-----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, pebj1EWkg77yMyyCPBOlzs51OfJXfoQAbZ96/Md+To0pblEajOZpBBt7d0PmPbxh SRfv1xZdOpMykmpchYtI+Q== 0000855108-94-000028.txt : 19940714 0000855108-94-000028.hdr.sgml : 19940714 ACCESSION NUMBER: 0000855108-94-000028 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19940713 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: 94538632 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS TOWER CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122887496 497 1 FORM DOCUMENT NEW YORK MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) CASH II SHARES PROSPECTUS The Cash II Shares of New York Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of securities which is one of a series of investment portfolios in Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The investment objective of the Fund is to provide current income exempt from federal regular income tax and the personal income taxes imposed by New York State and New York municipalities consistent with stability of principal. The Fund invests primarily in short-term New York municipal securities, including securities of states, territories, and possessions of the United States, which are not issued by or on behalf of New York or its political subdivisions and financing authorities, but which provide income exempt from the federal regular income tax and the personal income taxes imposed by New York State and New York municipalities. Cash II Shares are sold at net asset value, without a sales load. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. THE 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 Combined Statement of Additional Information for Cash II Shares and Institutional Service Shares dated June 30, 1994, 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 Combined Statement of Additional Information free of charge by calling 1-800-235-4669. To obtain other information, or make inquiries about the Fund, contact the Fund at the address listed in the back of this prospectus. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated June 30, 1994 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ GENERAL INFORMATION 2 - ------------------------------------------------------ INVESTMENT INFORMATION 2 - ------------------------------------------------------ Investment Objective 2 Investment Policies 2 Acceptable Investments 3 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 4 Temporary Investments 5 New York Municipal Securities 5 Standby Commitments 5 New York 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 7 Distribution of Cash II Shares 8 Distribution and Shareholder Services Plans 8 Other Payments to Financial Institutions 8 Administration of the Fund 8 Administrative Services 8 Custodian 9 Transfer Agent and Dividend Disbursing Agent 9 Legal Counsel 9 Independent Auditors 9 Expenses of the Fund and Cash II Shares 9 NET ASSET VALUE 10 - ------------------------------------------------------ INVESTING IN CASH II SHARES 10 - ------------------------------------------------------ Share Purchases 10 Through a Financial Institution 10 Directly from the Distributor 10 Minimum Investment Required 11 What Shares Cost 11 Subaccounting Services 11 Systematic Investment Program 11 Certificates and Confirmations 11 Dividends 12 Capital Gains 12 REDEEMING CASH II SHARES 12 - ------------------------------------------------------ Through a Financial Institution 12 Receiving Payment 12 By Check 12 By Wire 13 Directly from the Fund 13 By Mail 13 Signatures 13 Checkwriting 13 Debit Card 13 Systematic Withdrawal Program 14 Accounts with Low Balances 14 Redemption in Kind 14 SHAREHOLDER INFORMATION 14 - ------------------------------------------------------ Voting Rights 14 Massachusetts Partnership Law 15 TAX INFORMATION 15 - ------------------------------------------------------ Federal Income Tax 15 New York State Tax Considerations 16 Other State and Local Taxes 16 PERFORMANCE INFORMATION 16 - ------------------------------------------------------ OTHER CLASSES OF SHARES 17 - ------------------------------------------------------ FINANCIAL STATEMENTS 18 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 19 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES--CASH II SHARES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price).............................. None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).................................................................... None 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 CASH II SHARES OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)........................................................................ 0.22% 12b-1 Fee (2)............................................................................................ 0.00% Total Other Expenses..................................................................................... 0.48% Shareholder Services Fee.................................................................... 0.25% Total Cash II Shares Operating Expenses (3)......................................................... 0.70%
- ------------ (1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The Cash II Shares have no present intention of paying or accruing the 12b-1 fee during the fiscal year ending October 31, 1994. If it were to do so the class could pay up to 0.25% of its average daily net assets for the 12b-1 fee. See "Federated Municipal Trust Information." (3) The Total Cash II Shares Operating Expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1994. For the fiscal year ended October 31, 1993, prior to the reorganization of the Fund into the Trust, the Total Cash II Shares Operating Expenses were 0.71% and were 0.88% absent the waiver of a portion of the management fee. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CASH II SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN CASH II SHARES" AND "FEDERATED MUNICIPAL TRUST INFORMATION." WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL FEES.
EXAMPLE 1 year 3 years 5 years 10 years You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period................................................................ $7 $22 $39 $87
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the foregoing table and example relates only to Cash II Shares of the Fund. The Fund also offers another class of shares called Institutional Service Shares. See "Other Classes of Shares." 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. As of the date of this prospectus, the Trustees have established two classes of shares of the Fund, known as Cash II Shares and Institutional Service Shares. This prospectus relates only to Cash II Shares of the Fund. Cash II Shares ("Shares") of the Fund are designed to provide a cash management vehicle for certain customers of financial institutions which would include corporations and municipalities, as well as larger individual accounts, seeking a high level of cash management services from the participating institution. A minimum initial investment of $25,000 over a 90-day period is required. The Fund may not be a suitable investment for non-New York taxpayers or retirement plans since it invests primarily in New York municipal securities. The Fund attempts to stabilize the value of a Share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to provide current income exempt from federal regular income tax and the personal income taxes imposed by New York State and New York municipalities consistent with stability of principal. Interest income of the Fund that is exempt from these income taxes retains its tax-free status when distributed to the Fund's 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. The investment objective and the policies and limitations described below cannot be changed without approval of shareholders. Income distributed by the Fund may not necessarily be exempt from state or municipal taxes in states other than New York. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in a portfolio of short-term New York municipal securities with remaining maturities of 13 months or less at the time of purchase by the Fund. As a matter of investment policy, which cannot be changed without approval of shareholders, the Fund invests its assets so that at least 80% of its annual interest income is exempt from federal regular income tax and the personal income taxes imposed by New York State and New York municipalities. 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 (the "Trustees") without the approval of shareholders. Shareholders will be notified before any material changes in these policies become effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of the State of New York and its political subdivisions and financing authorities, and obligations of other states, territories and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is exempt from both federal regular income tax and New York state income tax imposed upon non-corporate taxpayers. Examples of 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 participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term municipal securities that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in municipal mecurities from financial institutions such as commercial and investment banks, savings and loan associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests, or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying municipal securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation certificate on any of the above. 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. In the event of 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. RATINGS. The 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. See "Regulatory Compliance." CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be 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. However, credit enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The bankruptcy, receivership, or default of the credit enhancer will adversely affect the quality and marketability of the underlying security. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies, but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Board of Trustees, certain restricted securities are considered liquid. To the extent restricted securities are deemed to be illiquid, the Fund will limit their purchase, together with other securities considered to be illiquid, to 10% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase municipal securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in short-term temporary investments. Interest income from temporary investments may be taxable to shareholders as ordinary income. All temporary investments will satisfy the same credit quality standards as the Fund's acceptable investments. See "Ratings" above. Temporary investments include: obligations issued by or on behalf of municipal or corporate issuers; marketable obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; repurchase agreements; and prime commercial paper rated A-1 by S&P, Prime-1 by Moody's or F-1 by Fitch. Although the Fund is permitted to make taxable, temporary investments, there is no current intention of generating income subject to federal regular income tax or personal income taxes imposed by New York and New York municipalities. NEW YORK MUNICIPAL SECURITIES New York municipal securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. New York municipal securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of municipal securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. STANDBY COMMITMENTS Some securities dealers are willing to sell municipal securities to the Fund accompanied by their commitments to repurchase the municipal securities prior to maturity, at the Fund's option, for the amortized cost of the municipal securities at the time of repurchase. These arrangements are not used to protect against changes in the market value of municipal securities. They permit the Fund, however, to remain fully invested and still provide liquidity to satisfy redemptions. The cost of municipal securities accompanied by these "standby" commitments could be greater than the cost of municipal securities without such commitments. Standby commitments are not marketable or otherwise assignable and have value only to the Fund. The default or bankruptcy of a securities dealer giving such a commitment would not affect the quality of the municipal securities purchased. However, without a standby commitment, these securities could be more difficult to sell. The Fund enters into standby commitments only with those dealers whose credit the investment adviser believes to be of high quality. NEW YORK INVESTMENT RISKS Yields on New York municipal securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. Further, any adverse economic conditions or developments affecting the State or City of New York could impact the Fund's portfolio. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of New York municipal securities and demand features for such securities, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. Investing in New York municipal securities which meet the Fund's quality standards may not be possible if the State and City of New York do not maintain their current credit ratings. An expanded discussion of the current economic risks associated with the purchase of New York municipal securities is contained in the Combined Statement of Additional Information. NON-DIVERSIFICATION The Fund is a non-diversified investment portfolio. As such, there is no limit on the percentage of assets which can be invested in any single issuer. An investment in the Fund, therefore, will entail greater risk than would exist in a diversified investment company 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 will attempt to minimize the risks associated with a non-diversified portfolio so as not to impair its ability to stabilize its net asset value at $1.00 per share by limiting, with respect to 75% of the Fund's total assets, investments in one issuer to not more than 10% of the value of its total assets. The total amount of the remaining 25% of the value of the Fund's total assets would be invested in a single issuer if the investment adviser believes such a strategy to be prudent. In addition, the Fund intends to comply with Subchapter M of the Internal Revenue Code, as amended. This undertaking requires that at the end of each quarter of the taxable year, the aggregate value of all investments in any one issuer (except U.S. government obligations, cash, and cash items) which exceed 5% of the Fund's total assets not exceed 50% of the value of its total assets; beyond that, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 10% of the value of total assets to secure such borrowings. The above investment limitation cannot be changed without shareholder approval. 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 the Trust's powers 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 (the "Adviser"), subject to direction by the Trustees. The Adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase or sale of portfolio instruments, for which it receives an annual fee from the Fund. ADVISORY FEES. The Adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser has undertaken to waive a portion of its advisory fee, up to the amount of its advisory fee, to reimburse the Fund for operating expenses in excess of limitations imposed by certain states. The Adviser may further voluntarily waive a portion of its fee or reimburse the Fund for certain operating expenses. The Adviser can terminate such waiver or reimbursement policy at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the Trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. Total assets under management or administration by these and other subsidiaries of Federated Investors are approximately $75 billion. Federated Investors, which was founded in 1956 as Federated Investors, Inc., develops and manages mutual funds primarily for the financial industry. Federated Investors' track record of competitive performance and its disciplined, risk averse investment philosophy serve approximately 3,500 client institutions nationwide. Through these same client institutions, individual shareholders also have access to this same level of investment expertise. DISTRIBUTION OF CASH II SHARES Federated Securities Corp. is the principal distributor for Cash II Shares. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. Under a distribution plan adopted in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"), the Fund will pay to the distributor an amount, computed at an annual rate of up to .25 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Distribution Plan. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide sales support services as agents for their clients or customers. The Distribution Plan is a compensation-type plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Distribution Plan. In addition, 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 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. OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to financial institutions under the Distribution and Shareholder Services Plans, 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 or by the assessment of a sales charge on Shares. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides certain administrative personnel and services (including certain legal and accounting 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 (the "Federated Funds") as specified below:
AVERAGE AGGREGATE DAILY NET ASSETS MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS .15 of 1% on the first $250 million .125 of 1% on the next $250 million .10 of 1% on the next $250 million .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. CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, and dividend disbursing agent for the Fund. LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania and Dickstein, Shapiro & Morin, L.L.P. Washington, D.C. INDEPENDENT AUDITORS. The independent auditors for the Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania. EXPENSES OF THE FUND AND CASH II SHARES Holders of Shares pay their allocable portion of Fund and Trust expenses. The Trust expenses for which holders of Shares pay their allocable portion include, but are not limited to: the cost of organizing the Trust and continuing its existence; registering the Trust with federal and state securities authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees; legal fees of the Trust; association membership dues; and such non-recurring and extraordinary items as may arise. The Fund expenses for which holders of Shares pay their allocable portion include, but are not limited to: registering the Fund and shares of the Fund; investment advisory services; taxes and commissions; custodian fees; insurance premiums; auditors' fees; and such non-recurring and extraordinary items as may arise. At present, the only expenses allocated to the Shares as a class are expenses under the Fund's 12b-1 Plan and Shareholder Service Plan which relate to the Shares. However, the Board of Trustees reserves the right to allocate certain other expenses to holders of Shares as it deems appropriate ("Class Expenses"). In any case, Class Expenses would be limited to: transfer agent fees as identified by the transfer agent as attributable to holders of Shares; printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses, and proxies to current shareholders; registration fees paid to the Securities and Exchange Commission and registration fees paid to state securities commissions; expenses related to administrative personnel and services as required to support holders of Shares; legal fees relating solely to Shares; and Trustees' fees incurred as a result of issues relating solely to Shares. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per Share is determined by adding the interest of the Shares in the value of all securities and other assets of the Fund, subtracting the interest of the Shares in the liabilities of the Fund and those attributable to Shares, and dividing the remainder by the total number of Shares outstanding. The Fund, of course, cannot guarantee that its net asset value will always remain at $1.00 per Share. INVESTING IN CASH II SHARES - -------------------------------------------------------------------------------- SHARE PURCHASES Shares are sold on days on which the New York Stock Exchange and the Federal Reserve Wire System are open for business. Shares may be purchased through a financial institution which has a sales agreement with the distributor or directly from the distributor, Federated Securities Corp. The Fund reserves the right to reject any purchase request. THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution (such as a bank or an investment dealer) to place an order to purchase Shares. Orders through a financial institution are considered received when the Fund receives payment by wire or converts payment by check from the financial institution into federal funds. It is the financial institution's responsibility to transmit orders promptly. DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase Shares directly from the distributor. To do so: complete and sign the new account form available from the Fund; enclose a check payable to New York Municipal Cash Trust--Cash II Shares; and mail both to New York Municipal Cash Trust, P.O. Box 8604, Boston, MA 02266-8604. The order is considered received after the check is converted by State Street Bank and Trust Company into federal funds. This is generally the next business day after State Street Bank receives the check. To purchase Shares by wire, call the Fund. All information needed will be taken over the telephone, and the order is considered received when State Street Bank receives payment by wire. Federal funds should be wired as follows: State Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to: New York Municipal Cash Trust; Fund Number (this number can be found on the account statement or by contacting the Fund); Group Number or Order Number; Title or Name of Account; 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. MINIMUM INVESTMENT REQUIRED The minimum initial investment in Shares is $25,000. However, an account may be opened with a smaller amount as long as the $25,000 minimum is reached within 90 days. An institutional investor's minimum investment will be calculated by averaging all accounts it maintains with the Fund. Individual accounts established through a bank or broker may be subject to a different minimum investment requirement. WHAT SHARES COST Shares are sold at their net asset value next determined after an order is received. There is no sales charge imposed by the Fund. The net asset value is determined at 12:00 noon (Eastern time), 3:00 p.m. (Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no Shares are tendered for redemption and no orders to purchase Shares are received; and (iii) the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. SUBACCOUNTING SERVICES Financial institutions are encouraged to open single master accounts. However, certain financial institutions may wish to use the transfer agent's subaccounting system to minimize their internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Financial institutions holding Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Shares. This prospectus should, therefore, be read together with any agreement between the customer and the financial institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. SYSTEMATIC INVESTMENT PROGRAM Once an account has been opened, shareholders may add to their investment on a regular basis in a minimum amount of $500. Under this program, funds may be automatically withdrawn periodically from the shareholder's checking account and invested in Fund shares. A shareholder may apply for participation in this program through his financial institution or directly through the Fund. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Monthly confirmations are sent to report transactions, such as purchases and redemptions, as well as dividends paid during the month. DIVIDENDS Dividends are declared daily and paid monthly. Shares purchased by wire before 3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends on the next business day after the check is converted, upon instruction of the transfer agent into federal funds. Unless shareholders request cash payments on an application or by writing to Federated Securities Corp., dividends are automatically reinvested on payment dates in additional Shares. CAPITAL GAINS Capital gains, if any, could result in an increase in dividends. Capital losses, if any, could result in a decrease in dividends. If, for some extraordinary reason, the Fund realizes net long-term or short-term capital gains, it will distribute them at least once every 12 months. REDEEMING CASH II SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemptions can be made through a financial institution or directly from the Fund. Redemption requests must be received in proper form. THROUGH A FINANCIAL INSTITUTION A shareholder may redeem Shares by calling his financial institution (such as a bank or an investment dealer) to request the redemption. Shares will be redeemed at the net asset value next determined after State Street Bank receives the redemption request from the financial institution. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions to the Fund. The financial institution may charge customary fees and commissions for this service. If, at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders will be promptly notified. An authorization form permitting the Fund to accept redemption requests by telephone must first be completed. Authorization forms and information on this service are available from Federated Securities Corp. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption, such as "By Mail", should be considered. 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. RECEIVING PAYMENT. Pursuant to instructions from the financial institution, redemptions will be made by check or by wire. BY CHECK. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper redemption request. Dividends are paid up to and including the day that a redemption request is processed. BY WIRE. Proceeds for redemption requests received before 12:00 noon (Eastern time) will be wired the same day but will not be entitled to that day's dividend. Redemption requests received after 12:00 noon (Eastern time) will receive that day's dividends and will be wired the following business day. DIRECTLY FROM THE FUND BY MAIL. Any shareholder may redeem Shares by sending a written request to the transfer agent. The written request should include the shareholder's name, the Fund name and class of shares, the account number, and the share or dollar amount requested. If share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. Shareholders should contact the Fund for assistance in redeeming by mail. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. Dividends are paid up to and including the day that a redemption request is processed. SIGNATURES. Individual shareholders requesting a redemption of more than $50,000, 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 firm of the New York, American, Boston, Midwest, or Pacific Stock Exchanges; a savings bank or savings and loan association whose deposits are insured by the Savings Association Insurance Fund ("SAIF"), which is administered by the FDIC; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. The Fund and its transfer agent have adopted standards for accepting signature guarantees from the above institutions. The Fund may elect in the future to limit eligible signature guarantors to institutions that are members of a signature guarantee program. The Fund and its transfer agent reserve the right to amend these standards at any time without notice. CHECKWRITING. At the shareholder's request, the transfer agent will establish a checking account for redeeming Shares. A fee is 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 the transfer agent 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 the transfer agent to redeem Shares. Cancelled checks are sent to the shareholder each month. For further information, contact the Fund. DEBIT CARD. At the shareholder's request, a debit card is available. A fee may be charged for this service. For further information, contact Federated Securities Corp. SYSTEMATIC WITHDRAWAL PROGRAM If a shareholder's account has a value of at least $25,000, a Systematic Withdrawal Program may be established whereby automatic redemptions are made from the account and transferred electronically to any commercial bank, savings bank, or credit union that is an Automated Clearing House ("ACH") member. Depending upon the amount of the withdrawal payments and the amount of dividends paid, with respect to Shares, redemptions may reduce, and eventually deplete, the shareholder's investment in Shares. For this reason, payments under this program should not be considered as yield or income on the shareholder's investment in Shares. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, the Fund may redeem Shares in any account, except retirement plans, and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before Shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional Shares to meet the minimum requirement. REDEMPTION IN KIND The Trust is obligated to redeem Shares solely in cash up to $250,000 or 1% of the respective class' net asset value, whichever is less, for any one shareholder within a 90-day period. To the extent available, such securities will be readily marketable. Any redemption beyond this amount will also be in cash unless the Trustees determine that further cash payments will have a material adverse effect on remaining shareholders. In such a case, the Trust will pay all or a portion of the remainder of the redemption in portfolio instruments, valued in the same way that net asset value is determined. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders receiving their securities and selling them before their maturity could receive less than the redemption value of their securities and could incur certain transaction costs. 