-----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, Riw7ecAZY2w/DURjeOq0SjSIcgak9FC/MqpjJllx434O3nz2KFjqvd8OyNOPSegy 7RgYdF6n/wSQ3QBvCS7fbQ== 0000855108-94-000013.txt : 19940606 0000855108-94-000013.hdr.sgml : 19940606 ACCESSION NUMBER: 0000855108-94-000013 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19940603 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FEDERATED MUNICIPAL TRUST CENTRAL INDEX KEY: 0000855108 STANDARD INDUSTRIAL CLASSIFICATION: STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-31259 FILM NUMBER: 94532909 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS TOWER CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122887496 497 1 FORM DOCUMENT ALABAMA MUNICIPAL CASH TRUST SEMI-ANNUAL REPORT AND SUPPLEMENT TO PROSPECTUS DATED DECEMBER 1, 1993 May 31, 1994 [LOGO] FEDERATED SECURITIES CORP. -------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 4041805A (5/94) ALABAMA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) - -------------------------------------------------------------------------------- SEMI-ANNUAL REPORT AND SUPPLEMENT TO PROSPECTUS DATED DECEMBER 1, 1993 A. Please delete the "Summary of Fund Expenses" table on page 1 of the prospectus and replace it with the following table: SUMMARY OF FUND EXPENSES - --------------------------------------------------------------------------------
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 Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable).................................................................. None Redemption Fee (as a percentage of amount redeemed, if applicable)........................................ None Exchange Fee.............................................................................................. None ANNUAL FUND OPERATING EXPENSES* (As a percentage of projected average net assets) Management Fee (after waiver) (1)......................................................................... 0.00% 12b-1 Fee................................................................................................. None Total Other Expenses...................................................................................... 0.59% Shareholder Services Fee................................................................... 0.25% Total Fund Operating Expenses (2)................................................................ 0.59%
(1) The estimated management fee has been reduced to reflect the anticipated voluntary waiver of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The Total Fund Operating Expenses are estimated to be 1.22% absent the anticipated voluntary waiver of the management fee, and the anticipated voluntary reimbursement of certain other operating expenses. * Total Fund Operating Expenses are estimated based on average expenses expected to be incurred during the period ending October 31, 1994. During the course of this period, expenses may be more or less than the average amount shown. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN THE FUND" AND "FEDERATED MUNICIPAL TRUST INFORMATION." Wire-transferred redemptions of less than $5,000 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................................................. $6 $19
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING OCTOBER 31, 1994. B. Please insert the following "Financial Highlights" table as page 2 of the prospectus following the "Summary of Fund Expenses" and before the section entitled "General Information." In addition, please add the heading "Financial Highlights" to the Table of Contents page after the heading "Summary of Fund Expenses." ALABAMA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
PERIOD ENDED APRIL 30, 1994* - ---------------------------------------------------------------------------------------------- ------------------- 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** 0.94% - ---------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------------------------------------------------------------------- Expenses 0.33%(b) - ---------------------------------------------------------------------------------------------- Net investment income 2.27%(b) - ---------------------------------------------------------------------------------------------- Expense waiver/reimbursement (a) 0.50%(b) - ---------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $27,214 - ----------------------------------------------------------------------------------------------
* Reflects operations for the period from December 2, 1993 (date of initial public investment) to April 30, 1994 (unaudited). ** Based on net asset value which does not reflect the sales load or contingent deferred sales charge, if applicable. (a) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 4). (b) Computed on an annualized basis. (See Notes which are an integral part of the Financial Statements) C. Please insert the following information as a subsection entitled "Other Payments to Financial Institutions" on page 8 of the prospectus after the subsection entitled "Adviser's Background", and add the heading "Other Payments to Financial Institutions" to the Table of Contents: "OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to financial institutions under the Shareholder Services Plan, certain financial institutions may be compensated by the adviser or its affiliates for the continuing investment of customers' assets in certain funds, including the Fund, advised by those entities. These payments will be made directly by the distributor or adviser from their assets, and will not be made from the assets of the Fund." D. Please delete the section entitled "Administrative Arrangements" on page 8 of the prospectus and its corresponding heading from the Table of Contents page and insert the subsection "Administrative Services" as follows: "ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate which relates to the average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors ("Federated Funds") as specified below:
AVERAGE AGGREGATE DAILY NET ASSETS MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS 0.15 of 1% on the first $250 million 0.125 of 1% on the next $250 million 0.10 of 1% on the next $250 million 0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Administrative Services may choose voluntarily to waive a portion of its fee." E. Please insert the following information as a subsection entitled "Shareholder Services Plan" on page 8 of the prospectus under the section entitled "Administrative Services," and add the heading "Shareholder Services Plan" to the Table of Contents: "SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan (the "Services Plan") under which it may make payments up to 0.25 of 1% of the average daily net asset value of the Fund to obtain certain personal services for shareholders and the maintenance of shareholder accounts ("shareholder services"). The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which Federated Shareholder Services will either perform shareholder services directly or will select Financial Institutions to perform shareholder services. Financial Institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services." F. Please insert the following information as a subsection entitled "Checkwriting" after the subsection entitled "Receiving Payment" on page 12 of the prospectus, and add the heading "Checkwriting" to the Table of Contents: "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." G. Please delete the section entitled "Redemption Before Purchase Instruments Clear" on page 12 of the prospectus. In addition, please delete the heading from the Table of Contents: H. Please insert the following at the end of the second paragraph under the heading "Voting Rights" on page 13 of the prospectus: "As of May 10, 1994, UBAT & Co, Union Bank and Trust Co, Montgomery, Alabama, owned approximately 7,322,268 shares (29.3%) of the Fund, and therefore, may for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders." I. Please insert the following financial statements beginning as page 16 of the prospectus. In addition, please add the heading "Financial Statements" to the Table of Contents page immediately before "Addresses." ALABAMA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS APRIL 30, 1994 (UNAUDITED) - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S PRINCIPAL S&P OR AMOUNT FITCH* VALUE - ------------- --------------------------------------------------------------------- ----------- -------------- SHORT-TERM MUNICIPAL SECURITIES--98.4% - ------------------------------------------------------------------------------------ ALABAMA--91.4% --------------------------------------------------------------------- $ 1,600,000 Alabama Higher Education Loan Corp., Weekly VRDNs (Series 1987A)/(Fuji Bank Ltd. LOC)/(Subject to AMT) VMIG1 $ 1,600,000 --------------------------------------------------------------------- 1,400,000 Anniston, AL, IDB Weekly VRDNs (Hoover Group)/ (Comerica Bank LOC)/(Subject to AMT) P-1 1,400,000 --------------------------------------------------------------------- 1,100,000 Arab, AL, IDB Revenue Refunding Bonds Weekly VRDNs (Series 1989)/(SCI Manufacturing, Inc.)/(Bank of Tokyo Ltd. LOC) A-1 1,100,000 --------------------------------------------------------------------- 1,000,000 Birmingham, AL, IDA Weekly VRDNs (Altel Industries)/ Wachovia Bank of Georgia, N.A. LOC)/(Subject to AMT) P-1 1,000,000 --------------------------------------------------------------------- 1,100,000 Chatom, AL, 2.70% Semi-Annual TOBs (National Rural Utilities Series 1984M)/(Alabama Electric Co-Op, Inc.)/ (CFC Guaranty), Optional Tender 8/15/94 A-1+ 1,100,000 --------------------------------------------------------------------- 1,200,000 Decatur, AL, IDB Weekly VRDNs Revenue Refunding Bonds (Series 1993)/(Allied Signal, Inc. Guaranty) A-1 1,200,000 --------------------------------------------------------------------- 1,100,000 Eutaw, AL, IDB Weekly VRDNs (Mississippi Power Company Guaranty) VMIG1 1,100,000 --------------------------------------------------------------------- 670,000 Homewood, AL, 3.40% GO Refunding Warrants SB, 5/1/95 AA 670,000 --------------------------------------------------------------------- 400,000 Homewood, AL, IDA Weekly VRDNs (Mountain Brook Ltd.)/(SouthTrust Bank of Alabama LOC) P-1 400,000 --------------------------------------------------------------------- 770,000 Huntsville, AL, IDA Weekly VRDNs (Parkway)/(First Alabama Bank LOC) P-1 770,000 --------------------------------------------------------------------- $ 1,000,000 Jefferson County, AL, Weekly VRDNs (Special Obligation Warrants)/(Series 1992)/(Board of Education)/(Columbus Bank & Trust Co. LOC) A-1 $ 1,000,000 --------------------------------------------------------------------- 2,010,000 Madison, AL, IDA Weekly VRDNs (Series A)/(Executive Inn Ltd.)/(AmSouth Bank N.A. LOC) A-1 2,010,000 --------------------------------------------------------------------- 550,000 Marshall County, AL, Gas District Revenue Bonds, 2.65% BANs (Series 1994)/(MBIA Insured), 8/1/94 AAA 550,000 --------------------------------------------------------------------- 1,000,000 Mobile, AL, Downtown Redevelopment Authority, 2.70% Annual TOBs (Series 1992)/(Mitchell Project)/(Trust Company Bank LOC)/(Subject to AMT), Mandatory Tender 12/1/94 P-1 1,000,000 --------------------------------------------------------------------- 1,500,000 Mobile, AL, IDA Weekly VRDNs (McRae's, Inc.)/ (NationsBank, North Carolina N.A. LOC) A-1 1,500,000 --------------------------------------------------------------------- 1,500,000 Mobile, AL, IDB, Pollution Control Revenue Bonds, 3.05% Semi-Annual TOBs (Series 1984A)/(International Paper), Optional Tender, 10/15/94 A-2 1,500,000 --------------------------------------------------------------------- 1,000,000 Montgomery, AL, IDB, Pollution Control & Solid Waste Disposal Revenue, 2.45% CP (General Electric Company Guaranty), Mandatory Tender 6/17/94 A-1+ 1,000,000 --------------------------------------------------------------------- 1,000,000 Pheonix City, AL, IDB, 2.50% CP (Series 1988)/(Mead Coated Board)/(ABN AMRO Bank N.V. LOC)/(Subject to AMT), Mandatory Tender 5/23/94 P-1 1,000,000 --------------------------------------------------------------------- 1,000,000 Pheonix City, AL, IDB, 2.50% CP (Series 1988)/(Mead Coated Board)/(ABN AMRO Bank N.V. LOC)/(Subject to AMT), Mandatory Tender 5/26/94 P-1 1,000,000 --------------------------------------------------------------------- 1,000,000 Pheonix City, AL, IDB, 2.80% CP (Series 1988)/(Mead Coated Board)/(ABN AMRO Bank N.V. LOC)/(Subject to AMT), Mandatory Tender 6/14/94 P-1 1,000,000 --------------------------------------------------------------------- $ 965,000 Piedmont, AL, IDB Weekly VRDNs (Industrial Partners)/ (Wachovia Bank of Georgia LOC)/(Subject to AMT) P-1 $ 965,000 --------------------------------------------------------------------- 1,100,000 St. Clair County, AL, IDB Weekly VRDNs (Series 1993)/ (EBSCO Industries, Inc.)/(National Australia Bank Ltd. LOC)/(Subject to AMT) A-1+ 1,100,000 --------------------------------------------------------------------- 900,000 Sylacauga, AL, IDB Industrial Development Revenue Bonds Daily VRDNs (Series 1991)/(Parker Fertilizer)/(SouthTrust Bank of Alabama LOC)/(Subject to AMT) P-1 900,000 --------------------------------------------------------------------- -------------- Total 24,865,000 --------------------------------------------------------------------- -------------- PUERTO RICO--7.0% --------------------------------------------------------------------- 1,000,000 Commonwealth of Puerto Rico, 3.00% TRANs (Series 1994A), 7/29/94 SP-1+ 1,000,900 --------------------------------------------------------------------- 900,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit Suisse and Sumitomo Bank Ltd. LOCs) A-1 900,000 --------------------------------------------------------------------- -------------- Total 1,900,900 --------------------------------------------------------------------- -------------- TOTAL INVESTMENTS, AT AMORTIZED COST (NOTE 2A) $ 26,765,900\ --------------------------------------------------------------------- --------------
* Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. \ Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($27,214,176) at April 30, 1994. BILTMORE TAX-FREE MONEY MARKET FUND - -------------------------------------------------------------------------------- The following abbreviations are used in this portfolio: AMT--Alternative Minimum Tax BANs--Bond Anticipation Notes CFC--Cooperative Finance Corporation CP--Commercial Paper GO--General Obligation IDA--Industrial Development Authority IDB--Industrial Development Bond LOC--Letter of Credit LOCs--Letters of Credit MBIA--Municipal Bond Investors Assurance SB--Serial Bond 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) ALABAMA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1994 (UNAUDITED) - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------------------------- Investments in securities, at amortized cost and value (Note 2A) $ 26,765,900 - ------------------------------------------------------------------------------------------------- Cash 366,288 - ------------------------------------------------------------------------------------------------- Interest receivable 135,935 - ------------------------------------------------------------------------------------------------- Deferred expenses (Note 2E) 29,344 - ------------------------------------------------------------------------------------------------- -------------- Total assets 27,297,467 - ------------------------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------------------------- Dividends payable $25,377 - -------------------------------------------------------------------------------------- Payable to shareholder servicing agent (Note 4) 2,999 - -------------------------------------------------------------------------------------- Payable to transfer and dividend disbursing agent (Note 4) 1,040 - -------------------------------------------------------------------------------------- Accrued expenses and other liabilities 53,875 - -------------------------------------------------------------------------------------- --------- Total liabilities 83,291 - ------------------------------------------------------------------------------------------------- -------------- NET ASSETS for 27,214,176 shares of beneficial interest outstanding $ 27,214,176 - ------------------------------------------------------------------------------------------------- -------------- NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share ($27,214,176 / 27,214,176 shares of beneficial interest outstanding) $1.00 - ------------------------------------------------------------------------------------------------- --------------
