following functions: providing office space, equipment, telephone facilities, and various personnel, including clerical, supervisory, and computer, as is necessary or beneficial to establish and maintain shareholders' accounts and records, processing purchase and redemption transactions and automatic investments of client account cash balances, answering routine client inquiries regarding Institutional Service Shares, assisting clients in changing dividend options, account designations, and addresses, and providing such other services as the Fund may reasonably request. Among the benefits the Trustees expect to achieve in adopting the Services Plan are the following: (1) an efficient and effective administrative system; (2) a more efficient use of shareholder assets by having them rapidly invested in Institutional Service Shares, through an automatic transfer of funds from a demand deposit account to an investment account, with a minimum of delay and administrative detail; and (3) an efficient and reliable shareholder records system and prompt responses to shareholder requests and inquiries concerning their accounts. In addition to receiving payments under the Services Plan, financial institutions may be compensated by the investment adviser and/or the administrator, or affiliates thereto, for providing administrative support services to holders of Institutional Service Shares of the Fund. These payments will be made directly by the investment adviser and/or the administrator and will not be made from the assets of the Institutional Service Shares of the Fund. During the period from September 16, 1993 (date of initial public investment), to October 31, 1993, Institutional Service Shares incurred shareholder service fees under the Services Plan (all of which was received by the distributor) in the amount of $4,695. ADMINISTRATIVE SERVICES - -------------------------------------------------------------------------------- Federated Administrative Services, Inc., a subsidiary of Federated Investors, provides administrative personnel and services to the Fund at approximate cost. During the period from September 16, 1993 (date of initial public investment), to October 31, 1993, the Fund incurred costs for administrative services of $24,647. John A. Staley, IV, an officer of the Trust, and Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund, each hold approximately 15% and 20%, respectively, of the outstanding common stock and serve as directors of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services, Inc. For the fiscal years ended October 31, 1993, 1992, and 1991, Federated Administrative Services, Inc., paid approximately $165,431, $189,741, and $187,677, respectively, for services provided by Commercial Data Services, Inc. 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 investment 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 review 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. 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. Research services provided by brokers may be used by the adviser or by affiliates of Federated Investors in advising Federated funds 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. PURCHASING SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value without a sales charge on days the New York Stock Exchange and the Federal Reserve wire system are open for business. The procedure for purchasing Shares is explained in the respective prospectus under "Investing in Institutional Shares" and "Investing in Institutional Service Shares." CONVERSION TO FEDERAL FUNDS It is the Fund's policy to be as fully invested as possible so that maximum interest may be earned. To this end, all payments from shareholders must be in federal funds or be converted into federal funds. State Street Bank and Trust Company acts as the shareholder's agent in depositing checks and converting them to federal funds. DETERMINING NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the value of a Share at $1.00. The days on which net asset value is calculated by the Fund are described in the respective prospectus. USE OF AMORTIZED COST METHOD 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. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7, as amended (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. Under the Rule, the Fund is permitted to purchase instruments which are subject to demand features or standby commitments. As defined by the Rule, a demand feature entitles the Fund to receive the principal amount of the instrument from the issuer or a third party (1) on no more than 30 days' notice or (2) at specified intervals not exceeding one year on no more than 30 days' notice. A standby commitment entitles the Fund to achieve same-day settlement and to receive an exercise price equal to the amortized cost of the underlying instrument plus accrued interest at the time of exercise. Although demand features and standby commitments are techniques and are defined as "puts" under the Rule, the Fund does not consider them to be "puts" as that term is used in the Fund's investment limitations. Demand features and standby commitments are features which enhance an instrument's liquidity, and the investment limitation which proscribes puts is designed to prohibit the purchase and sale of put and call options and is not designed to prohibit the Fund from using techniques which enhance the liquidity of portfolio instruments. MONITORING PROCEDURES The Trustees' 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% 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. INVESTMENT RESTRICTIONS The Rule requires that the Fund limit its investments to instruments that, in the opinion of the Trustees, present minimal credit risk and have received the requisite rating from one or more nationally recognized statistical rating organizations. If the instruments are not rated, the Trustees must determine that they are of comparable quality. The Rule also requires the Fund to maintain a dollar-weighted average portfolio maturity (not more than 90 days) appropriate to the objective of maintaining a stable net asset value of $1.00 per share. In addition, no instrument with a remaining maturity of more than 397 days can be purchased by the Fund. For a discussion of the treatment of variable rate municipal securities with demand features, refer to "Variable Rate Demand Notes" in the prospectus. Should the disposition of a portfolio security result in a dollar-weighted average portfolio maturity of more than 90 days, the Fund will invest its available cash to reduce the average maturity to 90 days or less as soon as possible. The Fund may attempt to increase yield by trading portfolio securities to take advantage of short-term market variations. This policy may, from time to time, result in high portfolio turnover. Under the amortized cost method of valuation, 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 indicated daily yield on Shares of the Fund computed the same way may tend to be lower than a similar computation made by using a method of calculation based