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 all portfolios of the Trust have equal voting rights except that, in matters affecting only a particular portfolio or class, only shares of that portfolio 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 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, 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 is held personally liable for obligations of the Trust, 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 itself 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, equal to up to 28% of alternative minimum taxable income for individuals and 20% for corporations, applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. The Tax Reform Act of 1986 treats interest on certain "private activity" bonds issued after August 7, 1986, as a tax preference item for both individuals and corporations. Unlike traditional governmental purpose municipal bonds, which finance roads, schools, libraries, prisons, and other public facilities, private activity bonds provide benefits to private parties. The Fund may purchase all types of municipal bonds, including private activity bonds. Thus, should it purchase any such bonds, a portion of the Fund's dividends may be treated as a tax preference item. In addition, in the case of a corporate shareholder, dividends of the Fund which represent interest on municipal bonds may be subject to the 20% corporate alternative minimum tax because the dividends are included in a corporation's "adjusted current earnings." The corporate alternative minimum tax treats 75% of the excess of the taxpayer's pre-tax "adjusted current earnings" over the taxpayer's alternative minimum taxable income as a tax preference item. "Adjusted current earnings" is based upon the concept of a corporation's "earnings and profits." Since "earnings and profits" generally includes the full amount of any Fund dividend, and alternative minimum taxable income does not include the portion of the Fund's dividend attributable to municipal bonds which are not private activity bonds, the difference will be included in the calculation of the corporation's alternative minimum tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional Shares. Information on the tax status of dividends and distributions is provided annually. NEW YORK STATE TAX CONSIDERATIONS In the opinion of White & Case, special New York tax counsel to the Fund, income to the Fund that is exempt from New York State personal income tax and personal income taxes imposed by New York municipalities will retain its exempt status when distributed to New York shareholders. Dividends of the Fund are not exempt from the New York taxes payable by corporations. OTHER STATE AND LOCAL TAXES Distributions representing net interest received on tax-exempt municipal securities are not necessarily free from regular state income taxes of any state or local taxing authority. State laws differ on this issue, and shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time the Fund advertises its yield, effective yield, and tax-equivalent yield for Cash II Shares. The yield of Cash II Shares represents the annualized rate of income earned on an investment in Cash II Shares over a seven-day period. It is the annualized dividends earned during the period on the investment, shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but, when annualized, the income earned by an investment in Cash II Shares is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield of Cash II Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that Cash II Shares would have had to earn to equal their actual yield, assuming a specific tax rate. Advertisements and other sales literature may also refer to total return. Total return represents the change, over a specified period of time, in the value of an investment in Cash II Shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. Yield, effective yield and tax equivalent yield will be calculated separately for Cash II Shares and Institutional Service Shares. Because Cash II Shares and Institutional Service Shares are likely subject to different shareholder servicing fees, the yield, effective yield, and tax-equivalent yield for each class of shares for the same period will differ. Specifically, because the shareholder servicing fee for Cash II Shares should exceed the shareholder servicing fee for Institutional Service Shares, the yield, effective yield, and tax-equivalent yield of Cash II Shares for the same period will be lower than that of Institutional Service Shares based upon the difference in the amount of the shareholder servicing fee. From time to time, the Fund may advertise its performance using certain financial publications and/or compare its performance to certain indices. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- Institutional Service Shares are sold to banks and other institutions that hold assets for individuals, trusts, estates, or partnerships. Institutional Service Shares are sold at net asset value without a sales charge. Investments in Institutional Service Shares are subject to a minimum initial investment of $25,000. Like Cash II Shares, Institutional Service Shares are distributed pursuant to a 12b-1 Plan adopted by the Trust. The distributor is paid a fee of up to .25 of 1% of the average daily net assets of the Institutional Service Shares. In addition, Institutional Service Shares, like Cash II Shares, may be sold pursuant to a Shareholder Services Plan. Financial institutions and brokers providing sales and/or administrative services may receive different compensation depending upon which class of shares of the Fund is sold. The distributor may, in addition to fees paid pursuant to the Rule 12b-1 Plan and the Shareholder Service Plan, pay a fee to a financial institution or broker for administrative services provided to the Institutional Service Shares class. Any fee paid by the distributor for such administrative services will not be an expense of the class, but will be reimbursed to the distributor by the investment adviser. The difference between class expenses and distribution expenses borne by shares of each respective class will cause the amount of dividends payable to a particular class of shares to exceed the amount of dividends payable to another class of shares whose distribution expenses are greater. Because Institutional Service Shares are expected to incur a lower shareholder servicing fee than Cash II Shares, the Institutional Service Shares' dividends will exceed the dividends paid by Cash II Shares. The stated advisory fee is the same for each class of shares. NEW YORK MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) MAY 24, 1994 - -------------------------------------------------------------------------------- ASSETS: - --------------------------------------------------------------------------------------------------------- Investment in Mutual Fund (1) $ 200 - --------------------------------------------------------------------------------------------------------- LIABILITIES: -- - --------------------------------------------------------------------------------------------------------- --------- NET ASSETS for 200 shares of beneficial interest outstanding $ 200 - --------------------------------------------------------------------------------------------------------- --------- NET ASSET VALUE, Offering Price, and Redemption Price Per Share: - --------------------------------------------------------------------------------------------------------- Cash II Shares ($100 / 100 shares of beneficial interest outstanding) $1.00 - --------------------------------------------------------------------------------------------------------- --------- Institutional Service Shares ($100 / 100 shares of beneficial interest outstanding) $1.00 - --------------------------------------------------------------------------------------------------------- ---------
Notes: (1) Invested exclusively in New York Municipal Cash Trust, 200 shares at $1.00 net asset value. See Note 2. (2) The Fund was established as a portfolio of Federated Municipal Trust ("Trust") by an amendment to the registration statement of the Trust, effective with the Securities and Exchange Commission on May 30, 1994. The Fund has had no operations to date other than those relating to organizational matters, including the issuance on May 24, 1994, of 200 shares at $1.00 per share to Federated Management, the "Adviser" to the Fund. New York Municipal Cash Trust provides two classes of shares ("Institutional Service Shares" and "Cash II Shares"). Each class of shares is sold pursuant to a distribution plan ("Plan") adopted in accordance with Investment Company Act Rule 12b-1 and Shareholder Services Plan. The Fund will not initiate an offering of its shares until the consummation of a proposed reorganization of New York Municipal Cash Trust, a separately registered management investment company, into the Fund. Expenses of organization incurred by the Fund, $34,100, were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser for the organization expenses initially borne by the Adviser during the five-year period following the date the Fund's registration statement first became effective. (3) Reference is made to "Management of the Trust," "Administration of the Fund," "Distribution and Shareholder Services Plans," and "Tax Information" in this Prospectus for a description of the investment advisory fee, administrative and other services and federal tax aspects of the Fund. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (New York Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of the New York Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), as of May 24, 1994. This financial statement is the responsibility of the Trust's management. Our responsiblity is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the aforementioned financial statement presents fairly, in all material respects, the financial position of the New York Municipal Cash Trust (an investment portfolio of Federated Municipal Trust), as of May 24, 1994, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN & CO. Pittsburgh, Pennsylvania May 24, 1994 ADDRESSES - -------------------------------------------------------------------------------- Federated Municipal Trust New York Municipal Cash Trust Federated Investors Tower Cash II Shares Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Investment Adviser Federated Management Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Custodian State Street Bank and P.O. Box 8604 Trust Company Boston, Massachusetts 02266-8604 - --------------------------------------------------------------------------------------------------------------------- Transfer Agent and Dividend Disbursing Agent Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - --------------------------------------------------------------------------------------------------------------------- Legal Counsel Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W. Washington, D.C. 20037 - --------------------------------------------------------------------------------------------------------------------- Independent Auditor Arthur Andersen & Co. 2100 One PPG Place Pittsburgh, - ---------------------------------------------------------------------------------------------------------------------
NEW YORK MUNICIPAL CASH TRUST CASH II SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, An Open End, Management Investment Company June 30, 1994 [LOGO] FEDERATED SECURITIES CORP. -------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 G00319-02-CII (6/94) NEW YORK MUNICIPAL CASH TRUST (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) INSTITUTIONAL SERVICE SHARES PROSPECTUS The Institutional Service Shares of New York Municipal Cash Trust (the "Fund") offered by this prospectus represent interests in a non-diversified portfolio of securities which is one of a series of investment portfolios in Federated Municipal Trust (the "Trust"), an open-end management investment company (a mutual fund). The investment objective of the Fund is to provide current income exempt from federal regular income tax and the personal income taxes imposed by New York State and New York municipalities consistent with stability of principal. The Fund invests primarily in short-term New York municipal securities, including securities of states, territories, and possessions of the United States, which are not issued by or on behalf of New York or its political subdivisions and financing authorities, but which provide income exempt from the federal regular income tax and the personal income taxes imposed by New York State and New York municipalities. Institutional Service Shares are sold at net asset value, without a sales load. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. THE 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 Combined Statement of Additional Information for Institutional Service Shares and Cash II Shares dated June 30, 1994, with the Securities and Exchange Commission. The information contained in the Combined Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Combined Statement of Additional Information free of charge by calling 1-800-235-4669. To obtain other information, or 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 June 30, 1994 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES-- INSTITUTIONAL SERVICE SHARES 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 4 Temporary Investments 5 New York Municipal Securities 5 Standby Commitments 5 New York Investment Risks 6 Non-Diversification 6 Investment Limitations 6 Regulatory Compliance 7 FEDERATED MUNICIPAL TRUST INFORMATION 7 - ------------------------------------------------------ Management of the Trust 7 Board of Trustees 7 Investment Adviser 7 Advisory Fees 7 Adviser's Background 7 Distribution of Institutional Service Shares 8 Distribution and Shareholder Services Plans 8 Other Payments to Financial Institutions 8 Administration of the Fund 8 Administrative Services 8 Custodian 9 Transfer Agent and Dividend Disbursing Agent 9 Legal Counsel 9 Independent Auditors 9 Expenses of the Fund and Institutional Service Shares 9 NET ASSET VALUE 10 - ------------------------------------------------------ INVESTING IN INSTITUTIONAL SERVICE SHARES 10 - ------------------------------------------------------ Share Purchases 10 By Wire 10 By Mail 10 Minimum Investment Required 10 What Shares Cost 11 Subaccounting Services 11 Certificates and Confirmations 11 Dividends 11 Capital Gains 11 REDEEMING INSTITUTIONAL SERVICE SHARES 12 - ------------------------------------------------------ Telephone Redemption 12 Written Requests 12 Signatures 12 Receiving Payment 13 Accounts with Low Balances 13 Redemption in Kind 13 SHAREHOLDER INFORMATION 13 - ------------------------------------------------------ Voting Rights 13 Massachusetts Partnership Law 14 TAX INFORMATION 14 - ------------------------------------------------------ Federal Income Tax 14 New York State Tax Considerations 15 Other State and Local Taxes 15 PERFORMANCE INFORMATION 15 - ------------------------------------------------------ OTHER CLASSES OF SHARES 16 - ------------------------------------------------------ FINANCIAL STATEMENTS 17 - ------------------------------------------------------ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 18 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES-- INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................................................................... None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)................................................................... None 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 INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver) (1)......................................................................... 0.22% 12b-1 Fee (2)............................................................................................. 0.00% Total Other Expenses...................................................................................... 0.33% Shareholder Services Fee (3)................................................................. 0.10% Total Institutional Service Shares Operating Expenses (4)............................................. 0.55%
(1) The management fee has been reduced to reflect the voluntary waiver of a portion of the management fee. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.40%. (2) The Institutional Service Shares have no present intention of paying or accruing the 12b-1 fee during the fiscal year ending October 31, 1994. If it were to do so, the class could pay up to 0.25% of its average daily net assets for the 12b-1 fee. See "Federated Municipal Trust Information." (3) The maximum Shareholder Services Fee is 0.25%. (4) The Total Institutional Service Shares Operating Expenses in the table above are based on expenses expected during the fiscal year ending October 31, 1994. For the fiscal year ended October 31, 1993, prior to the reorganization of the Fund into the Trust, the Total Institutional Service Shares Operating Expenses were 0.54% and were 0.71% absent the waiver of a portion of the management fee. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL SERVICE SHARES" AND "FEDERATED MUNICIPAL TRUST INFORMATION." WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL FEES.