(See Notes which are an integral part of the Financial Statements) ALABAMA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS SIX MONTHS ENDED APRIL 30, 1994* (UNAUDITED) - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ----------------------------------------------------------------------------------------------------- Interest income (Note 2B) $ 340,386 - ----------------------------------------------------------------------------------------------------- EXPENSES: - ----------------------------------------------------------------------------------------------------- Investment advisory fee (Note 4) $ 65,163 - ---------------------------------------------------------------------------------------- Custodian and recordkeeper fees 24,417 - ---------------------------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses (Note 4) 1,439 - ---------------------------------------------------------------------------------------- Fund share registration fees 2,850 - ---------------------------------------------------------------------------------------- Shareholder services fees (Note 4) 3,063 - ---------------------------------------------------------------------------------------- Legal fees 2,238 - ---------------------------------------------------------------------------------------- Printing and postage 5,454 - ---------------------------------------------------------------------------------------- Insurance premiums 2,954 - ---------------------------------------------------------------------------------------- Taxes 91 - ---------------------------------------------------------------------------------------- Miscellaneous 826 - ---------------------------------------------------------------------------------------- ----------- Total expenses 108,495 - ---------------------------------------------------------------------------------------- Deduct--Waiver of investment advisory fee (Note 4) 65,163 - ---------------------------------------------------------------------------------------- ----------- Net expenses 43,332 - ----------------------------------------------------------------------------------------------------- ----------- Net investment income $ 297,054 - ----------------------------------------------------------------------------------------------------- ----------- * For the period from December 2, 1993 (date of initial public investment) to April 30, 1994. (See Notes which are an integral part of the Financial Statements)
ALABAMA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
PERIOD ENDED APRIL 30, 1994* (UNAUDITED) INCREASE (DECREASE) IN NET ASSETS: - ---------------------------------------------------------------------------------------------- OPERATIONS-- - ---------------------------------------------------------------------------------------------- Net investment income $ 297,054 - ---------------------------------------------------------------------------------------------- ------------------ DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2B)-- - ---------------------------------------------------------------------------------------------- Dividends to shareholders from net investment income (297,054) - ---------------------------------------------------------------------------------------------- ------------------ FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)-- - ---------------------------------------------------------------------------------------------- Proceeds from sale of shares 166,429,362 - ---------------------------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of dividends declared 171,972 - ---------------------------------------------------------------------------------------------- Cost of shares redeemed (139,387,158) - ---------------------------------------------------------------------------------------------- ------------------ Change in net assets from Fund share transactions 27,214,176 - ---------------------------------------------------------------------------------------------- ------------------ Change in net assets 27,214,176 - ---------------------------------------------------------------------------------------------- NET ASSETS: - ---------------------------------------------------------------------------------------------- Beginning of period -- - ---------------------------------------------------------------------------------------------- ------------------ End of period $ 27,214,176 - ---------------------------------------------------------------------------------------------- ------------------
* For the period from December 2, 1993 (date of initial public investment) to April 30, 1994. (See Notes which are an integral part of the Financial Statements) ALABAMA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS APRIL 30, 1994 (UNAUDITED) - -------------------------------------------------------------------------------- (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. The Trust consists of twelve, non-diversified portfolios. The financial statements included herein are only those of Alabama Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles (GAAP). A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Investment Company Act of 1940. Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state, than would be a comparable general tax-exempt mutual fund. In order to reduce the credit risk associated with such factors, at April 30, 1994, 88% 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 institutions and agencies ranged from 2.1% to 11.2% of total investments. B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount are amortized as required by the Internal Revenue Code ("Code"). Distributions to shareholders are recorded on the ex-dividend date. C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its taxable income. Accordingly, no provisions for federal tax are necessary. D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. 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. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). At April 30, 1994, capital paid-in aggregated $27,214,176. Transactions in Fund shares were as follows:
PERIOD ENDED APRIL 30, 1994* Shares sold 166,429,362 - ---------------------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 171,972 - ---------------------------------------------------------------------------------------------- Shares redeemed (139,387,158) - ---------------------------------------------------------------------------------------------- ------------------ Net change resulting from Fund share transactions 27,214,176 - ---------------------------------------------------------------------------------------------- ------------------
*For the period from December 2, 1993 (date of initial public investment) to April 30, 1994. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--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 may voluntarily choose to waive its fee and reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and reimbursement at any time at its sole discretion. ADMINISTRATION FEE--Federated Administrative Services ("FAS") provides the Fund administrative personnel and services. Prior to March 1, 1994, these Services were provided at approximate cost. Effective March 1, 1994, the fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a shareholder services agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average net assets of the Fund for the period. This fee is to obtain certain personal services for shareholders and the maintenance of shareholder accounts. TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company ("FServ") serves as transfer agent and dividend disbursing agent for the Fund. The fee is based on the size, type and number of accounts and transactions made by shareholders. ORGANIZATIONAL EXPENSES--Organizational expenses and start-up administrative service expenses incurred by the Fund will be borne initially by Adviser and are estimated at $26,461 and $31,250, respectively. The Fund has agreed to reimburse the Adviser for the organizational expenses and start-up administrative expenses during the five year period following December 1, 1993 (date the Fund first became effective). INTERFUND TRANSACTIONS--During the period ended April 31, 1994, 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 $88,445,000 and $84,375,000, respectively. These purchases and sales were conducted on an arms length basis and transacted for cash consideration only, at independent current market prices and without brokerage commissions, fees or other remuneration. Certain of the Officers and Trustees of the Trust are Officers and Trustees of the above companies. May 31, 1994 ALABAMA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) PROSPECTUS The shares of Alabama Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a 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 the State of Alabama consistent with stability of principal. The Fund invests primarily in short-term Alabama municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of Alabama or its political subdivisions and financing authorities, but which provide income exempt from the federal regular and Alabama state income taxes. 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 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 the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 1, 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 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 1, 1993 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ GENERAL INFORMATION 2 - ------------------------------------------------------ INVESTMENT INFORMATION 2 - ------------------------------------------------------ Investment Objective 2 Investment Policies 2 Acceptable Investments 2 Variable Rate Demand Notes 3 Participation Interests 3 Municipal Leases 3 Ratings 4 Credit Enhancement 4 Demand Features 4 Restricted and Illquid Securities 4 When-Issued and Delayed Delivery Transactions 5 Temporary Investments 5 Alabama Municipal Securities 5 Standby Commitments 5 Alabama Investment Risks 6 Non-Diversification 6 Investment Limitations 6 Regulatory Compliance 7 FEDERATED MUNICIPAL TRUST INFORMATION 7 - ------------------------------------------------------ Management of Federated Municipal Trust 7 Board of Trustees 7 Investment Adviser 7 Advisory Fees 7 Adviser's Background 8 Distribution of Fund Shares 8 Administrative Arrangements 8 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 9 NET ASSET VALUE 9 - ------------------------------------------------------ INVESTING IN THE FUND 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 SHARES 11 - ------------------------------------------------------ Telephone Redemption 11 Written Requests 12 Signatures 12 Receiving Payment 12 Redemption Before Purchase Instruments Clear 12 Accounts with Low Balances 13 SHAREHOLDER INFORMATION 13 - ------------------------------------------------------ Voting Rights 13 Massachusetts Partnership Law 13 TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 Alabama Taxes 14 Other State and Local Taxes 15 PERFORMANCE INFORMATION 15 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - --------------------------------------------------------------------------------
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 Loads (as a percentage of original purchase price or redemption proceeds, as applicable)................................................ None Redemption Fee (as a percentage of amount redeemed, if applicable)..................................... None Exchange Fee........................................................................................... None ANNUAL FUND OPERATING EXPENSES* (As a percentage of projected average net assets) Management Fee (after waiver) (1)...................................................................... 0.31% 12b-1 Fee.............................................................................................. None Other Expenses......................................................................................... 0.28% Total Fund Operating Expenses (2)............................................................ 0.59%
(1) The estimated management fee has been reduced to reflect the anticipated voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The Total Fund Operating Expenses are estimated to be 0.78% absent the anticipated voluntary waiver of a portion of the management fee. * Total Operating Expenses are estimated based on average expenses expected to be incurred during the period ending October 31, 1994. During the course of this period, expenses may be more or less than the average amount shown. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN THE FUND" AND "FEDERATED MUNICIPAL TRUST INFORMATION." Wire-transferred redemptions of less than $5,000 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 fees............................. $6 $19
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING OCTOBER 31, 1994. 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. Shares of the Fund are designed for investment of moneys held by financial institutions in an agency or fiduciary capacity. A minimum initial investment of $10,000 over a 90-day period is required. The Fund may not be a suitable investment for non-Alabama taxpayers or retirement plans since it invests primarily in Alabama 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 State of Alabama 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 Alabama. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of Alabama municipal securities (as defined below) 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 Alabama 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 Alabama 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 Board of Trustees ("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 Alabama and its political subdivisions and financing authorities, and obligations of other states, territories and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from both federal regular income tax and the income tax imposed by the State of Alabama. Examples of Alabama 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 rate. 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. Also included within the general category of municipal securities are certain lease obligations or installment purchase contract obligations and participations therein (hereinafter collectively called "lease obligations") of municipal authorities or entities. Although lease obligations do not constitute general obligations of the municipality for which the municipality's taxing power is pledged, a lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the lease obligation. Interest on lease obligations is tax-exempt to the same extent as if the municipality had issued debt obligations to finance the underlying project or purchase. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriate for such purpose on a yearly basis. In addition to the "non-appropriation" risk, these securities represent a relatively new type of financing that has not yet developed the depth of marketability associated with more conventional bonds and some lease obligations may be illiquid. Although "non-appropriation" lease obligations are generally secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. In addition, the tax treatment of such obligations in the event of "non-appropriation" is unclear. The Fund does not invest more than 10% of its total assets in lease obligations that contain "non-appropriation" clauses. If the Fund purchases unrated municipal leases, the Trustees will be responsible for determining, on an ongoing basis, the credit quality of such leases and the likelihood that such lease will not be cancelled. RATINGS. The Alabama 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. A NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation ("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. A description of the ratings categories is contained in the appendix to the Statement of Additional Information. 