upon market prices and estimates. REDEEMING SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares at the next computed net asset value after the Fund receives the redemption request. Redemption procedures are explained in the respective prospectus under "Redeeming Institutional Shares" and "Redeeming Institutional Service Shares." Although State Street Bank does not charge for telephone redemptions, it reserves the right to charge a fee for the cost of wire-transferred redemptions of less than $5,000. REDEMPTION IN KIND Although the Trust intends to redeem Shares in cash, it reserves the right under certain circumstances to pay the redemption price in whole or in part by a distribution of securities from the respective Fund's portfolio. To the extent available, such securities will be readily marketable. Redemption in kind will be made in conformity with applicable Securities and Exchange Commission rules, taking such securities at the same value employed in determining net asset value and selecting the securities in a manner the Trustees determine to be fair and equitable. The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act of 1940 under which the Trust is obligated to redeem Shares for any one shareholder in cash only up to the lesser of $250,000 or 1% of the net asset value of the respective class during any 90-day period. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders receiving their securities and selling them before their maturity could receive less than the redemption value of their securities and could incur certain transaction costs. TAX STATUS - -------------------------------------------------------------------------------- THE FUND'S TAX STATUS The Fund will pay no federal income tax because it expects to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. To qualify for this treatment, 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. YIELD - -------------------------------------------------------------------------------- The Fund's yield for Institutional Shares for the seven-day period ended October 31, 1993, was 2.53%. The yield for Institutional Service Shares was 2.43% for the same period. The Fund calculates its yield daily, for both classes of Shares, 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 (on funds that pay dividends daily) 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). To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in either class of Shares, the performance will be reduced for those shareholders paying those fees. EFFECTIVE YIELD - -------------------------------------------------------------------------------- The Fund's effective yield for Institutional Shares for the seven-day period ended October 31, 1993, was 2.56%. The effective yield for Institutional Service Shares was 2.46% for the same period. The Fund's effective yield for both classes of Shares is computed 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. TAX-EQUIVALENT YIELD - -------------------------------------------------------------------------------- The Fund's tax-equivalent yield for Institutional Shares for the seven-day period ended October 31, 1993, was 3.86%. The tax-equivalent yield for Institutional Service Shares was 3.71% for the same period. The tax-equivalent yield for both classes of Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that either class of Shares would have had to earn to equal its actual yield, assuming a 28% federal tax rate and the 5.75% regular personal income tax rate imposed by Virginia and assuming that income earned by the Fund is 100% tax-exempt on a regular federal, state, and local basis. TAX-EQUIVALENCY TABLE Both classes of Shares may also use a tax-equivalency table 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 1993 COMMONWEALTH OF VIRGINIA - ---------------------------------------------------------------------------------- COMBINED FEDERAL AND STATE INCOME TAX BRACKET 20.75% 33.75% 36.75% 41.75% 45.35% - ---------------------------------------------------------------------------------- JOINT RETURN: $1- $36,901- $89,151- $140,001- Over 36,900 89,150 140,000 250,000 $250,000 SINGLE RETURN: $1- $22,101- $53,501- $115,001- Over 22,100 53,500 115,000 250,000 $250,000 - ---------------------------------------------------------------------------------- TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT - ---------------------------------------------------------------------------------- 2.00% 2.52% 3.02% 3.16% 3.43% 3.66% 2.50 3.15 3.77 3.95 4.29 4.57 3.00 3.79 4.53 4.74 5.15 5.49 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 above chart is for illustrative purposes only. It is not an indicator of past or future performance of either class of Shares. *Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local regular or alternative minimum taxes. PERFORMANCE COMPARISONS - -------------------------------------------------------------------------------- The performance of both classes of Shares depends upon such variables as: .portfolio quality; .average portfolio maturity; .type of instruments in which the portfolio is invested; .changes in interest rates on money market instruments; .changes in the Fund's or either class of Share's expenses; and .the relative amount of Fund cash flow. From time to time, the Fund may advertise the performance of both classes of Shares compared to similar funds or portfolios using certain indices, reporting services, and financial publications. These may include the following: .LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by making comparative calculations using total return. Total return assumes the reinvestment of all income dividends and capital gains distributions, if any. From time to time, the Fund will quote its Lipper ranking in the "money market funds" category in advertising and sales literature. .MORNINGSTAR, INC., an independent rating service, is the publisher of the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-listed mutual funds of all types, according to their risk-adjusted returns. The maximum rating is five stars and ratings are effective for two weeks. Investors may use such an index in addition to the prospectus of either class of Shares to obtain a more complete view of the performance of that class before investing. Of course, when comparing performance of either class of Shares to any index, factors such as composition of the index and prevailing market conditions should be considered in assessing the significance of such comparisons. When comparing funds using reporting services, or total return and yield, investors should take into consideration any relevant differences in funds such as permitted portfolio composition and methods used to value portfolio securities and compute offering price. Advertisements and other sales literature for both classes of Shares may refer to total return. Total return is the historic change in the value of an investment in either of the classes based on the monthly reinvestment of dividends over a specified period of time. 3080501B (12/93) -----END PRIVACY-ENHANCED MESSAGE-----