EXAMPLE 1 year 3 years 5 years 10 years You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period....... $6 $18 $31 $69
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the foregoing table and example relates only to the Institutional Service Shares of the Fund. The Fund also offers another class of shares called Cash II Shares. See "Other Classes of Shares." 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. As of the date of this prospectus, the Trustees have established two classes of shares of the Fund, known as Institutional Service Shares and Cash II Shares. This prospectus relates only to Institutional Service Shares of the Fund. Institutional Service Shares ("Shares") of the Fund are designed primarily for banks and other institutions that hold assets for individuals, trusts, estates, or partnerships. A minimum initial investment of $25,000 over a 90-day time period is required. The Fund may not be a suitable investment for non-New York taxpayers or retirement plans since it invests primarily in New York municipal securities. The Fund attempts to stabilize the value of a share at $1.00. Shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to provide current income exempt from federal regular income tax and the personal income taxes imposed by New York State and New York municipalities consistent with stability of principal. Interest income of the Fund that is exempt from these income taxes retains its tax-free status when distributed to the Fund's 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. The investment objective and the policies and limitations described below cannot be changed without approval of shareholders. Income distributed by the Fund may not necessarily be exempt from state or municipal taxes in states other than New York. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in a portfolio of short-term New York municipal securities with remaining maturities of 13 months or less at the time of purchase by the Fund. As a matter of investment policy, which cannot be changed without approval of shareholders, the Fund invests its assets so that at least 80% of its annual interest income is exempt from federal regular income tax and the personal income taxes imposed by New York State and New York municipalities. 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 (the "Trustees") without the approval of shareholders. Shareholders will be notified before any material changes in these policies become effective. ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by or on behalf of the State of New York and its political subdivisions and financing authorities, and obligations of other states, territories and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is exempt from both federal regular income tax and New York state income tax imposed upon non-corporate taxpayers. Examples of municipal securities include, but are not limited to: tax and revenue anticipation notes ("TRANs") issued to finance working capital needs in anticipation of receiving taxes or other revenues; bond anticipation notes ("BANs") that are intended to be refinanced through a later issuance of longer-term bonds; municipal commercial paper and other short-term notes; variable rate demand notes; municipal bonds (including bonds having serial maturities and pre-refunded bonds) and leases; and participation, trust, and partnership interests in any of the foregoing obligations. VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term municipal securities that have variable or floating interest rates and provide the Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on a published interest rate or interest rate index. Most variable rate demand notes allow the Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit the Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. See "Demand Features." The Fund treats variable rate demand notes as maturing on the later of the date of the next interest adjustment or the date on which the Fund may next tender the security for repurchase. PARTICIPATION INTERESTS. The Fund may purchase interests in municipal securities from financial institutions such as commercial and investment banks, savings and loan associations, and insurance companies. These interests may take the form of participations, beneficial interests in a trust, partnership interests, or any other form of indirect ownership that allows the Fund to treat the income from the investment as exempt from federal income tax. The Fund invests in these participation interests in order to obtain credit enhancement or demand features that would not be available through direct ownership of the underlying municipal securities. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation certificate on any of the above. 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. In the event of 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. RATINGS. The 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. See "Regulatory Compliance." CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be 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. However, credit enhanced securities will not be treated as having been issued by the credit enhancer for diversification purposes, unless the Fund has invested more than 10% of its assets in securities issued, guaranteed or otherwise credit enhanced by the credit enhancer, in which case the securities will be treated as having been issued by both the issuer and the credit enhancer. The bankruptcy, receivership, or default of the credit enhancer will adversely affect the quality and marketability of the underlying security. DEMAND FEATURES. The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities, or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership, or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. Demand features that are exercisable even after a payment default on the underlying security may be treated as a form of credit enhancement. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may invest pursuant to its investment objective and policies, but which are subject to restrictions on resale under federal securities laws. Under criteria established by the Board of Trustees, certain restricted securities are considered liquid. To the extent restricted securities are deemed to be illiquid, the Fund will limit their purchase, together with other securities considered to be illiquid, to 10% of its net assets. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase municipal securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in short-term temporary investments. Interest income from temporary investments may be taxable to shareholders as ordinary income. All temporary investments will satisfy the same credit quality standards as the Fund's acceptable investments. See "Ratings" above. Temporary investments include: obligations issued by or on behalf of municipal or corporate issuers; marketable obligations issued or guaranteed by the U.S. government, its agencies, or instrumentalities; instruments issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment; repurchase agreements; and prime commercial paper rated A-1 by S&P, Prime-1 by Moody's, or F-1 by Fitch. Although the Fund is permitted to make taxable, temporary investments, there is no current intention of generating income subject to federal regular income tax or personal income taxes imposed by New York and New York municipalities. NEW YORK MUNICIPAL SECURITIES New York municipal securities are generally issued to finance public works, such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. New York municipal securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of municipal securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. STANDBY COMMITMENTS Some securities dealers are willing to sell municipal securities to the Fund accompanied by their commitments to repurchase the municipal securities prior to maturity, at the Fund's option, for the amortized cost of the municipal securities at the time of repurchase. These arrangements are not used to protect against changes in the market value of municipal securities. They permit the Fund, however, to remain fully invested and still provide liquidity to satisfy redemptions. The cost of municipal securities accompanied by these "standby" commitments could be greater than the cost of municipal securities without such commitments. Standby commitments are not marketable or otherwise assignable and have value only to the Fund. The default or bankruptcy of a securities dealer giving such a commitment would not affect the quality of the municipal securities purchased. However, without a standby commitment, these securities could be more difficult to sell. The Fund enters into standby commitments only with those dealers whose credit the investment adviser believes to be of high quality. NEW YORK INVESTMENT RISKS Yields on New York municipal securities depend on a variety of factors, including: the general conditions of the short-term municipal note market and of the municipal bond market; the size of the particular offering; the maturity of the obligations; and the rating of the issue. Further, any adverse economic conditions or developments affecting the State or City of New York could impact the Fund's portfolio. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of New York municipal securities and demand features for such securities, or the credit enhancers of either, to meet their obligations for the payment of interest and principal when due. Investing in New York municipal securities which meet the Fund's quality standards may not be possible if the State and City of New York do not maintain their current credit ratings. An expanded discussion of the current economic risks associated with the purchase of New York municipal securities is contained in the Combined Statement of Additional Information. NON-DIVERSIFICATION The Fund is a non-diversified investment portfolio. As such, there is no limit on the percentage of assets which can be invested in any single issuer. An investment in the Fund, therefore, will entail greater risk than would exist in a diversified investment company 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 will attempt to minimize the risks associated with a non-diversified portfolio so as not to impair its ability to stabilize its net asset value at $1.00 per share by limiting, with respect to 75% of the Fund's total assets, investments in one issuer to not more than 10% of the value of its total assets. The total amount of the remaining 25% of the value of the Fund's total assets would be invested in a single issuer if the investment adviser believes such a strategy to be prudent. In addition, the Fund intends to comply with Subchapter M of the Internal Revenue Code, as amended. This undertaking requires that at the end of each quarter of the taxable year, the aggregate value of all investments in any one issuer (except U.S. government obligations, cash, and cash items) which exceed 5% of the Fund's total assets not exceed 50% of the value of its total assets; beyond that, no more than 25% of its total assets are invested in the securities of a single issuer. INVESTMENT LIMITATIONS The Fund will not borrow money or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 10% of the value of total assets to secure such borrowings. The above investment limitation cannot be changed without shareholder approval. 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 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 (the "Adviser"), subject to direction by the Trustees. The Adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase or sale of portfolio instruments, for which it receives an annual fee from the Fund. ADVISORY FEES. The Adviser receives an annual investment advisory fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser has undertaken to waive a portion of its advisory fee, up to the amount of its advisory fee, to reimburse the Fund for operating expenses in excess of limitations imposed by certain states. The Adviser may further voluntarily waive a portion of its fee or reimburse the Fund for certain operating expenses. The Adviser can terminate such waiver or reimbursement policy at any time at its sole discretion. ADVISER'S BACKGROUND. Federated Management, a Delaware business trust organized on April 11, 1989, is a registered investment adviser under the Investment Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the Class A (voting) shares of Federated Investors are owned by a trust, the Trustees of which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of Federated Investors. Federated Management and other subsidiaries of Federated Investors serve as investment advisers to a number of investment companies and private accounts. Certain other subsidiaries also provide administrative services to a number of investment companies. Total assets under management or administration by these and other subsidiaries of Federated Investors are approximately $75 billion. Federated Investors, which was founded in 1956 as Federated Investors, Inc., develops and manages mutual funds primarily for the financial industry. Federated Investors' track record of competitive performance and its disciplined, risk averse investment philosophy serve approximately 3,500 client institutions nationwide. Through these same client institutions, individual shareholders also have access to this same level of investment expertise. DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES Federated Securities Corp. is the principal distributor for Institutional Service Shares. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. Under a distribution plan adopted in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"), the Fund will pay to the distributor an amount, computed at an annual rate of up to .25 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Distribution Plan. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide sales support services as agents for their clients or customers. The Distribution Plan is a compensation-type plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Funds, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Distribution Plan. In addition, 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 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. OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to financial institutions under the Distribution and Shareholder Services Plans, 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 or by the assessment of a sales charge on Shares. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of Federated Investors, provides certain administrative personnel and services (including certain legal and accounting 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 (the "Federated Funds") as specified below:
AVERAGE AGGREGATE DAILY NET ASSETS MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS .15 of 1% on the first $250 million .125 of 1% on the next $250 million .10 of 1% on the next $250 million .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. CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, and dividend disbursing agent for the Fund. LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania and Dickstein, Shapiro & Morin, L.L.P., Washington, D.C. INDEPENDENT AUDITORS. The independent auditors for the Fund are Arthur Andersen, Pittsburgh, Pennsylvania. EXPENSES OF THE FUND AND INSTITUTIONAL SERVICE SHARES Holders of Shares pay their allocable portion of Fund and Trust expenses. The Trust expenses for which holders of Shares pay their allocable portion include, but are not limited to: the cost of organizing the Trust and continuing its existence; registering the Trust with federal and state securities authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees; legal fees of the Trust; association membership dues; and such non-recurring and extraordinary items as may arise. The Fund expenses for which holders of Shares pay their allocable portion include, but are not limited to: registering the Fund and shares of the Fund; investment advisory services; taxes and commissions; custodian fees; insurance premiums; auditors' fees; and such non-recurring and extraordinary items as may arise. At present, the only expenses allocated to the Shares as a class are expenses under the Fund's 12b-1 Plan and Shareholder Service Plan which relate to the Shares. However, the Board of Trustees reserves the right to allocate certain other expenses to holders of Shares as it deems appropriate ("Class Expenses"). In any case, Class Expenses would be limited to: transfer agent fees as identified by the transfer agent as attributable to holders of Shares; printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses, and proxies to current shareholders; registration fees paid to the Securities and Exchange Commission and registration fees paid to state securities commissions; expenses related to administrative personnel and services as required to support holders of Shares; legal fees relating solely to Shares; and Trustees' fees incurred as a result of issues relating solely to Shares. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of its Shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per Share is determined by adding the interest of the Shares in the value of all securities and other assets of the Fund, subtracting the interest of the Shares in the liabilities of the Fund and those attributable to Shares, and dividing the remainder by the total number of Shares outstanding. The Fund cannot guarantee that its net asset value will always remain at $1.00 per Share. INVESTING IN INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- SHARE PURCHASES Shares are sold on days on which the New York Stock Exchange and the Federal Reserve Wire System are open. Shares may be purchased either by wire or mail. The Fund reserves the right to reject any purchase request. To purchase Shares, open an account by calling Federated Securities Corp. Information needed to establish the account will be taken over the telephone. BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 3:00 P.M. (Eastern time) to place an order. The order is considered received immediately. Payment by federal funds must be received before 3:00 P.M. (Eastern time) that same day. Federal funds should be wired as follows: State Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to: New York Municipal Cash Trust--Institutional Service Shares; Fund Number (this number can be found on the account statement or by contacting the Fund); Group 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 by mail, send a check made payable to New York Municipal Cash Trust--Institutional Service Shares to Federated Services Company c/o State Street Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are considered received after payment by check is converted by State Street Bank into federal funds. This is normally the next business day after State Street Bank receives the check. MINIMUM INVESTMENT REQUIRED The minimum initial investment in Shares is $25,000. However, an account may be opened with a smaller amount as long as the $25,000 minimum is reached within 90 days. An institutional investor's minimum investment will be calculated by combining all accounts it maintains with the Fund. Individual accounts established through a non-affiliated bank or broker may be subject to a different minimum investment requirement. WHAT SHARES COST Shares are sold at their net asset value next determined after an order is received. There is no sales charge imposed by the Fund. The net asset value is determined at 12:00 noon (Eastern time), 3:00 p.m. (Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no Shares are tendered for redemption and no orders to purchase Shares are received; and (iii) the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. SUBACCOUNTING SERVICES Institutions are encouraged to open single master accounts. However, certain institutions may wish to use the transfer agent's subaccounting system to minimize their internal recordkeeping requirements. The transfer agent charges a fee based on the level of subaccounting services rendered. Institutions holding Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services provided which may be related to the ownership of Shares. This prospectus should, therefore, be read together with any agreement between the customer and the institution with regard to the services provided, the fees charged for those services, and any restrictions and limitations imposed. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Monthly confirmations are sent to report transactions, such as purchases and redemptions, as well as dividends paid during the month. DIVIDENDS Dividends are declared daily and paid monthly. Shares purchased by wire before 3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by check begin earning dividends on the day after the check is converted, upon instruction of the transfer agent, into federal funds. Dividends are automatically reinvested on payment dates in additional Shares unless cash payments are requested by contacting the Fund. CAPITAL GAINS Capital gains, if any, could result in an increase in dividends. Capital losses, if any, could result in a decrease in dividends. If for some extraordinary reason the Fund realizes net long-term or short-term capital gains, it will distribute them at least once every 12 months. REDEEMING INSTITUTIONAL SERVICE SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares at their net asset value next determined after the Fund receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests must be received in proper form and can be made by telephone request or by written request. TELEPHONE REDEMPTION Shareholders may redeem their Shares by telephoning the Fund before 12:00 noon (Eastern time). The proceeds will be wired the same day to the shareholder's account at a domestic commercial bank that is a member of the Federal Reserve System. If, at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders would be promptly notified. 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. Redemption requests received before 12:00 noon (Eastern time) will be paid the same day, but will not be entitled to that day's dividend. An authorization form permitting the Fund to accept telephone requests must first be completed. Authorization forms and information on this service are available from Federated Securities Corp. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption, such as "Written Requests," should be considered. 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. 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 firm of the New York, American, Boston, Midwest, or Pacific Stock Exchanges; 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 Seurities 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. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, the Fund may redeem Shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $25,000 due to shareholder redemptions. Before Shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional Shares to meet the minimum requirement. REDEMPTION IN KIND The Trust is obligated to redeem shares solely in cash up to $250,000 or 1% of the respective class' net asset value, whichever is less, for any one shareholder within a 90-day period. To the extent available, such securities will be readily marketable. Any redemption beyond this amount will also be in cash unless the Trustees determine that payments should be in kind. In such a case, the Trust will pay all or a portion of the remainder of the redemption in portfolio instruments, valued in the same way that net asset value is determined. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders receiving their securities and selling them before their maturity could receive less than the redemption value of their securities and could incur certain transaction costs. 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 all portfolios of the Trust have equal voting rights except that, in matters affecting only a particular portfolio or class, only shares of that portfolio 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 the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Trust. To protect shareholders of the Fund, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign on behalf of the Fund. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself 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, equal to up to 28% of alternative minimum taxable income for individuals and 20% for corporations, applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. The Tax Reform Act of 1986 treats interest on certain "private activity" bonds issued after August 7, 1986, as a tax preference item for both individuals and corporations. Unlike traditional governmental purpose municipal bonds, which finance roads, schools, libraries, prisons, and other public facilities, private activity bonds provide benefits to private parties. The Fund may purchase all types of municipal bonds, including private activity bonds. Thus, should it purchase any such bonds, a portion of the Fund's dividends may be treated as a tax preference item. In addition, in the case of a corporate shareholder, dividends of the Fund which represent interest on municipal bonds may be subject to the 20% corporate alternative minimum tax because the dividends are included in a corporation's "adjusted current earnings." The corporate alternative minimum tax treats 75% of the excess of the taxpayer's pre-tax "adjusted current earnings" over the taxpayer's alternative minimum taxable income as a tax preference item. "Adjusted current earnings" is based upon the concept of a corporation's "earnings and profits." Since "earnings and profits" generally includes the full amount of any Fund dividend, and alternative minimum taxable income does not include the portion of the Fund's dividend attributable to municipal bonds which are not private activity bonds, the difference will be included in the calculation of the corporation's alternative minimum tax. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. These tax consequences apply whether dividends are received in cash or as additional Shares. Information on the tax status of dividends and distributions is provided annually. NEW YORK STATE TAX CONSIDERATIONS In the opinion of White & Case, special New York tax counsel to the Fund, income to the Fund that is exempt from New York State personal income tax and personal income taxes imposed by New York municipalities will retain its exempt status when distributed to New York shareholders. Dividends of the Fund are not exempt from the New York taxes payable by corporations. OTHER STATE AND LOCAL TAXES Distributions representing net interest received on tax-exempt municipal securities are not necessarily free from regular state income taxes of any state or local taxing authority. State laws differ on this issue, and shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time the Fund advertises its yield, effective yield, and tax-equivalent yield for Institutional Service Shares. The yield of Institutional Service Shares represents the annualized rate of income earned on an investment in Institutional Service Shares over a seven-day period. It is the annualized dividends earned during the period on the investment, shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but, when annualized, the income earned by an investment in Institutional Service Shares is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The tax-equivalent yield of Institutional Service Shares is calculated similarly to the yield, but is adjusted to reflect the taxable yield that Institutional Service Shares would have had to earn to equal their actual yield, assuming a specific tax rate. Advertisements and other sales literature may also refer to total return. Total return represents the change, over a specified period of time, in the value of an investment in Institutional Service Shares after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. Yield, effective yield, and tax-equivalent yield will be calculated separately for Institutional Service Shares and Cash II Shares. Because Institutional Service Shares and Cash II Shares are likely subject to different shareholder servicing fees, the yield, effective yield, and tax-equivalent yield for each class of shares for the same period will differ. Specifically, because the shareholder servicing fee for Cash II Shares should exceed the shareholder servicing fee for Institutional Service Shares, the yield, effective yield, and tax-equivalent yield for the same period will be lower than that of Institutional Service Shares based upon the difference in the amount of the shareholder servicing fee. From time to time, the Fund may advertise its performance using certain financial publications and/or compare its performance to certain indices. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- Cash II Shares are sold to corporations, municipalities, and individual accounts seeking a high level of cash management services from the participating institutions. Cash II Shares are sold at net asset value, without a sales charge. Investments in Cash II Shares are also subject to a minimum initial investment of $25,000. Like Institutional Service Shares, Cash II Shares are distributed pursuant to a 12b-1 Plan adopted by the Trust. The distributor is paid a fee of up to .25 of 1% of the average daily net assets of the Cash II Shares. In addition, Cash II Shares, like Institutional Service Shares, may be sold pursuant to a Shareholder Services Plan. Financial institutions and brokers providing sales and/or administrative services may receive different compensation depending upon which class of shares of the Fund is sold. The distributor may, in addition to fees paid pursuant to the Rule 12b-1 Plan and the Shareholder Service Plan, pay a fee to a financial institution or broker for administrative services provided to the Institutional Service class. Any fee paid by the distributor for such administrative services will not be an expense of the class but will be reimbursed to the distributor by the investment adviser. The difference between class expenses and distribution expenses borne by shares of each respective class will cause the amount of dividends payable to a particular class of shares to exceed the amount of dividends payable to another class of shares whose distribution expenses are greater. Thus, because Institutional Service Shares are expected to incur a lower shareholder servicing fee than Cash II Shares, the Institutional Service Shares' dividends will exceed the dividends for the Cash II Shares. The stated advisory fee is the same for each class of shares. NEW YORK MUNICIPAL CASH TRUST STATEMENT OF ASSETS AND LIABILITIES (A PORTFOLIO OF FEDERATED MUNICIPAL TRUST) MAY 24, 1994 - -------------------------------------------------------------------------------- ASSETS: - --------------------------------------------------------------------------------------------------------- Investment in Mutual Fund (1) $ 200 - --------------------------------------------------------------------------------------------------------- LIABILITIES: -- - --------------------------------------------------------------------------------------------------------- --------- NET ASSETS for 200 shares of beneficial interest outstanding $ 200 - --------------------------------------------------------------------------------------------------------- --------- NET ASSET VALUE, Offering Price, and Redemption Price Per Share: - --------------------------------------------------------------------------------------------------------- Cash II Shares ($100 / 100 shares of beneficial interest outstanding) $ 1.00 - --------------------------------------------------------------------------------------------------------- --------- Institutional Service Shares ($100 / 100 shares of beneficial interest outstanding) $ 1.00 - --------------------------------------------------------------------------------------------------------- ---------
Notes: (1) Invested exclusively in New York Municipal Cash Trust, 200 shares at $1.00 net asset value. See Note 2. (2) The Fund was established as a portfolio of Federated Municipal Trust ("Trust") by an amendment to the registration statement of the Trust, effective with the Securities and Exchange Commission on May 30, 1994. The Fund has had no operations to date other than those relating to organizational matters, including the issuance on May 24, 1994, of 200 shares at $1.00 per share to Federated Management, the "Adviser" to the Fund. New York Municipal Cash Trust provides two classes of shares ("Institutional Service Shares" and "Cash II Shares"). Each class of shares is sold pursuant to a distribution plan ("Plan") adopted in accordance with Investment Company Act Rule 12b-1 and Shareholder Services Plan. The Fund will not initiate an offering of its shares until the consummation of a proposed reorganization of New York Municipal Cash Trust, a separately registered management investment company, into the Fund. Expenses of organization incurred by the Fund, $34,100, were borne initially by the Adviser. The Fund has agreed to reimburse the Adviser for the organization expenses initially borne by the Adviser during the five-year period following the date the Fund's registration statement first became effective. (3) Reference is made to "Management of the Trust," "Administration of the Fund," "Distribution and Shareholder Services Plans," and "Tax Information" in the Prospectus for a description of the investment advisory fee, administrative and other services and federal tax aspects of the Fund. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of FEDERATED MUNICIPAL TRUST (New York Municipal Cash Trust): We have audited the accompanying statement of assets and liabilities of the New York Municipal Cash Trust (an investment portfolio of Federated Municipal Trust, a Massachusetts business trust), as of May 24, 1994. This financial statement is the responsibility of the Trust's management. Our responsiblity is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by managment, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the aforementioned financial statement presents fairly, in all material respects, the financial position of the New York Municipal Cash Trust (an investment portfolio of Federated Municipal Trust), as of May 24, 1994, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN & CO. Pittsburgh, Pennsylvania May 24, 1994 ADDRESSES - -------------------------------------------------------------------------------- Federated Municipal Trust New York Municipal Cash Trust Federated Investors Tower Institutional Service Shares 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, L.L.P. 2101 L Street, N.W. Washington, D.C. 20037 - --------------------------------------------------------------------------------------------------------------------- Independent Auditor Arthur Andersen & Co. 2100 One PPG Place Pittsburgh, Pennsylvania 15222 - ---------------------------------------------------------------------------------------------------------------------
NEW YORK MUNICIPAL CASH TRUST INSTITUTIONAL SERVICE SHARES PROSPECTUS A Non-Diversified Portfolio of Federated Municipal Trust, an Open-End Management Investment Company June 30, 1994 [LOGO] FEDERATED SECURITIES CORP. -------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-37779 G00319-01-55 (6/94) NEW YORK MUNICIPAL CASH TRUST CASH II SHARES INSTITUTIONAL SERVICE SHARES COMBINED STATEMENT OF ADDITIONAL INFORMATION This Combined Statement of Additional Information should be read with the respective prospectus for Cash II Shares and Institutional Service Shares of New York Municipal Cash Trust (the "Fund") dated June 30, 1994. This Statement is not a prospectus itself. To receive a copy of either prospectus, write or call the Fund. FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 Statement dated June 30, 1994 [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 1 New York Investment Risks 2 Investment Limitations 2 Concentration of Investments 4 TRUST MANAGEMENT 4 - --------------------------------------------------------------- Officers and Trustees 4 The Funds 6 Trust Ownership 7 Trustee Liability 7 INVESTMENT ADVISORY SERVICES 7 - --------------------------------------------------------------- Adviser to the Fund 7 Advisory Fees 7 ADMINISTRATIVE ARRANGEMENTS 8 - --------------------------------------------------------------- ADMINISTRATIVE SERVICES 8 - --------------------------------------------------------------- BROKERAGE TRANSACTIONS 8 - --------------------------------------------------------------- PURCHASING SHARES 9 - --------------------------------------------------------------- Distribution and Shareholder Services Plans 9 Conversion to Federal Funds 9 DETERMINING NET ASSET VALUE 9 - --------------------------------------------------------------- Use of the Amortized Cost Method 9 REDEEMING SHARES 10 - --------------------------------------------------------------- Redemption in Kind 10 TAX STATUS 11 - --------------------------------------------------------------- The Fund's Tax Status 11 YIELD 11 - --------------------------------------------------------------- EFFECTIVE YIELD 11 - --------------------------------------------------------------- TAX-EQUIVALENT YIELD 11 - --------------------------------------------------------------- Tax Equivalency Table 11 PERFORMANCE COMPARISONS 12 - --------------------------------------------------------------- APPENDIX 13 - --------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND - -------------------------------------------------------------------------------- The Fund is a portfolio in Federated Municipal Trust (the "Trust"), which was established as a Massachusetts business trust under a Declaration of Trust dated September 1, 1989. Shares of the Fund are offered in two classes, Cash II Shares and Institutional Service Shares (individually and collectively referred to as "Shares"). This Combined Statement of Additional Information relates to the above-mentioned Shares of the Fund. INVESTMENT OBJECTIVE AND POLICIES - -------------------------------------------------------------------------------- The Fund's investment objective is to provide current income exempt from federal regular income tax and the personal income taxes imposed by New York State and New York municipalities consistent with stability of principal. This investment policy and the objective stated above cannot be changed without approval of shareholders. ACCEPTABLE INVESTMENTS The Fund invests primarily in debt obligations issued by or on behalf of New York and of other states, territories and possessions of the United States, including the District of Columbia, and any political subdivision or financing authority of any of these, the income from which is, in the opinion of qualified legal counsel, exempt from federal regular income tax and New York state income tax imposed upon non-corporate taxpayers ("Municipal Securities"). When determining whether a Municipal Security presents minimal credit risks, the investment adviser considers the creditworthiness of the issuer of a New York Municipal Security, the issuer of a demand feature if the Fund has the unconditional right to demand payment for the Municipal Securities, 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 ("Standard & Poor's") change because of changes in those organizations or in their rating systems, the Fund will try to use comparable ratings or standards in accordance with the investment policies described in the Fund's prospectus. 