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, including some municipal leases, to 10% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Alabama 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, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in short-term non-Alabama 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 the organization sells the Fund a temporary investment and agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable temporary investments, there is no current intention of generating income subject to federal regular income tax or personal income tax imposed by the State of Alabama. ALABAMA MUNICIPAL SECURITIES Alabama municipal securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Alabama municipal securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of 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 securities prior to maturity, at the Fund's option, for the amortized cost of the 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. ALABAMA INVESTMENT RISKS Yields on Alabama municipal securities depend on a number of factors. These factors include the general economic conditions of the short-term municipal market and of the municipal bond market, the size and maturity of the specific offering, and the rating or lack of a rating on the issue. In addition, adverse economic conditions or developments affecting the State of Alabama and/or its municipalities could have a negative impact on the Fund's portfolio. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of Alabama municipal securities and demand features for such securities, or the credit enhancers of either, to meet their obligations for the payment of principal and interest when due. However, Alabama's conservative approach to financial management as well as its moderate debt levels and strong balanced budget act provides high degree of protection to bondholders. Investing in Alabama municipal securities that meet the Fund's quality standards may not be possible if the state of Alabama or its municipalities do not maintain their high quality short-term credit ratings. Additionally, certain Alabama constitutional amendments, legislative measures, administrative regulations, executive or judicial orders, and voter initiatives could adversely affect Alabama municipal securities. The Statement of Additional Information contains an expanded discussion of the current economic risks associated with the purchase of Alabama municipal securities. 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 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 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 is 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 FUND SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969 and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. 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 Fund 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 shares held by their clients in the Fund. 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 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 ("State Street Bank"), Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, 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 The Fund pays all of its own expenses and its allocable share of Trust expenses. The expenses of the Fund include, but are not limited to, the cost of: organizing the Trust and continuing its existence; Trustees' fees; investment advisory and administrative services; printing prospectuses and other Fund documents for shareholders; registering the Trust, the Fund, and shares of the Fund; taxes and commissions; issuing, purchasing, repurchasing, and redeeming shares; fees for custodians, transfer agents, dividend disbursing agents, shareholder servicing agents, and registrars; printing, mailing, auditing and certain accounting and legal expenses; reports to shareholders and governmental agencies; meetings of Trustees and shareholders and proxy solicitations therefor; insurance premiums; association membership dues; and such non-recurring and extraordinary items as may arise. However, the Adviser may voluntarily reimburse the Fund the amount, up to the amount of the advisory fee, by which operating expenses exceed limitations imposed by certain states. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting total liabilities from total assets 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 THE FUND - -------------------------------------------------------------------------------- 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 of the Fund, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken over the telephone. Texas residents must purchase shares through Federated Securities Corp. at 1-800-245-2423. BY WIRE. To purchase shares of the Fund 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: Alabama Municipal Cash Trust; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; ABA Number 011000028. Shares cannot be purchased on days on which the New York Stock Exchange is closed and on federal holidays restricting wire transfers. BY MAIL. To purchase shares of the Fund by mail, send a check made payable to Alabama Municipal Cash Trust to the Fund'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 Fund 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 Fund 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 of the Fund through a non-affiliated 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 Fund 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 Fund 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 of the Fund 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 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, 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 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, as amended, 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, 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 preadjustment 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. ALABAMA TAXES Shareholders of the Fund will not be subject to Alabama personal income taxes on dividends received from the Fund to the extent that such dividends are attributable to interest earned on obligations that would be exempt from Alabama personal income taxes if held directly by shareholders (such as obligations of Alabama or its political subdivisions, of the United States or of certain territories or possessions of the United States). To the extent that distributions by the Fund are derived from long-term or short-term capital gains on such obligations, or from dividends or capital gains on other types of obligations, such distributions will not be tax exempt from Alabama personal income tax. Shareholders may exclude from the share value of the Fund, for purpose of the Alabama personal property tax, that portion of the total share value which is attributable to the value of obligations of Alabama or its political subdivisions, of the United States or of certain territories or possessions of the United States. OTHER STATE AND LOCAL TAXES Income from the Fund is not necessarily free from regular state income taxes in states other than Alabama 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. The Fund's yield represents the annualized rate of income earned on an investment in the Fund 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 Fund 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 Fund is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal 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 Fund after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, the Fund may advertise its performance using certain reporting services and/or compare its performance to certain indices. ADDRESSES - -------------------------------------------------------------------------------- Fund Alabama Municipal Cash Trust Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 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 - ---------------------------------------------------------------------------------------------------------------------
ALABAMA MUNICIPAL CASH TRUST PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, An Open-End, Management Investment Company December 1, 1993 [LOGO] FEDERATED SECURITIES CORP. ----------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 3090802A (12/93) ALABAMA MUNICIPAL CASH TRUST (A Portfolio of Federated Municipal Trust) - -------------------------------------------------------------------------------- SEMI-ANNUAL REPORT AND SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION DATED DECEMBER 1, 1993 A. Please insert the following information as a second paragraph under the subsection entitled "Fund Ownership" on page 6: "As of May 10, 1994, the following shareholders of record owned 5% or more of the outstanding shares of the Fund: J. Jones & Company, Almore, Alabama, owned approximately 1,898,684 shares (7.6%); First National Bank of Brewton, Brewton, Alabama, owned approximately 2,086,221, shares (8.4%); McGriff & Seibels, Birmingham, Alabama, owned approximately 1,281,617 shares (5.1%); and UBAT & Co., Union Bank & Trust Co. Montgomery, Alabama, owned approximately 7,322,268 shares (29.3%)." B. Please insert the following as the second paragraph under the subsection entitled "Advisory Fees" on page 7: "From the Fund's date of initial public investment, December 2, 1993 to April 30, 1994, the Fund's adviser earned $65,163, all of which was voluntarily waived." C. Please delete the paragraph under the Section entitled "Administrative Services" on page 7 and replace it with the following: "Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc., also a subsidiary of Federated Investors, served as the Fund's administrator. 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., and Federated Administrative Services. From the Fund's date of initial public investment, December 2, 1993, to April 30, 1994, the Fund did not incur any costs for administrative services." D. Please insert the following section entitled "Shareholder Services Plan" after the section entitled "Administrative Services" on page 7. In addition, please add the heading to the Table of Contents: "SHAREHOLDER SERVICES PLAN This arrangement permits the payment of fees to Federated Shareholder Services and, indirectly, to Financial Institutions to cause services to be provided to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to, providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. From the Fund's date of initial public investment, December 2, 1993, to April 30, 1994, payments in the amount of $3,063 were made pursuant to the Shareholder Services Plan." E. Please insert the following information as the first paragraph under the section entitled "Yield" on page 10: "The Fund's yield for the seven-day period ended April 30, 1994, was 2.45%." F. Please insert the following information as the first paragraph under the section entitled "Effective Yield" on page 10: "The Fund's effective yield for the seven-day period ended April 30, 1994, was 2.48%." G. Please insert the following information as the first paragraph under the section entitled "Tax-Equivalent Yield" on page 10: "The Fund's tax-equivalent yield for the seven-day period ended April 30, 1994 was 3.66% assuming a 28% tax rate and 3.83% assuming a 31% tax rate." May 31, 1994 [LOGO] FEDERATED SECURITIES CORP. ----------------------------------------------------------------------- Distributor 4041805A (5/94) ALABAMA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus of Alabama Municipal Cash Trust (the "Fund") dated December 1, 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 1, 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 Alabama Investment Risks 3 TRUST MANAGEMENT 4 - --------------------------------------------------------------- Officers and Trustees 4 Fund Ownership 6 The Funds 6 Trustee Liability 7 INVESTMENT ADVISORY SERVICES 7 - --------------------------------------------------------------- Adviser to the Fund 7 Advisory Fees 7 ADMINISTRATIVE SERVICES 7 - --------------------------------------------------------------- BROKERAGE TRANSACTIONS 7 - --------------------------------------------------------------- PURCHASING SHARES 8 - --------------------------------------------------------------- Conversion to Federal Funds 8 DETERMINING NET ASSET VALUE 8 - --------------------------------------------------------------- Use of Amortized Cost Method 8 REDEEMING SHARES 9 - --------------------------------------------------------------- Redemption in Kind 9 TAX STATUS 9 - --------------------------------------------------------------- The Fund's Tax Status 9 YIELD 10 - --------------------------------------------------------------- EFFECTIVE YIELD 10 - --------------------------------------------------------------- TAX-EQUIVALENT YIELD 10 - --------------------------------------------------------------- Tax-Equivalency Table 10 PERFORMANCE COMPARISONS 11 - --------------------------------------------------------------- APPENDIX 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. 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 State of Alabama 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 State of Alabama 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 State of Alabama. When determining whether an Alabama 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 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; and (7) such other factors as may be relevant to the Fund's ability to dispose of the security. In the case of a municipal lease security, the adviser must also consider the following additional factors: (a) whether the lease can be terminated by the lessee; (b) the potential recovery, if any, from a sale of the leased property upon termination of the lease; (c) the lessee's general credit strength; (d) 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 (e) 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 on the Fund's records 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. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as may be necessary for clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money directly or through reverse repurchase agreements in amounts up to one-third of the value of its net assets, including the amounts borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of its total assets at the time of the pledge. 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 Alabama 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 (the Fund considers cash items to be 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 following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. 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. 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 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 its 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. 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. ALABAMA INVESTMENT RISKS The State of Alabama has experienced some diversification of its economy primarily centered around its metropolitan areas. Agriculture, once dominant prior to World War II, gave way to the manufacturing of textiles, chemicals, paper and metals. Manufacturing comprises roughly 23% of Alabama's non-agricultural employment, slightly higher than the rest of the U.S. Other major non-agricultural sectors include government (20%), wholesale and retail trade (22%), and services including finance, insurance, and real estate (24%). Over the last decade, the economy has further diversified with the addition of high-tech firms to the Huntsville area and healthcare services in the Birmingham area. During the 1982 recession Alabama's unemployment rate climbed to the double digits. However, the recent recession has not been quite as severe to the Alabama economy. The State's unemployment rate has reflected the national trends and was recently below the national average (6.5%, November 30, 1992). However, the signing of The North American Free Trade Agreement could result in job losses in some of Alabama's traditional industries as Mexico offers a lower-cost environment. Alabama's overall debt structure is more complex than most states, due to the many issuing authorities. Roughly 60% of Alabama's debts are special or limited tax obligations, payable from designated sources. Debt service as a percentage of budget revenues is currently 5.5%, which is among the ten highest in the nation. However, because Alabama generally taxes and spends less than most states, debt service appears as a larger part of its revenue in relation to other states. Debt service on a per capita basis is moderate. The State has a strong balanced budget act that allows spending only from moneys on hand. The Governor has the ability to prorate budgeted expenditures during the fiscal year in order to balance the budget. The proration ability of the Governor is currently being challenged in court. The outcome may adversely affect the mechanism by which the budget is balanced. 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. 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).