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 value of its total assets. TEMPORARY INVESTMENTS The Fund may also invest temporarily in high quality investments during times of unusual market conditions for defensive purposes. During the last fiscal year, the Fund did not invest in temporary investments and does not presently intend to do so in the current fiscal year. REPURCHASE AGREEMENTS Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities or other securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price within one year from the date of acquisition. The Fund or its custodian will take possession of the securities subject to repurchase agreements and these securities will be marked to market daily. To the extent that the original seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. In the event that such a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are found by the Fund's investment adviser to be creditworthy pursuant to guidelines established by the Board of Trustees (the "Trustees"). From time to time, such as when suitable New York Municipal Securities are not available, the Fund may invest a portion of its assets in cash. Any portion of the Fund's assets maintained in cash will reduce the amount of assets in New York Municipal Securities and thereby reduce the Fund's yield. NEW YORK INVESTMENT RISKS The Fund invests in obligations of New York issuers which results in the Fund's performance being subject to risks associated with the overall conditions present within New York (the "State"). The following information is a brief summary of the recent prevailing economic conditions and a general summary of the state's financial status. This information is based on official statements relating to securities that have been offered by New York issuers and from other sources believed to be accurate but should not be relied upon as a complete description of all relevant information. The State has achieved fiscal balance for the last few years after large deficits in the middle and late 1980's. Growing social service needs, education and Medicare expenditures have been the areas of largest growth while prudent programs cuts and increases in revenues through service fees has enabled the state's budget to remain within balance for the last few years. While the state still has a large accumulated deficit as a percentage of its overall budget, the fiscal performance in recent years has demonstrated a changed political environment that has resulted in realistic revenue and expenditure projections to achieve financially favorable results. The State also benefits from a high level of per capita income that is well above the national average and from the significant amounts international trade. New York's economy is large and diverse. While several upstate counties benefit from agriculture, manufacturing and high technology industries, New York City nonetheless still dominates the State's economy through its international importance in economic sectors such as advertising, finance, banking, and international trade. The state's economy though is still stagnant after the late 1980's recession that resulted in the loss of over 400,000 jobs in the New York City metropolitan area alone. Any major changes to the financial condition of the City would ultimately have an affect on the State. The overall financial condition of the state can also be illustrated by changes of its debt ratings. During the period in which the state experienced financial difficulties, its general obligation long-term debt ratings as determined by Moody's and S&P decreased from A1 and A, respectively, to A and A-. The Fund's concentration in securities issued by the State and its political subdivisions provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. The ability of the State or its municipalities to meet their obligations will depend on the availability of tax and other revenues; economic, political, and demographic conditions within the State; and the underlying fiscal condition of the State and its municipalities. INVESTMENT LIMITATIONS The Fund will not change any of the investment limitations described below without approval of shareholders. SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as are necessary for the clearance of transactions. BORROWING MONEY The Fund will not borrow money except as a temporary measure for extraordinary or emergency purposes and then only in amounts not in excess of 5% of the value of its total assets or in an amount up to one-third of the value of its total assets, including the amount borrowed, in order to meet redemption requests without immediately selling portfolio instruments. This borrowing provision is not for investment leverage but solely to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio instruments would be inconvenient or disadvantageous. Interest paid on borrowed funds will serve to reduce the Fund's income. The Fund will liquidate any such borrowings as soon as possible and may not purchase any portfolio instruments while any borrowings are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding 10% of the value of total assets at the time of the pledge. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, although it may invest in New York municipal securities secured by real estate or interests in real estate. INVESTING IN COMMODITIES AND MINERALS The Fund will not purchase or sell commodities, commodity contracts, or oil, gas, or other mineral exploration or development programs. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. MAKING LOANS The Fund will not make loans except that it may acquire publicly or nonpublicly issued New York municipal securities, in accordance with its investment objective, policies, and limitations. ACQUIRING SECURITIES The Fund will not acquire the voting securities of any issuer, except as part of a merger, consolidation, reorganization, or acquisition of assets. It will not invest in securities issued by any other investment company or investment trust. INVESTMENTS IN ANY ONE ISSUER With respect to securities comprising 75% of its assets, the Fund will not invest more than 10% of its total assets in the securities of any one issuer. Under this limitation, each governmental subdivision, including states and the District of Columbia, territories, possessions of the United States, or their political subdivisions, agencies, authorities, instrumentalities, or similar entities, will be considered a separate issuer if its assets and revenues are separate from those of the governmental body creating it and the security is backed only by its own assets and revenues. Industrial development bonds backed only by the assets and revenues of a nongovernmental user are considered to be issued solely by that user. If in the case of an industrial development bond or government-issued security, a governmental or other entity guarantees the security, such guarantee would be considered a separate security issued by the guarantor as well as the other issuer, subject to limited exclusions allowed by the Investment Company Act of 1940. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers (or in the alternative, guarantors, where applicable) which have records of less than three years of continuous operations, including the operation of any predecessor. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE TRUST The Fund will not purchase or retain the securities of any issuer if the officers and Trustees 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. DEALING IN PUTS AND CALLS The Fund will not purchase or sell puts, calls, straddles, spreads, or any combination of them, except that the Fund may purchase municipal securities accompanied by agreements of sellers to repurchase them at the Fund's option. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its total assets in illiquid securities, including repurchase agreements maturing in more than seven days. ISSUING SENIOR SECURITIES The Fund will not issue senior securities, except as permitted by the investment objective and policies and investment limitations of the Fund. In order to permit the sale of the Fund's shares in certain states, the Fund may make commitments more restrictive than the investment limitations described above. Accordingly, the Fund has undertaken not to invest in: real estate limited partnerships; and oil, gas, or other mineral leases. Should the Fund determine that any such commitment is no longer in the best interests of the Fund and its shareholders, it will revoke the commitment by terminating sales of its shares in the state involved. Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such restriction. The Fund did not borrow money or pledge securities in excess of 5% of the value of its total assets during the last fiscal year and has no present intent to do so in the coming fiscal year. The Fund does not consider the issuance of separate classes of shares to constitute an issue of 'senior securities' within the meaning of the investment limitations set forth above. For purposes of its policies and limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items". CONCENTRATION OF INVESTMENTS With respect to temporary investments, the Fund will not purchase securities (other than securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities) if, as a result of such purchase, more than 25% of the value of the Fund's total assets would be invested in any one industry. However, the Fund may invest more than 25% of the value of its assets in cash or cash items, securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. 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., and 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, tna 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, 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., Managing General Partner of the Funds; formerly President, Naples Realtors Property Management, Inc. 3255 Tamiami Trail North Naples, FL William J. Copeland Trustee Director and Member of the Executive Committee; Michael Baker Inc.; One PNC Plaza- Director, Trustee, or Managing General Partner of the Funds; formerly 23rd Floor Vice Chairman and Director, PNC Bank, N.A. and PNC Bank Corp. and Pittsburgh, PA Director, Ryan Homes, Inc. James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, 571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Concord, MA Blue Cross of Massachusetts, Inc. Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore 3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds. Pittsburgh, PA Edward L. Flaherty, Jr. Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park 5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly Counsel, Horizon Financial, F.A., Western Region. Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; 225 Franklin Street Director, Trustee or Managing General Partner of the Funds; formerly, Boston, MA President, State Street Bank & Trust Company and State Street Boston Corporation; and Trustee, Lahey Clinic Foundation, Inc. Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.; 5916 Penn Mall Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A. Wesley W. Posvar Trustee Professor Foreign Policy and Management Consultant; Trustee, Carnegie 1202 Cathedral of Endowment for International Peace; RAND Corporation; Online Computer Learning Library Center Inc.; and U.S. Space Foundation; Chairman, Czecho Slovak University of Pittsburgh Management Center; Director, Trustee, or Managing General Partner of the Pittsburgh, PA Funds; President, Emeritus University of Pittsburgh; formerly, Chairman, National Advisory Council for Enironmental 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 John A. Staley, IV* Vice President Vice President and Trustee, Federated Investors; Executive Vice Federated Investors and Trustee President, Federated Securities Corp.; President and Trustee, Federated Tower Advisers, Federated Management, and Federated Research; Vice President Pittsburgh, PA of the Funds; Director, Trustee, or Managing General Partner of some of the Funds; formerly, Vice President, The Standard Fire Insurance Com- pany and President of its Federated Research Division. 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.; 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 and Treasurer President and Treasurer, Federated Advisers, Federated Management, and Tower Federated Research; Executive Vice President, Treasurer, and Director, Pittsburgh, PA 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. Glen R. Johnson President Trustee, Federated Investors; President and/or Trustee of some of the Federated Investors Tower Funds; staff member, Federated Securities Corp. and Federated Pittsburgh, PA Administrative Services, Inc. John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated Federated Investors and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers, Tower Federated Management, and Federated Research; Executive Vice President, Pittsburgh, PA Secretary, and Director, Federated Administrative Services, Inc.; Director and Executive Vice President, Federated Securities Corp.; Vice President and Secretary of the Funds.