POSITION WITH PRINCIPAL OCCUPATION 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.; 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, OnLine Computer Library Center, Inc., University of Pittsburgh RAND Corporation, 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; President and Director, Pittsburgh, PA 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; 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 Trustees between meetings of the Trustees. FUND OWNERSHIP Officers and Trustees own less than 1% of the Fund's outstanding shares. 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, Inc.; Cash Trust Series II; 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 Intermediate Municipal 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.; Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash 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 Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; and Trust for U.S. Treasury Obligations. 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. Federated Management 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; Vice President, Secretary, General Counsel, and Trustee, 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. 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. 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, 1992, 1991 and 1990, Federated Administrative Services, Inc. paid approximately $189,741, $187,677 and $174,794, 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 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 the Fund." 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 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. Net asset value will not be calculated on the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. 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, 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 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 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 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 Fund's net asset value during any 90-day period. 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, as amended, 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 calculates its yield based upon the seven days ending on the day of the calculation, called the "base period." This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and (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 the Fund, the performance will be reduced for those shareholders paying those fees. EFFECTIVE YIELD - -------------------------------------------------------------------------------- The Fund's effective yield 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 is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal rate for individuals) assuming that income earned is 100% tax-exempt. TAX-EQUIVALENCY TABLE The Fund may also use a tax-equivalency table in advertising and sales literature. The interest earned by the municipal bonds 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 STATE OF ALABAMA - ------------------------------------------------------------------------------ COMBINED FEDERAL AND STATE INCOME TAX BRACKET 20.00% 33.00% 36.00% 41.00% 44.60% - ------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------ 2.00% 2.50% 2.99% 3.13% 3.39% 3.61% 2.50 3.13 3.73 3.91 4.24 4.51 3.00 3.75 4.48 4.69 5.08 5.42 3.50 4.38 5.22 5.47 5.93 6.32 4.00 5.00 5.97 6.25 6.78 7.22 4.50 5.63 6.72 7.03 7.63 8.12 5.00 6.25 7.46 7.81 8.47 9.03 5.50 6.88 8.21 8.59 9.32 9.93 6.00 7.50 8.96 9.38 10.17 10.83 6.50 8.13 9.70 10.16 11.02 11.73 7.00 8.75 10.45 10.94 11.86 12.64
Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. *Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local regular or alternative minimum taxes. PERFORMANCE COMPARISONS - -------------------------------------------------------------------------------- The performance of the Fund 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 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. They 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 "tax-exempt money market fund" 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 the Fund to obtain a more complete view of the performance of the Fund before investing. Of course, when comparing performance of the Fund 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 Fund may refer to total return. Total return is the historic change in the value of an investment in the Fund based on the monthly reinvestment of dividends over a specified period of time. APPENDIX - -------------------------------------------------------------------------------- MUNICIPAL BOND RATING DEFINITIONS STANDARD AND POOR'S CORPORATION 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 higher rated issues only in small degree. A--Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB, B, CCC, CC--Debt rated BB, B, CCC and CC is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these outweighed by large uncertainties of major risk exposure to adverse conditions. C--The rating C is reserved for income bonds on which no interest is being paid. D--Debt rated D is in default, and payment of interest and/or repayment of principal is in arreas. MOODY'S INVESTORS SERVICE, INC. Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa--Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities. A--Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. 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. Ba--Bonds which are Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B--Bonds which are rated B generally lack characterstics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa--Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca--Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C--Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. SHORT-TERM MUNICIPAL OBLIGATION RATINGS STANDARD AND POOR'S CORPORATION 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 INVESTORS SERVICE, INC. Moody's short-term ratings are designated Moody's Investment Grade (MIG OR VMIG (see below)). The purpose of the MIG or VMIG rating is to provide investors with a simple system by which the relative investment qualities of short-term obligations may be evaluated. MIG1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. MIG2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS STANDARD AND POOR'S CORPORATION 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+, A/A-1. (The definitions for the short-term ratings are provided below). MOODY'S INVESTORS SERVICE, INC. Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics are payment upon periodic demand rather than fixed maturity dates and payment relying on external liquidity. In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the first representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the second representing an evaluation of the degree of risk associated with the demand feature. The VMIG rating can be assigned a 1 or 2 designation using the same definitions described above for the MIG rating. COMMERCIAL PAPER (CP) RATINGS STANDARD AND POOR'S CORPORATION 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 INVESTORS SERVICE, INC. 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 TAX-EXEMPT INVESTMENT NOTE RATING DEFINITIONS F-1+ (Exceptionally Strong Credit Quality). Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment. F-1 (Very Strong Credit Quality). Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated "F-1+." F-2 (Good Credit Quality). Issues carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as the "F-1+" and "F-1" categories. NR NR indicates that both the bonds and the obligor or credit enhancer are currently rated by Standard and Poor's Corporation or Moody's Investors Service, Inc. with respect to short term indebtedness. However, management considers them to be of comparable quality to securities rated A-1 or P-1. NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated "AAA" by Standard and Poor's Corporation or "Aaa" by Moody's Investors Service, Inc. NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated "AA" by Standard and Poor's Corporation or "Aa" by Moody's Investors Service, Inc. NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated "A" by Standard and Poor's Corporation or Moody's Investors Service, Inc. 3090802B (12/93) NORTH CAROLINA MUNICIPAL CASH TRUST SEMI-ANNUAL REPORT AND SUPPLEMENT TO PROSPECTUS DATED DECEMBER 1, 1993 May 31, 1994 [LOGO] FEDERATED SECURITIES CORP. -------------------------- Distributor A Subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 4041814A (5/94) NORTH CAROLINA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) - -------------------------------------------------------------------------------- SEMI-ANNUAL REPORT AND SUPPLEMENT TO PROSPECTUS DATED DECEMBER 1, 1993 A. Please delete the "Summary of Fund Expenses" table on page 1 of the prospectus and replace it with the following table: SUMMARY OF FUND EXPENSES - --------------------------------------------------------------------------------
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 Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable).................................................................. None Redemption Fee (as a percentage of amount redeemed, if applicable)........................................ None Exchange Fee.............................................................................................. None ANNUAL FUND OPERATING EXPENSES* (As a percentage of projected average net assets) Management Fee (after waiver) (1)......................................................................... 0.11% 12b-1 Fee................................................................................................. None Total Other Expenses...................................................................................... 0.48% Shareholder Services Fee................................................................... 0.25% Total Fund Operating Expenses (2)................................................................ 0.59%
(1) The estimated management fee has been reduced to reflect the anticipated voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The Total Fund Operating Expenses are estimated to be 0.98%, absent the anticipated voluntary waiver of a portion of the management fee. * Total Fund Operating Expenses are estimated based on average expenses expected to be incurred during the period ending October 31, 1994. During the course of this period, expenses may be more or less than the average amount shown. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN THE FUND" AND "FEDERATED MUNICIPAL TRUST INFORMATION." Wire transferred redemptions of less than $5,000 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................................................. $6 $19
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING OCTOBER 31, 1994. B. Please insert the following "Financial Highlights" table as page 2 of the prospectus following the "Summary of Fund Expenses" and before the section entitled "General Information." In addition, please add the heading "Financial Highlights" to the Table of Contents page after the heading "Summary of Fund Expenses." NORTH CAROLINA MUNICIPAL CASH TRUST FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
PERIOD ENDED APRIL 30, 1994* - ---------------------------------------------------------------------------------------------- ------------------- 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** 0.74% - ---------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------------------------------------------------------------------- Expenses 0.25%(b) - ---------------------------------------------------------------------------------------------- Net investment income 2.41%(b) - ---------------------------------------------------------------------------------------------- Expense waiver/reimbursement (a) 0.56%(b) - ---------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $121,475 - ----------------------------------------------------------------------------------------------
* Reflects operations for the period from December 31, 1993 (date of initial public investment) to April 30, 1994 (unaudited). ** Based on net asset value, which does not reflect the sales load or contingent deferred sales charge, if applicable. (a) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 4). (b) Computed on an annualized basis. (See Notes which are an integral part of the Financial Statements) C. Please insert the following information as a subsection entitled "Other Payments to Financial Institutions" on page 8 of the prospectus after the subsection entitled "Adviser's Background", and add the heading "Other Payments to Financial Institutions" to the Table of Contents: "OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to financial institutions under the Shareholder Services Plan, certain financial institutions may be compensated by the adviser or its affiliates for the continuing investment of customers' assets in certain funds, including the Fund, advised by those entities. These payments will be made directly by the distributor or adviser from their assets, and will not be made from the assets of the Fund." D. Please delete the section entitled "Administrative Arrangements" on page 8 of the prospectus and its corresponding heading from the Table of Contents page and insert the subsection "Adminstrative Services" as follows: "ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Administrative Services provides these at an annual rate which relates to the average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors ("Federated Funds"), as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS ADMINISTRATIVE FEE OF THE FEDERATED FUNDS 0.15 of 1% on the first $250 million 0.125 of 1% on the next $250 million 0.10 of 1% on the next $250 million 0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. Federated Administrative Services may choose voluntarily to waive a portion of its fee." E. Please insert the following information as a subsection entitled "Shareholder Services Plan" on page 8 of the prospectus after the section entitled "Administrative Services," and add the heading "Shareholder Services Plan" to the Table of Contents: "SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan (the "Services Plan") under which it may make payments up to 0.25 of 1% of the average daily net asset value of the Fund to obtain certain personal services for shareholders and the maintenance of shareholder accounts ("shareholder services"). The Fund has entered into a Shareholder Services Agreement with Federated Shareholder Services, a subsidiary of Federated Investors, under which Federated Shareholder Services will either perform shareholder services directly or will select Financial Institutions to perform shareholder services. Financial Institutions will receive fees based upon shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Fund and Federated Shareholder Services." F. Please insert the following information as a subsection entitled "Checkwriting" after the subsection entitled "Receiving Payment" on page 12 of the prospectus, and add the heading "Checkwriting" to the Table of Contents: "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 has 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." G. Please delete the section entitled "Redemption Before Purchase Instruments Clear" on page 12 of the prospectus. In addition, please delete the heading from the Table of Contents. H. Please insert the following financial statements beginning as page 16 of the prospectus. In addition, please add the heading "Financial Statements" to the Table of Contents page immediately before "Addresses." NORTH CAROLINA MUNICIPAL CASH TRUST PORTFOLIO OF INVESTMENTS APRIL 30, 1994 (UNAUDITED) - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S, PRINCIPAL S&P OR AMOUNT FITCH* VALUE - ------------- -------------------------------------------------------------------- ----------- --------------- SHORT-TERM MUNICIPAL SECURITIES--99.1% - ----------------------------------------------------------------------------------- NORTH CAROLINA--94.2% -------------------------------------------------------------------- $ 1,755,000 Alamance County, NC, IDA Weekly VRDNs (Series B) (Culp, Inc.)/(First Union National Bank LOC) P-1 $ 1,755,000 -------------------------------------------------------------------- 1,650,000 Angier, NC, 2.75% Sanitary Sewer BANs, 8/31/94 NR 1,650,264 -------------------------------------------------------------------- 2,000,000 Bladen County, NC, Industrial Facilities & Pollution Control Financing Authority Weekly VRDNs (Series 1993)/ (BCH Energy, L.P.)/(Bank of Tokyo Ltd. LOC)/(Subject to AMT) VMIG1 2,000,000 -------------------------------------------------------------------- 1,000,000 Bladen County, NC, Industrial Facilities & Pollution Control Financing Authority Weekly VRDNs (Series 1993)/ (Harriet & Henderson Yarns, Inc.)/ (NationsBank of North Carolina N.A. LOC)/(Subject to AMT) A-1 1,000,000 -------------------------------------------------------------------- 1,600,000 Buncombe County, NC, Industrial Facilities & Pollution Control Financing Authority Weekly VRDNs (Series 1991)/ (Rich Mount, Inc.)/(Bank of Tokyo Ltd. LOC)/(Subject to AMT) A-1 1,600,000 -------------------------------------------------------------------- 600,000 Burke County, NC, Industrial Facilities & Pollution Control Financing Authority Weekly VRDNs (Norwalk Furniture Corp., Hickory Hill)/(Branch Banking & Trust Co. LOC)/ (Subject to AMT) P-1 600,000 -------------------------------------------------------------------- $ 1,000,000 Catawba County, NC, Industrial Facilities & Pollution Control Financing Authority Weekly VRDNs (Series 1992)/ (WSMP, Inc.)/(NationsBank of North Carolina N.A. LOC)/ (Subject to AMT) A-1 $ 1,000,000 -------------------------------------------------------------------- 2,000,000 Charlotte, NC, Airport Refunding Revenue Bonds Weekly VRDNs (Series 1993A)/(MBIA Insured)/(Industrial Bank of Japan Ltd. LIQ) A-1 2,000,000 -------------------------------------------------------------------- 3,000,000 Charlotte, NC, Revenue Refunding Certificates of Participation Weekly VRDNs (AMBAC Insured)/(Merrill Lynch Capital Services, Inc. LIQ), R VMIG1 3,000,000 -------------------------------------------------------------------- 2,459,292 Charlotte, NC, Weekly VRDNs Floating Rate Trust Certificate (Series 1992)/(Credit Suisse Financial Products LIQ), R P-1 2,459,292 -------------------------------------------------------------------- 1,224,000 Duplin County, NC, Water District, 3.40% BANs, 7/20/94 NR 1,225,595 -------------------------------------------------------------------- 2,000,000 Durham, NC, Public Improvement Bonds Weekly VRDNs (Series 1993) A-1+ 2,000,000 -------------------------------------------------------------------- 1,800,000 Fayetteville, NC, Public Works Commission Revenue Refunding Bonds Weekly VRDNs (FGIC Insured)/(Merrill Lynch Capital Services, Inc. LIQ), R VMIG1 1,800,000 -------------------------------------------------------------------- 500,000 Forsyth County, NC, Industrial Facilities & Pollution Control Financing Authority Weekly VRDNs (Series 1991)/ (Microfibres, Inc.)/(NationsBank of North Carolina N.A. LOC)/(Subject to AMT) P-1 500,000 -------------------------------------------------------------------- 1,500,000 Franklin County, NC, Industrial Facilities & Pollution Control Financing Authority Weekly VRDNs (Series 1992)/ (Doninger Metals Corp.)/(Branch Banking & Trust Co., Wilson LOC)/(Subject to AMT) P-1 1,500,000 -------------------------------------------------------------------- $ 1,800,000 Guilford County, NC, Industrial Facilities & Pollution Control Financing Authority Weekly VRDNs (Series 1989)/ (Bonset America Corp.)/(Industrial Bank of Japan Ltd. LOC)/(Subject to AMT) A-1 $ 1,800,000 -------------------------------------------------------------------- 3,795,000 Halifax County, NC, Industrial Facilities & Pollution Control Financing Authority Daily VRDNs (Series 1993)/ (Westmoreland-LG&E Partners)/(Credit Suisse LOC)/(Subject to AMT) A-1+ 3,795,000 -------------------------------------------------------------------- 1,400,000 Iredell County, NC, Industrial Facilities & Pollution Control Financing Authority Weekly VRDNs (Series 1992)/ (Thorneburg Hosiery Co., Inc.)/(NationsBank of North Carolina N.A. LOC)/(Subject to AMT) A-1 1,400,000 -------------------------------------------------------------------- 5,000,000 Lee County, NC, Industrial Facilities & Pollution Control Financing Authority Weekly VRDNs (Series 1989)/ (Avondale Mills, Inc.)/(Trust Company Bank LOC) P-1 5,000,000 -------------------------------------------------------------------- 2,000,000 Mecklenberg County, NC, Industrial Facilities & Pollution Control Financing Authority Weekly VRDNs (Manhasset Bay Associates)/(Bank of Tokyo Ltd. LOC)/(Subject to AMT) A-1 2,000,000 -------------------------------------------------------------------- 3,680,000 Mecklenberg County, NC, Industrial Facilities & Pollution Control Financing Authority Weekly VRDNs (Series 1988)/ (Florida Steel Corp.)/(Bankers Trust Company LOC) P-1 3,680,000 -------------------------------------------------------------------- 3,500,000 New Hanover County, NC, Industrial Facilities & Pollution Control Financing Authority Weekly VRDNs (Series 1993)/ (Efson, Inc.)/(Branch Banking & Trust Co., Wilson LOC)/ (Subject to AMT) P-1 3,500,000 -------------------------------------------------------------------- 500,000 North Carolina Eastern Municipal Power Agency, 2.35% CP (Series 1988B)/(Morgan Guaranty Trust Co. and Union Bank of Switzerland LOCs), Mandatory Tender 5/23/94 A-1+ 500,000 -------------------------------------------------------------------- $ 1,662,000 North Carolina Eastern Municipal Power Agency, 2.65% CP (Industrial Bank of Japan Ltd. LOC), Mandatory Tender 6/9/94 A-1 $ 1,662,000 -------------------------------------------------------------------- 2,000,000 North Carolina Educational Facilities Finance Agency Weekly VRDNs (Series 1987A)/(Duke University) A-1+ 2,000,000 -------------------------------------------------------------------- 2,000,000 North Carolina Educational Facilities Finance Agency Weekly VRDNs (Series 1990)/(Bowman Gray School of Medicine)/(Wachovia Bank & Trust Co. N.A. LOC) VMIG1 2,000,000 -------------------------------------------------------------------- 1,000,000 North Carolina Medical Care Commission Hospital Revenue Bonds Weekly VRDNs (Series 1992B)/(North Carolina Baptist Hospital) A-1+ 1,000,000 -------------------------------------------------------------------- 1,600,000 North Carolina Medical Care Commission Hospital Revenue Bonds Weekly VRDNs (Series 1993)/(Moses H. Cone Memorial Hospital) A-1+ 1,600,000 -------------------------------------------------------------------- 5,000,000 North Carolina Medical Care Commission Hospital Weekly VRDNs (Series 1986AZ)/(MBIA Insured)/(Banque Paribas LIQ) VMIG1 5,000,000 -------------------------------------------------------------------- 5,400,000 North Carolina Medical Care Commission Hospital Weekly VRDNs (Series 1991B)/(Hospital Pool Program)/(First Union National Bank LOC) VMIG1 5,400,000 -------------------------------------------------------------------- 9,000,000 North Carolina Medical Care Commission Hospital Weekly VRDNs (Series 1993A)/(Duke University Hospital) A-1+ 9,000,000 -------------------------------------------------------------------- 520,000 North Carolina Municipal Power Agency Pound1, 2.40% CP (Catawba Electric), Mandatory Tender 5/24/94 A-1 520,000 -------------------------------------------------------------------- 2,000,000 North Carolina Municipal Power Agency Pound1, 2.75% CP (Catawba Electric), Mandatory Tender 8/15/94 A-1 2,000,000 -------------------------------------------------------------------- 4,000,000 North Carolina State Capital Improvement, 4.60% GO Bonds (Series A), 2/1/95 AAA 4,044,215 -------------------------------------------------------------------- $ 4,000,000 Onslow County, NC, Industrial Facilities & Pollution Control Financing Authority Weekly VRDNs (Mine Safety Appliances Co.)/(Sanwa Bank Ltd. LOC) A-1+ $ 4,000,000 -------------------------------------------------------------------- 3,190,000 Orange County, NC, Industrial Facilities & Pollution Control Financing Authority Weekly VRDNs (Mebane Packaging Corp.)/(First Union National Bank LOC)/(Subject to AMT) A-1 3,190,000 -------------------------------------------------------------------- 2,100,000 Person County, NC, Industrial Facilities & Pollution Control Financing Authority Daily VRDNs (Series 1986)/(Carolina Power & Light Co.)/(Fuji Bank Ltd. LOC)/(Subject to AMT) VMIG1 2,100,000 -------------------------------------------------------------------- 1,400,000 Piedmont Triad Airport Authority Weekly VRDNs (Triad International Maintenance Corp.)/(Mellon Bank N.A. LOC)/(Subject to AMT) P-1 1,400,000 -------------------------------------------------------------------- 2,200,000 Randolph County, NC, Industrial Facilities & Pollution Control Financing Authority Weekly VRDNs (Series 1990)/ (Wayne Steel, Inc.)/(Bank One, Akron LOC)/(Subject to AMT) P-1 2,200,000 -------------------------------------------------------------------- 5,000,000 Richmond County, NC, Industrial Facilities & Pollution Control Financing Authority Weekly VRDNs (Series 1991)/ (Bibb Company)/(Citibank N.A. LOC)/(Subject to AMT) A-1 5,000,000 -------------------------------------------------------------------- 3,200,000 Rutherford County, NC, Industrial Facilities Pollution Control Financing Authority Weekly VRDNs (Spring-Ford Knitting Co.)/(Branch Banking & Trust Co. LOC)/(Subject to AMT) P-1 3,200,000 -------------------------------------------------------------------- 2,750,000 University of North Carolina, 2.70% CP (Series 1989)/ (University of NC at Chapel Hill General Alumni Assoc.)/ (Credit Suisse LOC), Mandatory Tender 5/19/94 VMIG1 2,750,000 -------------------------------------------------------------------- $ 600,000 Wake County, NC, Industrial Facilities & Pollution Control Financing Authority, 2.55% CP (Series 1990A)/(Carolina Power & Light Co.)/(Fuji Bank Ltd. LOC), Mandatory Tender 10/20/94 A-1 $ 600,000 -------------------------------------------------------------------- 1,000,000 Wake County, NC, Industrial Facilities & Pollution Control Financing Authority, 2.70% CP (Series 1990B)/(Carolina Power & Light Co.)/(Fuji Bank Ltd. LOC), Mandatory Tender 6/15/94 A-1 1,000,000 -------------------------------------------------------------------- 1,000,000 Wake County, NC, Industrial Facilities & Pollution Control Financing Authority, 2.75% CP (Series 1990A)/(Carolina Power & Light Co.)/(Fuji Bank Ltd. LOC), Mandatory Tender 10/14/94 A-1 1,000,000 -------------------------------------------------------------------- 2,000,000 Wake County, NC, Industrial Facilities & Pollution Control Financing Authority, 2.80% CP (Series 1990A)/(Carolina Power & Light Co.)/(Fuji Bank Ltd. LOC), Mandatory Tender 7/18/94 A-1 2,000,000 -------------------------------------------------------------------- 1,000,000 Wake County, NC, Industrial Facilities & Pollution Control Financing Authority, 3.00% CP (Series 1990A)/(Carolina Power & Light Co.)/(Fuji Bank Ltd. LOC), Mandatory Tender 7/22/94 A-1 1,000,000 -------------------------------------------------------------------- 4,957,504 Wayne County, NC, Pollution Control Finance Authority Weekly VRDNs (Cooper Industries)/(Sanwa Bank Ltd. LOC) A-1+ 4,957,504 -------------------------------------------------------------------- --------------- Total 114,388,870 -------------------------------------------------------------------- --------------- PUERTO RICO--4.9% -------------------------------------------------------------------- 1,000,000 Commonwealth of Puerto Rico, 3.00% TRANs (Series 1994A), 7/29/94 SP-1+ 1,000,900 -------------------------------------------------------------------- $ 5,000,000 Government Development Bank of Puerto Rico Weekly VRDNs (Credit Suisse and Sumitomo Bank Ltd. LOCs) A-1 $ 5,000,000 -------------------------------------------------------------------- --------------- Total 6,000,900 -------------------------------------------------------------------- --------------- TOTAL INVESTMENTS (AT AMORTIZED COST) $ 120,389,770\ -------------------------------------------------------------------- ---------------
\ Also represents cost for federal tax purposes. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Note: The categories of investments are shown as a percentage of net assets ($121,474,782) at April 30, 1994. 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 IDA--Industrial Development Authority LIQ--Liquidity Agreement LOC--Letter(s) of Credit MBIA--Municipal Bond Investors Assurance R--Denotes restricted securities which are subject to restrictions on resale under Federal securities laws. These securities are considered liquid under criteria established by the Board of Trustees. TRANs--Tax and Revenue Anticipation Notes VRDNs--Variable Rate Demand Notes (See Notes which are integral part of the Financial Statements) NORTH CAROLINA MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1994 (UNAUDITED) - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------------------------ Investments, at amortized cost and value (Note 2A) $ 120,389,770 - ------------------------------------------------------------------------------------------------ Cash 705,882 - ------------------------------------------------------------------------------------------------ Interest receivable 398,426 - ------------------------------------------------------------------------------------------------ Receivable from Adviser 7,500 - ------------------------------------------------------------------------------------------------ Deferred expenses (Note 2E) 33,274 - ------------------------------------------------------------------------------------------------ --------------- Total assets 121,534,852 - ------------------------------------------------------------------------------------------------ LIABILITIES: - ------------------------------------------------------------------------------------------------ Dividends payable $ 16,643 - ------------------------------------------------------------------------------------- Payable to shareholder servicing agent (Note 4) 5,543 - ------------------------------------------------------------------------------------- Payable to transfer and dividend disbursing agent (Note 4) 3,052 - ------------------------------------------------------------------------------------- Payable for Fund shares redeemed 1,000 - ------------------------------------------------------------------------------------- Accrued expenses 33,832 - ------------------------------------------------------------------------------------- --------- Total liabilities 60,070 - ------------------------------------------------------------------------------------------------ --------------- NET ASSETS for 121,474,782 shares of beneficial interest outstanding $ 121,474,782 - ------------------------------------------------------------------------------------------------ --------------- NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share: ($121,474,782 / 121,474,782 shares of beneficial interest outstanding) $1.00 - ------------------------------------------------------------------------------------------------ ---------------