* This Trustee is deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940. \ Members of the Trust's Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. THE FUNDS "The Funds," and "Funds" mean the following investment companies: 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; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated Income Trust; Federated Income Securities Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.; Insurance Management Series; Intermediate Municipal Trust; International Series, Inc.; 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; Managed Series 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; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. TRUST OWNERSHIP Officers and Trustees own less than 1% of the Trust's outstanding shares. TRUSTEE LIABILITY The Trust's Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES - -------------------------------------------------------------------------------- ADVISER TO THE FUND The Fund's investment adviser is Federated Management. It is a subsidiary of Federated Investors. All of the voting securities of Federated Investors are owned by a trust, the Trustees of which are John F. Donahue, his wife, and his son J. Christopher Donahue. John F. Donahue, Chairman and Trustee of Federated Management; Chairman and Trustee of Federated Investors; and Chairman and Trustee of the Trust. John A. Staley, IV, President and Trustee of Federated Management; Vice President and Trustee of Federated Investors; Executive Vice President of Federated Securities Corp.; and Trustee and Vice President of the Trust. J. Christopher Donahue is Trustee, Federated Management; President and Trustee of Federated Investors; President and Director of Federated Administrative Services, Inc.; and Vice President of the Trust. John W. McGonigle is Vice President, Secretary and Trustee, Federated Management; Trustee, Vice President, Secretary, and General Counsel, Federated Investors; Director, Executive Vice President, and Secretary; Federated Administrative Services, Inc.; Director and Executive Vice President; Federated Securities Corp.; and Vice President and Secretary of the Trust. The adviser shall not be liable to the Trust, the Fund or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security, or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. ADVISORY FEES For its advisory services, Federated Management receives an annual investment advisory fee as described in the prospectus. During the fiscal years ended October 31, 1993, 1992, and 1991, and prior to the reorganization of the Fund into the Trust, the Fund's adviser earned $1,065,970, $839,082, and $889,667, which was reduced by $460,455, $413,760, and $287,685, respectively, because of undertakings to limit the Fund's expenses. STATE EXPENSE LIMITATIONS The adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1-1/2% per year of the remaining average net assets, the adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this expense limitation, the investment advisory fee paid will be reduced by the amount of the excess, subject to an annual adjustment. If the expense limitation is exceeded, the amount to be reimbursed by the adviser will be limited, in any single fiscal year, by the amount of the investment advisory fee. These arrangements are not part of the advisory contract and have been established only to comply with applicable state authorities. They may be amended or rescinded in the future. ADMINISTRATIVE ARRANGEMENTS - -------------------------------------------------------------------------------- For the fiscal years ended October 31, 1993 and 1992, the distributor paid $286,080 and $254,888 to financial institutions for distribution and administrative services. The administrative services include, but are not limited to, providing office space, equipment, telephone facilities, and various personnel, including clerical, supervisory, and computer, as is necessary or beneficial to establish and maintain shareholders' accounts and records, process purchase and redemption transactions, process automatic investments of client account cash balances, answer routine client inquiries regarding the Fund, assist clients in changing dividend options, account designations, and addresses, and providing such other services as the Fund may reasonably request. ADMINISTRATIVE SERVICES - -------------------------------------------------------------------------------- Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund at approximate cost. For the fiscal years ended October 31, 1993, 1992, and 1991, and prior to the reorganization of the Fund into the Trust, the Fund incurred costs for administrative services of $329,428, $280,632, and $228,824, respectively. John A. Staley, IV, an officer of the Fund, 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. For the fiscal years ended October 31, 1993, 1992, and 1991, and prior to the reorganization of the Fund into the Trust, Federated Administrative Services, paid approximately $165,431, $189,741, and $187,677, respectively, for services provided by Commercial Data Services, Inc. BROKERAGE TRANSACTIONS - -------------------------------------------------------------------------------- When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the adviser looks for prompt execution of the order at a favorable price. In working with dealers, the investment adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Board of Trustees. The adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the adviser and may include: advice as to the advisability of investing in securities; security analysis and reports; economic studies; industry studies; receipt of quotations for portfolio evaluations; and similar services. The adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. Research services provided by brokers may be used by the adviser or by affiliates of Federated Investors in advising Federated Funds and other accounts. To the extent that receipt of these services may supplant services for which the adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. PURCHASING SHARES - -------------------------------------------------------------------------------- Shares are sold at their net asset value without a sales charge on days the New York Stock Exchange and the Federal Reserve Wire System are open for business. The procedure for purchasing Shares is explained in the respective prospectus under "Investing in Cash II Shares" and "Investing in Institutional Service Shares." DISTRIBUTION AND SHAREHOLDER SERVICES PLANS These arrangements permit the payment of fees to Financial Institutions, the distributor, and Federated Shareholder Services, to stimulate distribution activities and to cause services to be provided to shareholders by a representative who has knowledge of the shareholder's particular circumstances and goals. These activities and services may include, but are not limited to, marketing efforts; providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; and assisting clients in changing dividend options, account designations, and addresses. By adopting the Distribution Plan, the Board of Trustees expects that the Fund will be able to achieve a more predictable flow of cash for investment purposes and to meet redemptions. This will facilitate more efficient portfolio management and assist the Fund in pursuing its investment objectives. By identifying potential investors whose needs are served by the Fund's objectives, and properly servicing these accounts, it may be possible to curb sharp fluctuations in rates of redemptions and sales. Other benefits, which may be realized under either arrangement, may include: (1) providing personal services to shareholders; (2) investing shareholder assets with a minimum of delay and administrative detail; and (3) enhancing shareholder recordkeeping systems; and (4) responding promptly to shareholders' requests and inquiries concerning their accounts. For the fiscal period ending October 31, 1993, prior to the reorganization of the Fund into the Trust, payments in the amount of $176,146 and $87,295 were made pursuant to the Distribution Plan on behalf of, Institutional Service Shares and Cash II Shares, respectively. 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. USE OF THE AMORTIZED COST METHOD The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions in Rule 2a-7, as amended (the "Rule"), under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. Under the Rule, the Fund is permitted to purchase instruments which are subject to demand features or standby commitments. As defined by the Rule as amended, 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. The Fund acquires instruments subject to demand features and standby commitments to enhance the instruments' liquidity. The Fund treats demand features and standby commitments as part of the underlying instruments, because the Fund does not acquire them for speculative purposes and cannot transfer them separately from the underlying instruments. Therefore, although the Rule defines demand features and standby commitments as "puts", the Fund does not consider them to be separate investments for purposes of its investment policies. MONITORING PROCEDURES The Trustees' procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than .5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. 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 one year can be purchased by the Fund. For the treatment of variable rate municipal securities with demand payment features, refer to "Variable Rate Demand Notes" in the prospectus. Should the disposition of a portfolio security result in a dollar weighted average portfolio maturity of more than 90 days, the Fund will invest its available cash to reduce the average maturity to 90 days or less as soon as possible. The Fund may attempt to increase yield by trading portfolio securities to take advantage of short-term market variations. This policy may, from time to time, result in high portfolio turnover. Under the amortized cost method of valuation, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the indicated daily yield on shares of the Fund computed the same way may tend to be lower than a similar computation made by using a method of calculation based upon market prices and estimates. REDEEMING SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares at the next computed net asset value after the Fund receives the redemption request. Redemption procedures are explained in the respective prospectus under "Redeeming Cash II Shares" and "Redeeming Institutional Service Shares." Although the transfer agent does not charge for telephone redemptions, it reserves the right to charge a fee for the cost of wire-transferred redemptions of less than $5,000. REDEMPTION IN KIND Although the Trust intends to redeem Shares in cash, it reserves the right under certain circumstances to pay the redemption price in whole or in part by a distribution of securities from the respective Fund's portfolio. 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 respective class'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 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 daily for all classes of shares, based upon the seven days ending on the day of calculation, called the "base period." This yield is computed by: determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and multiplying the base period return by (365/7). To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in either class of shares, the performance will be reduced for those shareholders paying those fees. The Fund's yield for the Cash II Shares seven-day period ended October 31, 1993, which was prior to the reorganization of the Fund into the Trust, was 1.89%. The yield for the Institutional Service Shares was 2.06% for the same period. EFFECTIVE YIELD - -------------------------------------------------------------------------------- The Fund's effective yield for all classes of shares is computed by compounding the unannualized base period return by: adding 1 to the base period return; raising the sum to the 365/7th power; and subtracting 1 from the result. The Fund's effective yield for Cash II Shares the seven-day period ended October 31, 1993, which was prior to the reorganization of the Fund into the Trust, was 1.91%. The effective yield for the Institutional Service Shares was 2.08% for the same period. TAX-EQUIVALENT YIELD - -------------------------------------------------------------------------------- The tax-equivalent yield for all classes of shares of the Fund is calculated similarly to the yield, but is adjusted to reflect the taxable yield that either class of shares would have had to earn to equal its actual yield, assuming a 28% or 31% federal tax rate and the regular personal income tax rate imposed by New York, and assuming that income earned by the Fund is 100% tax-exempt on a regular federal, state, and local basis. The Fund's tax-equivalent yield for the Cash II Shares for the seven-day period ended October 31, 1993, which was prior to the reorganization of the Fund into the Trust, was 3.09%. The tax-equivalent yield for the Institutional Service Shares was 3.37% for the same period. In each case, a combined federal and state marginal tax rate of 38.9% was assumed. TAX EQUIVALENCY TABLE Each class of shares may also use a tax equivalency table in advertising and sales literature for all classes of shares. The interest earned by the municipal bonds in the Fund's portfolio generally remains free from federal regular income tax, and from the regular personal income tax imposed by New York.* As the table below indicates, a "tax-free" investment is an attractive choice for investors, particularly in times of narrow spreads betwen "tax-free" and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1994 STATE OF NEW YORK - ------------------------------------------------------------------------------- COMBINED FEDERAL AND STATE 22.594% 35.594% 38.594% 43.594% 47.194% - ------------------------------------------------------------------------------- JOINT RETURN: $1- $38,001- $91,851- $140,001- OVER 38,800 91,850 140,000 250,000 $ 250,000 SINGLE RETURN: $1- $22,751- $55,101- $115,001- OVER 22,750 55,100 115,000 250,000 $ 250,000 - ------------------------------------------------------------------------------- TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT - ------------------------------------------------------------------------------- 1.50% 1.94% 2.33% 2.44% 2.66% 2.84% 2.00 2.58 3.11 3.26 3.55 3.79 2.50 3.23 3.88 4.07 4.43 4.73 3.00 3.88 4.66 4.89 5.32 5.68 3.50 4.52 5.43 5.70 6.20 6.63 4.00 5.17 6.21 6.51 7.09 7.57 4.50 5.81 6.99 7.33 7.98 8.52 5.00 6.46 7.76 8.14 8.86 9.47 5.50 7.11 8.54 8.96 9.75 10.42 6.00 7.75 9.32 9.77 10.64 11.36
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 and only uses tax brackets that went into effect beginning January 1, 1993. It is not an indicator of past or future performance of either class of shares. *Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. PERFORMANCE COMPARISONS - -------------------------------------------------------------------------------- The performance of all classes of shares depends upon such variables as: portfolio quality; average portfolio maturity; type of instruments in which the portfolio is invested; changes in interest rates on money market instruments; changes in Fund expenses or either class of share's expenses; and the relative amount of Fund cash flow. From time to time the Fund may advertise its performance using certain financial publications and/or compare its performance to certain indices. These may include the following: LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by making comparative calculations using total return. Total return assumes the reinvestment of all income dividends and capital gains distributions, if any. From time to time, the Fund will quote its Lipper ranking in the "money market instruments fund" category in advertising and sales literature. Advertisements and other sales literature for all classes of shares may refer to total return. Total return is the historic change in the value of an investment in any of the classes based on the monthly reinvestment of dividends over a specified period of time. APPENDIX - -------------------------------------------------------------------------------- STANDARD AND POOR'S CORPORATION SHORT-TERM MUNICIPAL OBLIGATION RATING DEFINITIONS 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. SHORT-TERM MUNICIPAL OBLIGATION RATING DEFINITIONS MIG1/VMIG1--Notes which are rated MIG1/VMIG are of the 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/VMIG2--Notes which are rated MIG2/VMIG2 are of high quality. Margins of protection are ample although not so large as in MIG1/VMIG1 ratings. FITCH INVESTORS SERVICE, INC. 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. STANDARD & POOR'S CORPORATION COMMERCIAL PAPER RATING DEFINITIONS 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. COMMERCIAL PAPER RATING DEFINITIONS P-1--Issuers (or supporting institutions) rated Prime-1 (P-1) have a superior ability for repayment of senior short-term debt obligations. P-1 repayment ability will often be evidenced by many of the following characteristics: Leading market positions in well-established industries. High rates of return on funds employed. Conservative capitalization structure with moderate reliance on debt and ample asset protection. Broad margins in earnings coverage of fixed financial charges and high internal cash generation. Well-established access to a range of financial markets and assured sources of alternate liquidity. P-2--Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong ability for repayment of senior short-term obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. FITCH INVESTORS SERVICE, INC. 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. G00319-03-B (6/94) -----END PRIVACY-ENHANCED MESSAGE-----