(See Notes which are an integral part of the Financial Statements) NORTH CAROLINA MUNICIPAL CASH TRUST STATEMENT OF OPERATIONS SIX MONTHS ENDED APRIL 30, 1994* (UNAUDITED) - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------------------------- Interest income (Note 2B) $ 361,197 - ---------------------------------------------------------------------------------------------------- EXPENSES: - ---------------------------------------------------------------------------------------------------- Investment advisory fee (Note 4) $ 67,811 - ----------------------------------------------------------------------------------------- Custodian and recordkeeper fees 24,741 - ----------------------------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses (Note 4) 3,258 - ----------------------------------------------------------------------------------------- Fund share registration costs 2,988 - ----------------------------------------------------------------------------------------- Shareholder services fees (Note 4) 5,543 - ----------------------------------------------------------------------------------------- Legal fees 2,000 - ----------------------------------------------------------------------------------------- Printing and postage 800 - ----------------------------------------------------------------------------------------- Insurance premiums 1,400 - ----------------------------------------------------------------------------------------- Miscellaneous 675 - ----------------------------------------------------------------------------------------- --------- ]Total expenses 109,216 - ----------------------------------------------------------------------------------------- Deduct-- - ------------------------------------------------------------------------------ Waiver of investment advisory fee (Note 4) $ 67,811 - ------------------------------------------------------------------------------ Reimbursement of other operating expenses (Note 4) 7,500 75,311 - ------------------------------------------------------------------------------ --------- --------- Net expenses 33,905 - ---------------------------------------------------------------------------------------------------- ----------- Net investment income $ 327,292 - ---------------------------------------------------------------------------------------------------- -----------
* For the period from December 31, 1993 (date of initial public investment) to April 30, 1994. (See Notes which are an integral part of the Financial Statements) NORTH CAROLINA MUNICIPAL CASH TRUST STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
PERIOD ENDED APRIL 30, 1994* (UNAUDITED) - ---------------------------------------------------------------------------------------------- ------------------ INCREASE (DECREASE) IN NET ASSETS: - ---------------------------------------------------------------------------------------------- OPERATIONS-- - ---------------------------------------------------------------------------------------------- Net investment income $ 327,292 - ---------------------------------------------------------------------------------------------- ------------------ DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2B)-- - ---------------------------------------------------------------------------------------------- Dividends to shareholders from net investment income (327,292) - ---------------------------------------------------------------------------------------------- ------------------ FUND SHARE (PRINCIPAL) TRANSACATIONS (NOTE 3)-- - ---------------------------------------------------------------------------------------------- Proceeds from sale of shares 180,078,139 - ---------------------------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of dividends declared 297,006 - ---------------------------------------------------------------------------------------------- Cost of shares redeemed (58,900,363) - ---------------------------------------------------------------------------------------------- ------------------ Change in net assets from Fund share transactions 121,474,782 - ---------------------------------------------------------------------------------------------- ------------------ Change in net assets 121,474,782 - ---------------------------------------------------------------------------------------------- NET ASSETS: - ---------------------------------------------------------------------------------------------- Beginning of period -- - ---------------------------------------------------------------------------------------------- ------------------ End of period $ 121,474,782 - ---------------------------------------------------------------------------------------------- ------------------
* For the period from December 31, 1993 (date of initial public investment) to April 30, 1994. (See Notes which are an integral part of the Financial Statements) NORTH CAROLINA MUNICIPAL CASH TRUST NOTES TO FINANCIAL STATEMENTS APRIL 30, 1994 (UNAUDITED) - -------------------------------------------------------------------------------- (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. The Trust consists of twelve, non-diversified portfolios. The financial statements included herein are only those of North Carolina Municipal Cash Trust (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles (GAAP). A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Investment Company Act of 1940. Since the Fund invests a substantial portion of its assets in issuers located in one state, it will be more susceptible to factors adversely affecting issuers of that state, than would be a comparable general tax-exempt mutual fund. In order to reduce the credit risk associated with such factors, at April 30, 1994, 78.4% of the securities in the portfolio of investments are backed by letters of credit or bond insurance of various financial institutions and financial guaranty assurance agencies. The aggregate percentages by financial institutions and agencies ranged from 0.4% to 8.6% of total investments. B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount are amortized as required by the Internal Revenue Code ("Code"). Distributions to shareholders are recorded on the ex-dividend date. C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its taxable income. Accordingly, no provisions for federal tax are necessary. D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. 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. RESTRICTED SECURITIES--Restricted securities are securities that may only be resold upon registration under Federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940. Additional information on each restricted security held at April 30, 1994 is as follows:
ACQUISITION ACQUISITION SECURITY DATE COST Charlotte, NC, Revenue Refunding Certificates of Participation 3/17/94 and 4/28/94 $ 3,000,000 Charlotte, NC, Weekly VRDNs Floating Rate Trust Certificates 3/2/94 2,459,292 1,800,000 Fayetteville, NC, Public Works Commission Revenue Refunding Bonds 1/20/94, 1/31/94, and 2/28/94
G. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). At April 30, 1994, capital paid-in aggregated $121,474,782. Transactions in Fund shares were as follows:
PERIOD ENDED APRIL 30, 1994* Shares sold 180,078,139 - ---------------------------------------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 297,006 - ---------------------------------------------------------------------------------------------- Shares redeemed (58,900,363) - ---------------------------------------------------------------------------------------------- ------------------ Net change resulting from Fund share transactions 121,474,782 - ---------------------------------------------------------------------------------------------- ------------------
*For the period from December 31, 1993 (date of initial public investment) to April 30, 1994. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--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 may voluntarily choose to waive its fee and reimburse certain operating expenses of the Fund. Adviser can modify or terminate this voluntary waiver and reimbursement at any time at its sole discretion. ADMINISTRATION FEE--Federated Administrative Services ("FAS") provides the Fund administrative personnel and services. Prior to March 1, 1994, these services were provided at approximate cost. Effective March 1, 1994, the fee is based on the level of average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors for the period. The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of shares. SHAREHOLDER SERVICES FEE--Under the terms of a shareholder services agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average net assets of the Fund for the period. This fee is to obtain certain personal services for shareholders and the maintenance of shareholder accounts. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT--Federated Services Company ("FServ") serves as transfer agent and dividend disbursing agent for the Fund. The fee is based on the size, type and number of accounts and transactions made by shareholders. ORGANIZATIONAL EXPENSES--Organizational expenses and start-up administrative service expenses incurred by the Fund will be borne initially by Adviser and are estimated at $21,879 and $31,507, respectively. The Fund has agreed to reimburse the Adviser for the organizational expenses and start-up administrative expenses during the five year period following December 1, 1993 (date the Fund first became effective). INTERFUND TRANSACTIONS--During the period ended April 30, 1994, 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 $100,104,292 and $51,200,000, respectively. These purchases and sales were conducted on an arms length basis and transacted for cash consideration only, at independent current market prices and without brokerage commissions, fees or other remuneration. Certain of the Officers and Trustees of the Trust are Officers and Trustees of the above companies. May 31, 1994 NORTH CAROLINA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) PROSPECTUS The shares of North Carolina Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a 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 State of North Carolina consistent with stability of principal. The Fund invests primarily in short-term North Carolina municipal securities, including securities of states, territories, and possessions of the United States which are not issued by or on behalf of North Carolina or its political subdivisions and financing authorities, but which provide income exempt from the federal regular and North Carolina state income taxes. In addition, the Fund intends to qualify as an investment substantially exempt from the North Carolina Intangible Personal Property tax. 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 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 the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated December 1, 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 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 1, 1993 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ GENERAL INFORMATION 2 - ------------------------------------------------------ INVESTMENT INFORMATION 2 - ------------------------------------------------------ Investment Objective 2 Investment Policies 2 Acceptable Investments 2 Variable Rate Demand Notes 3 Participation Interests 3 Municipal Leases 3 Ratings 4 Credit Enhancement 4 Demand Features 4 Restricted and Illiquid Securities 4 When-Issued and Delayed Delivery Transactions 5 Temporary Investments 5 North Carolina Municipal Securities 5 Standby Commitments 5 North Carolina Investment Risks 6 Non-Diversification 6 Investment Limitations 7 Regulatory Compliance 7 FEDERATED MUNICIPAL TRUST INFORMATION 7 - ------------------------------------------------------ Management of Federated Municipal Trust 7 Board of Trustees 7 Investment Adviser 7 Advisory Fees 7 Adviser's Background 8 Distribution of Fund Shares 8 Administrative Arrangements 8 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 9 NET ASSET VALUE 9 - ------------------------------------------------------ INVESTING IN THE FUND 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 SHARES 11 - ------------------------------------------------------ Telephone Redemption 11 Written Requests 12 Signatures 12 Receiving Payment 12 Redemption Before Purchase Instruments Clear 12 Accounts with Low Balances 13 SHAREHOLDER INFORMATION 13 - ------------------------------------------------------ Voting Rights 13 Massachusetts Partnership Law 13 TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 North Carolina Taxes 14 Other State and Local Taxes 15 PERFORMANCE INFORMATION 15 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - --------------------------------------------------------------------------------
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 Loads (as a percentage of original purchase price or redemption proceeds, as applicable)................................................ None Redemption Fee (as a percentage of amount redeemed, if applicable)..................................... None Exchange Fee........................................................................................... None ANNUAL FUND OPERATING EXPENSES* (As a percentage of projected average net assets) Management Fee (after waiver) (1)...................................................................... 0.27% 12b-1 Fee.............................................................................................. None Other Expenses......................................................................................... 0.32% Total Fund Operating Expenses (2)............................................................ 0.59%
(1) The estimated management fee has been reduced to reflect the anticipated voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) The Total Fund Operating Expenses are estimated to be 0.82% absent the anticipated voluntary waiver of a portion of the management fee. * Total Operating Expenses are estimated based on average expenses expected to be incurred during the period ending October 31, 1994. During the course of this period, expenses may be more or less than the average amount shown. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN THE FUND" AND "FEDERATED MUNICIPAL TRUST INFORMATION." Wire-transferred redemptions of less than $5,000 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 fees..................... $6 $19
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING OCTOBER 31, 1994. 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. Shares of the Fund are designed for investment of moneys held by financial institutions in an agency or fiduciary capacity. A minimum initial investment of $10,000 over a 90-day period is required. The Fund may not be a suitable investment for non-North Carolina taxpayers or retirement plans since it invests primarily in North Carolina 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 State of North Carolina consistent with stability of principal. In addition, the Fund intends to qualify as an investment substantially exempt from the North Carolina Intangible Personal Property tax ("intangibles tax"). 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 North Carolina. INVESTMENT POLICIES The Fund pursues its investment objective by investing in a portfolio of North Carolina municipal securities (as defined below) 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 North Carolina state income tax and intangibles 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 North Carolina state income tax and intangibles 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 Board of Trustees ("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 North Carolina and its political subdivisions and financing authorities, and obligations of other states, territories and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from both federal regular income tax and the income tax and intangibles tax imposed by the State of North Carolina. Examples of North Carolina 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 rate. 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. Also included within the general category of municipal securities are certain lease obligations or installment purchase contract obligations and participations therein (hereinafter collectively called "lease obligations") of municipal authorities or entities. Although lease obligations do not constitute general obligations of the municipality for which the municipality's taxing power is pledged, a lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the lease obligation. Interest on lease obligations is tax-exempt to the same extent as if the municipality had issued debt obligations to finance the underlying project or puchase. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In addition to the "non-appropriation" risk, these securities represent a relatively new type of financing that has not yet developed the depth of marketability associated with more conventional bonds and some lease obligations may be illiquid. Although "non-appropriation" lease obligations are generally secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. In addition, the tax treatment of such obligations in the event of "non-appropriation" is unclear. The Fund does not invest more than 10% of its total assets in lease obligations that contain "non-appropriation" clauses. If the Fund purchases unrated municipal leases, the Trustees will be responsible for determining, on an ongoing basis, the credit quality of such leases and the likelihood that such lease will not be cancelled. RATINGS. The North Carolina 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. A NRSRO's two highest rating categories are determined without regard for sub-categories and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation ("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. A description of the ratings categories is contained in the Appendix to the Statement of Additional Information. 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, including some municipal leases, to 10% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase North Carolina 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, when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in short-term non-North Carolina 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 the organization sells the Fund a temporary investment and agrees at the time of sale to repurchase it at a mutually agreed upon time and price). Although the Fund is permitted to make taxable temporary investments, there is no current intention of generating income subject to federal regular income tax or personal income tax imposed by the State of North Carolina. NORTH CAROLINA MUNICIPAL SECURITIES North Carolina municipal securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. North Carolina municipal securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of 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 securities prior to maturity, at the Fund's option, for the amortized cost of the 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. NORTH CAROLINA INVESTMENT RISKS Yields on North Carolina municipal securities depend on a variety of factors, including: the general conditions of the short-term municipal market and of the municipal bond market; the size and maturity of the particular offering; and the rating of the issue. Further, any adverse economic conditions or developments affecting the State of North Carolina 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 North Carolina 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, North Carolina'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 State, with revenues exceeding estimates and employment increasing slightly. Investing in North Carolina municipal securities which meet the Fund's quality standards may not be possible if the State of North Carolina or its municipalities do not maintain their high quality short-term credit ratings. In addition, certain North Carolina constitutional amendments, legislative measures, executive or judicial orders, administrative regulations, and voter initiatives could result in adverse consequences affecting North Carolina municipal securities. The Statement of Additional Information contains an expanded discussion of the current economic risks associated with the purchase of North Carolina municipal securities. 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 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 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 is 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 FUND SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969 and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. 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 Fund 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 shares held by their clients in the Fund. 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 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 ("State Street Bank"), 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 The Fund pays all of its own expenses and its allocable share of Trust expenses. The expenses of the Fund include, but are not limited to, the cost of: organizing the Trust and continuing its existence; Trustees' fees; investment advisory and administrative services; printing prospectuses and other Fund documents for shareholders; registering the Trust, the Fund, and shares of the Fund; taxes and commissions; issuing, purchasing, repurchasing, and redeeming shares; fees for custodians, transfer agents, dividend disbursing agents, shareholder servicing agents, and registrars; printing, mailing, auditing and certain accounting and legal expenses; reports to shareholders and governmental agencies; meetings of Trustees and shareholders and proxy solicitations therefor; insurance premiums; association membership dues; and such non-recurring and extraordinary items as may arise. However, the Adviser may voluntarily reimburse the Fund the amount, up to the amount of the advisory fee, by which operating expenses exceed limitations imposed by certain states. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting total liabilities from total assets 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 THE FUND - -------------------------------------------------------------------------------- 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 of the Fund, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken over the telephone. Texas residents must purchase shares through Federated Securities Corp. at 1-800-245-2423. BY WIRE. To purchase shares of the Fund 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: North Carolina Municipal Cash Trust; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Nominee or Institution Name; ABA Number 011000028. Shares cannot be purchased on days on which the New York Stock Exchange is closed and on federal holidays restricting wire transfers. BY MAIL. To purchase shares of the Fund by mail, send a check made payable to North Carolina Municipal Cash Trust to the Fund'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 Fund 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 Fund 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 of the Fund through a non-affiliated 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 Fund 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 Fund 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 of the Fund 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 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, 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 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, as amended, 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, 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 preadjustment 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. NORTH CAROLINA TAXES North Carolina residents and North Carolina corporations are not required to pay North Carolina income tax on any dividends received from the Fund that represent interest on obligations issued by North Carolina and political subdivisions thereof or upon the obligations of the United States or its possessions. Dividends representing interest upon the obligations of the United States or its possessions are to be deducted from federal taxable income in calculating North Carolina taxable income. Dividends received from the Fund by such shareholders must be included in North Carolina taxable income to the extent it represents interest on obligations of states other than North Carolina and their political subdivisions. Such interest income is included by an adjustment to federal taxable income in calculating the North Carolina taxable income. The Fund will annually furnish to its shareholders a statement supporting the proper allocation. North Carolina residents and North Carolina corporations may exclude from the share value of the Fund for the purposes of the North Carolina Intangibles Personal Property tax that proportion of the total share value which is attributable to the value of the direct obligations of the state of North Carolina, of the United States, and of their political subdivisions held in the Fund as of December 31 of the taxable year. The Fund will annually furnish to its shareholders a statement supporting the proper allocation. OTHER STATE AND LOCAL TAXES Income from the Fund is not necessarily free from regular state income taxes in states other than North Carolina 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. The Fund's yield represents the annualized rate of income earned on an investment in the Fund 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 Fund 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 Fund is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the the Fund 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 Fund after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, the Fund may advertise its performance using certain reporting services and/or compare its performance to certain indices. ADDRESSES - -------------------------------------------------------------------------------- Fund North Carolina Municipal Cash Trust Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 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 - ---------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA MUNICIPAL CASH TRUST PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, An Open-End, Management Investment Company December 1, 1993 [LOGO] FEDERATED SECURITIES CORP. ----------------------------------- Distributor A Subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 3090803A (12/93) NORTH CAROLINA MUNICIPAL CASH TRUST (A Portfolio of Federated Municipal Trust) - -------------------------------------------------------------------------------- SEMI-ANNUAL REPORT AND SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION DATED DECEMBER 1, 1993 A. Please insert the following information as a second paragraph under the subsection entitled "Fund Ownership" on page 6: "As of May 10, 1994, the following shareholders of record owned 5% or more of the outstanding shares of the Fund: Timothy A. Braswell, Charlotte, North Carolina, owned approximately 12,049,706 shares (8.5%); Julius Blum Inc., Stanley, North Carolina owned approximately 7,048,228 shares (5.0%); Variety Wholesalers, Raleigh, North Carolina, owned approximately 20,824,082 shares (14.8%); Oakwood Homes Corporation, Greensboro, North Carolina, owned approximately 15,003,515 shares (10.7%); and The CATO Corporation Charlotte, North Carolina, owned approximately 7,525,030 shares (5.3%)." B. Please insert the following as the second paragraph under the subsection entitled "Advisory Fees" on page 7: From the Fund's date of initial public investment, December 31, 1993, to April 30, 1994, the Fund's adviser earned $67,811, all of which was voluntarily waived." C. Please delete the paragraph under the section entitled "Administrative Services" on page 7 and replace it with the following: Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc., also a subsidiary of Federated Investors, served as the Fund's administrator. 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. and Federated Administrative Services. From the Fund's date of initial public investment, December 31, 1993, to April 30, 1994, the Fund did not incur any costs for administrative services. D. Please insert the following section entitled "Shareholder Services Plan" after the section entitled "Administrative Services" on page 7. In addition, please add the heading to the Table of Contents: SHAREHOLDER SERVICES PLAN This arrangement permits the payment of fees to Federated Shareholder Services and, indirectly, to Financial Institutions to cause services to be provided to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to, providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. From the Fund's date of initial public investment, December 31, 1993, to April 30, 1994, payments in the amount of $5,543 were made pursuant to the Shareholder Services Plan. E. Please insert the following information as the first paragraph under the section entitled "Yield" on page 10: "The Fund's yield for the seven-day period ended April 30, 1994 was 2.78%. F. Please insert the following information as the first paragraph under the section entitled "Effective Yield" on page 10: "The Fund's effective yield for the seven-day period ended April 30, 1994 was 2.82%. G. Please insert the following information as the first paragraph under the section entitled "Tax-Equivalent Yield" on page 10: "The Fund's tax-equivalent yield for the seven-day period ended April 30, 1994 was 4.28% assuming a 28% tax rate and 4.48% assuming a 31% tax rate." May 31, 1994 [LOGO] FEDERATED SECURITIES CORP. ------------------------------------------------------------------------- Distributor 004183-A (5/94) NORTH CAROLINA MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus of North Carolina Municipal Cash Trust (the "Fund") dated December 1, 1993. This Statement is not a prospectus itself. To receive a copy of any of the prospectus, write or call Federated Municipal Trust. FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 Statement dated December 1, 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 North Carolina Investment Risks 3 TRUST MANAGEMENT 4 - --------------------------------------------------------------- Officers and Trustees 4 Fund Ownership 6 The Funds 6 Trustee Liability 7 INVESTMENT ADVISORY SERVICES 7 - --------------------------------------------------------------- Adviser to the Fund 7 Advisory Fees 7 ADMINISTRATIVE SERVICES 7 - --------------------------------------------------------------- BROKERAGE TRANSACTIONS 7 - --------------------------------------------------------------- PURCHASING SHARES 8 - --------------------------------------------------------------- Conversion to Federal Funds 8 DETERMINING NET ASSET VALUE 8 - --------------------------------------------------------------- Use of Amortized Cost Method 8 REDEEMING SHARES 9 - --------------------------------------------------------------- Redemption in Kind 9 TAX STATUS 9 - --------------------------------------------------------------- The Fund's Tax Status 9 YIELD 10 - --------------------------------------------------------------- EFFECTIVE YIELD 10 - --------------------------------------------------------------- TAX-EQUIVALENT YIELD 10 - --------------------------------------------------------------- Tax-Equivalency Table 10 PERFORMANCE COMPARISONS 11 - --------------------------------------------------------------- APPENDIX 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. 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 State of North Carolina consistent with stability of principal. In addition, the Fund intends to qualify as an investment substantially exempt from the North Carolina Intangible Personal Property tax. 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 State of North Carolina 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 State of North Carolina. When determining whether a North Carolina 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 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; and (7) such other factors as may be relevant to the Fund's ability to dispose of the security. In the case of a municipal lease security, the adviser must also consider the following additional factors: (a) whether the lease can be terminated by the lessee; (b) the potential recovery, if any, from a sale of the leased property upon termination of the lease; (c) the lessee's general credit strength; (d) 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 (e) 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 on the Fund's records 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. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as may be necessary for clearance of transactions. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money directly or through reverse repurchase agreements in amounts up to one-third of the value of its net assets, including the amounts borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of its total assets at the time of the pledge. 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 North Carolina municipal securities or temporary investments or enter into repurchase agreements, in accordance with its investment objective, policies, limitations, and its Declaration of Trust. 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 (the Fund considers cash items to be 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 following investment limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. 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. 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 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 its 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. 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. NORTH CAROLINA INVESTMENT RISKS The State of North Carolina's credit strength is derived from a diversified economy, relatively low unemploy- ment rates, strong financial management, and a low debt burden. In recent years, the State's economy has become less dependent on agriculture (primarily tobacco) and manufacturing (textiles and furniture) and has experienced increased activity in financial services, research, high technology manufacturing, and tourism. North Carolina did not escape the effects of the economic slowdown; however, the State is now experiencing an increase in economic development. Long-term personal income trends indicate gains; however, wealth levels still continue to lag the national average. State unemployment rates consistently fall below the national level. For August, 1993, North Carolina reported an unemployment rate of 4.6 percent versus the national average of 6.7 percent. North Carolina is a very conservative debt issuer and has maintained debt levels that are low due to constitutional debt limitations. Conservative policies also dominate the State's financial operations. The State's administration continually demonstrates its ability and willingness to adjust financial planning and budgeting to preserve financial balance. The State's finances, which enjoyed surpluses and adequate reserves throughout the 1980's, began reflecting the economic downturn in fiscal 1990. To close the shortfalls that emerged because of weakening revenues, the State increased its sales and corporate tax rates and implemented expenditure reductions and restrictions. Management's actions resulted in a budget surplus for fiscal 1992. For fiscal 1993, which ended June 30, another budgetary surplus is anticipated. The financials of many North Carolina municipalities are also strong, and over 25 percent of all Aaa-rated tax-exempt bonds issued by local municipalities throughout the country are issued by cities and towns located in the State. 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, its counties, and its municipalities. 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).
POSITION WITH PRINCIPAL OCCUPATION 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.; 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, OnLine Computer Library Center, Inc., University of Pittsburgh RAND Corporation, 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; President and Director, Pittsburgh, PA 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; 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 Trustees between meetings of the Trustees. FUND OWNERSHIP Officers and Trustees own less than 1% of the Fund's outstanding shares. 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, Inc.; Cash Trust Series II; 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 Intermediate Municipal 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.; Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash 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 Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; and Trust for U.S. Treasury Obligations. 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. Federated Management 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; Vice President, Secretary, General Counsel, and Trustee, 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. 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. 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, 1992, 1991 and 1990, Federated Administrative Services, Inc. paid approximately $189,741, $187,677 and $174,794, 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 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 the Fund." 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 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. Net asset value will not be calculated on the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. 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, 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 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 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 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 Fund's net asset value during any 90-day period. 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, as amended, 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 calculates its yield based upon the seven days ending on the day of the calculation, called the "base period." This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and (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 the Fund, the performance will be reduced for those shareholders paying those fees. EFFECTIVE YIELD - -------------------------------------------------------------------------------- The Fund's effective yield 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 is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal rate for individuals) assuming that income earned is 100% tax-exempt. TAX-EQUIVALENCY TABLE The Fund may also use a tax-equivalency table in advertising and sales literature. The interest earned by the municipal bonds 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 STATE OF NORTH CAROLINA - -------------------------------------------------------------------------------------------- Tax Bracket: Federal 15.00% 28.00% 31.00% 31.00% 36.00% 39.60% Combined Federal and State 22.00% 35.00% 38.00% 38.75% 43.75% 47.35% - -------------------------------------------------------------------------------------------- Joint $1- $36,901- $89,151- $100,001- $140,001- Over Return: 36,900 89,150 100,000 140,000 250,000 $250,000 Single $1- $22,101- $53,501- $60,001- $115,001- Over Return: 22,100 53,500 60,000 115,000 250,000 $250,000 - -------------------------------------------------------------------------------------------- TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT - -------------------------------------------------------------------------------------------- 2.00% 2.56% 3.03% 3.23% 3.27% 3.56% 3.80% 2.50 3.21 3.85 4.03 4.08 4.44 4.75 3.00 3.85 4.62 4.84 4.90 5.33 5.70 3.50 4.49 5.38 5.65 5.71 6.22 6.65 4.00 5.13 6.15 6.45 6.53 7.11 7.60 4.50 5.77 6.92 7.26 7.35 8.00 8.55 5.00 6.41 7.69 8.06 8.16 8.89 9.50 5.50 7.05 8.46 8.87 8.98 9.78 10.45 6.00 7.69 9.23 9.68 9.80 10.67 11.40 6.50 8.33 10.00 10.48 10.61 11.56 12.35 7.00 8.97 10.77 11.29 11.43 12.44 13.30 7.50 9.62 11.54 12.10 12.24 13.33 14.25 8.00 10.26 12.31 12.90 13.06 14.22 15.19
Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. Furthermore, additional state and local taxes paid on comparable taxable investments were not used to increase federal deductions. The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. *Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local regular or alternative minimum taxes. PERFORMANCE COMPARISONS - -------------------------------------------------------------------------------- The performance of the Fund 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 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. They 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 "tax-exempt money market fund" 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 the Fund to obtain a more complete view of the performance of the Fund before investing. Of course, when comparing performance of the Fund 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 Fund may refer to total return. Total return is the historic change in the value of an investment in the Fund based on the monthly reinvestment of dividends over a specified period of time. APPENDIX - -------------------------------------------------------------------------------- MUNICIPAL BOND RATING DEFINITIONS STANDARD AND POOR'S CORPORATION 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 higher rated issues only in small degree. A--Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effect of changes in circumstances and economic conditions than debt in higher rated categories. BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB, B, CCC, CC--Debt rated BB, B, CCC and CC is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these outweighed by large uncertainties of major risk exposure to adverse conditions. C--The rating C is reserved for income bonds on which no interest is being paid. D--Debt rated D is in default, and payment of interest and/or repayment of principal is in arrears. MOODY'S INVESTORS SERVICE, INC. Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa--Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities. A--Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds which are Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B--Bonds which are rated B generally lack characterstics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa--Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca--Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C--Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. SHORT-TERM MUNICIPAL OBLIGATION RATINGS STANDARD AND POOR'S CORPORATION 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 INVESTORS SERVICE, INC. Moody's short-term ratings are designated Moody's Investment Grade (MIG or VMIG (see below)). The purpose of the MIG or VMIG rating is to provide investors with a simple system by which the relative investment qualities of short-term obligations may be evaluated. MIG1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. MIG2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS STANDARD AND POOR'S CORPORATION 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+, A/A-1. (The definitions for the short-term ratings are provided below). MOODY'S INVESTORS SERVICE, INC. Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic demand rather than fixed maturity dates and payment relying on external liquidity. In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1); the first representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the second representing an evaluation of the degree of risk associated with the demand feature. The VMIG rating can be assigned a 1 or 2 designation using the same definitions described above for the MIG rating. COMMERCIAL PAPER (CP) RATINGS STANDARD AND POOR'S CORPORATION 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 INVESTORS SERVICE, INC. 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 TAX-EXEMPT INVESTMENT NOTE RATING DEFINITIONS FIN-1 Notes regarded as having the strongest degree of assurance for timely payment. FIN-2 Notes reflecting a degree of assurance for timely payment only slightly less in degree than the highest category. FITCH SHORT-TERM RATING DEFINITIONS F-1+ (Exceptionally Strong Credit Quality). Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment. F-1 (Very Strong Credit Quality). Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated "F-1+." F-2 (Good Credit Quality). Issues carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as the "F-1+" and "F-1" categories. NR indicates that both the bonds and the obligor or credit enhancer are currently rated by Standard and Poor's Corporation or Moody's Investors Service, Inc. with respect to short term indebtedness. However, management considers them to be of comparable quality to securities rated A-1 or P-1. NR(1) The underlying issuer/obligor/guarantor has other outstanding debt rated "AAA" by Standard and Poor's Corporation or "Aaa" by Moody's Investors Service, Inc. NR(2) The underlying issuer/obligor/guarantor has other outstanding debt rated "AA" by Standard and Poor's Corporation or "Aa" by Moody's Investors Service, Inc. NR(3) The underlying issuer/obligor/guarantor has other outstanding debt rated "A" by Standard and Poor's Corporation or Moody's Investors Service, Inc. 3090803B (12/93) -----END PRIVACY-ENHANCED MESSAGE-----